CHAPTER-1

1.1 INTRODUCTION

Mutual fund is an investment company that pools money from investors and invest in a
variety of securities, such as stocks, bonds, and money market instruments. Most open-end mutual
funds stand ready to buy back (redeem) its units at their current net asset value, which depends on
the total market value of the fund’s investment portfolio at the time of redemption. Mutual funds
invest pooled cash of many investors to meet the fund’s stated investment objective

In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing units 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 investments. The
mutual funds normally come out with a number of schemes with different investment objectives
which are launched from time to time. In India, 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.

In Short, a mutual fund is a common pool of money in to which investors with common
investment objective place their contributions that are to be invested in accordance with the stated
investment objective of the scheme. The investment manager would invest the money collected
from the investor in to assets that are defined permitted by the stated objective of the scheme. For
example, an equity fund would invest equity and equity related instruments and a debt fund would
invest in bonds, debentures, gilts etc. Mutual Fund is a suitable investment for the common man as
it offers an opportunity to invest.

1.2 INDUSTRY PROFILE

 India's financial services sector will enjoy generally strong growth during coming years,
driven by rising personal incomes, corporate restructuring, financial sector liberalization and the
growth of a more consumer-orient.

Beginning in the 1970s, the profitability of banks declined due in large part to federal
regulations that restricted banks from offering the variety of products, such as insurance, mutual
funds, and stocks, that their less strictly controlled competitors offered. The gradual shift away
from banks as the center of the American financial services industry occurred between 1973 and
1979, when the Organization of the Petroleum Exporting Countries (OPEC) dramatically
increased oil prices, leading to double-digit inflation by the end of the decade. As a result, investors
with savings accounts receiving the federally imposed 5.25 percent interest rate were losing
money. Coupled with inflation was the emergence of investment companies offering consumers
money market mutual funds, which enabled the average investor to earn market-rate interest.
Mutual funds were also a safe instrument, as they were invested primarily in high-interest federal
securities and certificates of deposit (CDs). Mutual funds grew as small investors, lured by huge
gains in the stock market during the 1980s, sought ways to earn returns greater than the rate of
inflation. The shift to mutual funds hit American banks hard. In the years between 1977 and 1981,
consumers went from investing $3.9 billion to investing $181.9 billion in mutual funds rather than
putting their money in the bank.

Still, many Americans used their local banks for routine checking and savings. But bank assets
continued to decline; in 1960 banks held 34 percent of the total assets of Americans. By 1989 that
figure had declined to 26 percent. In the meantime, consumers had a number of alternatives to
conventional savings accounts, including CDs and money market funds, both of which yielded
higher interest than standard savings accounts.

Despite the approximately 1,295 bank failures between 1985 and 1992, banking
advocates stated that the industry was competing effectively in the newly competitive financial
services market. Although the traditional business of banks, taking deposits and making loans, had
declined, other services more than made up for the loss, resulting in record profits in 1992 and
1993. To remain competitive, banks exploited loopholes in the Glass-Steagall Banking Act of
1933, which sharply restricted their activities. During the 1980s and 1990s, banks responded to
competition by selling money market and mutual funds, creating mortgage and financing
subsidiaries, and fashioning a huge network of automatic teller machines (ATMs).

The diversification of the financial services industry

 By the mid-1990s, many observers believed that the banking industry and other
companies offering financial services were no longer clearly defined, separate entities. Now
banks, insurance companies, and brokerage houses converged. Insurance giant Prudential
acquired brokerage houses to form Prudential-Bache, and such traditional Wall Street players as
Merrill Lynch began to offer accounts that allowed customers to do their banking.

Analysts disagree about the effects these changes have had on the American finance scene. By the
early 1990s, some believed that the United States was becoming a bank less society, with such
corporations as the Ford Motor Company, General Electric, and General

Financial industry: major players

Motors able to offer loans to businesses and credit to consumers, all financial services
previously reserved for banks and savings and loans.

According to the Global 2000 (annual report by Forbes), seven of the world’s top 10
companies belonged to the financial industry. These included Citigroup, Bank of America, HSBC
Holdings and Sporran Chase. Their combined revenues in 2007 were worth $645 billion, down
from the 2006 high of $785 billion.

According to the Fortune 500 rankings, in 2006 financial services generated $257 billion
in profits, a third of total Fortune 500 profits. In 2008, however, they lost a staggering $213 billion,
a total swing of $470 billion. Big players on the list, such as Citigroup and Bank of America, may
only be alive today thanks to government money.

The finance industry is an industry in itself as well as an ancillary that supports other
industries. Trade and commerce across the world would come to a standstill if there was no means
to fund, pay and protect the transactions, hence the need for governments to support the financial

services industry when companies that are ‘too big to fail’ are close to collapse.

STOCK BROKING

Until 1988, stock exchanges were more or less self -regulatory organizations supervised
by the Ministry of Finance under the Securities Contracts Regulation Act (SCRA). However, the
stock exchanges were discharging their self-regulatory role well as a result of which malpractices
crept into trading, adversely affecting investors’ interests. Several committees examined and
made recommendations to reform the organization of the stock exchange.

SEBI has been setup to ensure that the stock exchanges discharge their self-regulatory role
properly. Ever since SEBI begun to monitor brokers, stock broking is emerging as a professional
advisory service, in tune with the requirements of a mature, sophisticated, screen-based, ring less,
automated stock exchanges in the countries in sharp contrast to the traditional, closed character as
inherited family business. The present framework of stock broking is outlined in this chapter.
Section1-4 relate to stock brokers, sub brokers, trading and clearing members, and foreign
brokers. That framework of cash trading and derivative trading is illustrated with reference to the
National Stock Exchange Ltd. (NSE) in section 5-6.

STOCK -BROKERS

A stock broker is a member of a recognized stock exchange who buys sells or deals in
securities. A certificate of registration from SEBI is mandatory to act as broker. SEBI is
empowered to impose commission while granting the certificates. As a member of a stock
exchange he will had to abide by its rules, regulations and by-law, pay the described fee and take
adequate steps for redressed of investors grievances within one month of the receipt of the
complaint and keep SEBI informed about the member, nature and other particulars of such
complaints.

DUTY TO INVESTORS

The duties of a broker to the investors are:

 In his dealing with his clients another general investing public, he should faithfully execute
the orders for buy and selling of securities at the best available market price and not refuse
to deal with a small investors merely on the grounds of the volume of business involved. He
should promptly inform his client about the execution or non-execution of an order, make
prompt pay in respect of securities sold and arrange for prompt delivery of securities
purchased by clients.
 He should issue his clients or client of the broker, without delay a contract note for all
transactions in the form specified by the stock exchange.
 To avoid breach of trust, he should not disclose or discuss with any other persons or make
improper use of the details of personal investments and other information of a confidential
nature regarding his clients, which he comes to know in the course of his business.
  Merely for generating business with the sole objective of earning commission and
brokerage, he should not encourage sales or purchase of securities and/or furnish falls or
misleading quotations or give any other falls or misleading advice or information to the
clients.
 He should avoid dealing or transacting the business knowingly, directly or indirectly with
a client who has failed to carry out his commitment in relation to securities with another
stock brokers.
 When dealing with a client he is required to disclose whether he is acting as a principal or as
an agent and should ensure, at the same time, which no conflict of interest arises between
him and client. In the event of such a conflict, he must inform that client accordingly and
not seek to gain a direct or indirect personal advantage from the situation and not consider
the claims interest inferior to his own.
 He should not give investment advice to any client who might be expected to rely thereon to
acquire, dispose of, retain any securities unless he has reasonable grounds for believing
that the recommendation is suitable for such client upon the basis of the fact, disclose by
such a client as to his own securities holdings, financial situation of such a investment.
 A stock should have adequately trained staff arrangements to render fair, prompt and
competent services to his client.

THE EVOLUTION

The formation of Unit Trust of India marked the evolution of the Indian mutual fund
industry in the year 1963. The primary objective at that time was to attract the small investors and it
was made possible through the collective efforts of the Government of India and the Reserve Bank
of India. The history of mutual fund industry in India can be better understood divided into
following phases:
Phase 1. Establishment and growth of unit trust of india-1964-87

Unit Trust of India enjoyed complete monopoly when it was established in the year 1963
by an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate
under the regulatory control of the RBI, correct in 1978 and the entire control was transferred in the
hands of Industrial Development Bank of India (IDBI). UTI launched its first scheme in 1964,
named as Unit Scheme 1964 (US-64), which attracted the largest number of investors in any single
investment scheme over the years.

UTI launched more innovative schemes in 1970s and 80s to suit the needs of different
investors. It launched six more schemes in between 1981-84, Children's Gift Growth Fund and
India Fund (India's first offshore fund) in 1986, Master share (India’s first equity diversified
scheme) in 1987 and Monthly Income Schemes (offering assured returns) during 1990s. By the
end of 1987, UTI's assets under management grew ten times to Rs 6700 crores.

Phase II. Entry of public sector funds-1987-1993

The Indian mutual fund industry witnessed a number of public sector players entering the
market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India became
the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by LIC Mutual Fund,
Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund.
By 1993, the assets under management of the industry increased However, UTI remained to be the
leader with about 80% market share.

Phase III. Emergence of private sector funds-1993-96

The permission given to private sector funds including foreign fund management
companies (most of them entering through joint ventures with Indian promoters) to enter the
mutual fund industry in 1993, provided a wide range of choice to investors and more competition
in the industry. Private funds introduced innovative products, investment techniques and investor-
servicing technology. By 1994-95, about 11 private sector funds had launched their schemes.
Phase IV. Growth and SEBI regulation-1996-2004

The mutual fund industry witnessed robust growth and stricter regulation from the SEBI
after the year 1996. The mobilization of funds and the number of players operating in the industry
reached new heights as investors started showing more interest in mutual funds. Inventors'
interests were safeguarded by SEBI and the Government offered tax benefits to the investors in
order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set
uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend
incomes in the hands of investors from income tax. Various Investor Awareness Programmers
were launched during this phase, both by SEBI and AMFI, with an objective to educate investors
and make them informed about the mutual fund industry.

In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal
status as a trust formed by an Act of Parliament. The primary objective behind this was to bring all
mutual fund players on the same level. UTI was re-organized into two parts: 1. The Specified
Undertaking, 2. The UTI Mutual Fund Presently Unit Trust of India operates under the name of
UTI Mutual Fund and its past schemes (like US-64, Assured Return Schemes) are being gradually
wound up. However, UTI Mutual Fund is still the largest player in the industry.

Phase V. Growth and consolidation - 2004 onwards

The industry has also witnessed several mergers and acquisitions recently,
examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun
F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more
international mutual fund players have entered India like Fidelity, Franklin Templeton Mutual
Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of
the industry through consolidation and entry of new international and private sector players
GROWTH IN ASSETS UNDER MANAGEMENT

1.3 COMPANY PROFILE

THE INDIA INFOLINE LIMITED

Origin:

India Info line was founded in 1995 by a group of professional with impeccable
educational qualifications and professional credentials. Its institutional investors include Intel
Capital (world's) leading technology company, CDC (promoted by UK government), ICICI, TDA
and Reeshanar.

India Info line group offers the entire gamut of investment products including stock
broking, Commodities broking, Mutual Funds, Fixed Deposits, GOI Relief bonds, Post office
savings and life Insurance. India Info line is the leading corporate agent of ICICI Prudential Life
Insurance Company, which is India' No. Private sector life insurance Company.

www.indiainfoline.com has been the only India Website to have been listed by none other
than Forbes in its 'Best of the Web' survey of global website, not just once but three times in a row
and counting... a must read for investors in south Asia is how they choose to describe India Info
line. It has been rated as No.l the category of Business News in Asia by Alexia rating.

Stock and Commodities broking is offered under the trade name 5paisa. India Info line
Commodities Pvt Ltd., a wholly owned subsidiary of India Info line Ltd., holds membership of
MCX and NCDEX

Main objects of the company

Main objects as contained in its Memorandum or Association are:

1. To engage or undertake software and internet based services, data processing IT enabled
services, software development services, selling advertisement space on the site, web
consulting and related services including web designing and web maintenance, software
product development and marketing, software supply services, computer consultancy
services, E-Commerce of all types including electronic financial intermediation business
and E-broking, market research, business and management consultancy.

2. To undertake, conduct, study, carry on, help, promote any kind of research, probe,
investigation, survey, developmental work on economy, industries, corporate’s business
houses, agricultural and mineral, financial institutions, foreign financial institutions,
capital market on matters related to investment decisions primary equity market,
secondary equity market, debentures, bond, ventures, capital funding proposals,
competitive analysis, preparations of corporate / industry profile etc. and trade / invest in
researched securities.
A. E-broking.

B. Distribution
 C. Insurance

A. E-Broking:

It refers to Electronic Broking of Equities, Derivatives and Commodities under the brand
name of 5paisa

1. Equities
2. Derivatives
3. Commodities
B. Distribution:

1. Mutual funds

2. Govt. of India bonds.

3. Fixed deposit

C. Insurance:

1. Life insurance policies

2. Corporate sector of ICICI

3. Prudential life insurance.

THE CORPORATE STRUCTURE

The India Info line group comprises the holding company, India Info line Ltd, which has 5
wholly-owned subsidiaries, engaged in engaged in distinct yet complementary businesses which
together offer a whole bouquet of products and services to make your money grow.

The corporate structure has evolved to comply with oddities of the regulatory framework
but still beautifully help attain synergy and allow flexibility to adapt to dynamics of different
businesses.
 The parent company, India Info line Ltd owns and manages the web properties
www.indiainfoline.com and www.5paisa.com.It also undertakes research. Customised and off-
the-self.

Indian Info line Securities Pvt. Ltd. is a member of BSE, NSE and DP with NSDL. Its
business encompasses securities broking Portfolio Management services.

India Infoline.com Distribution Co. Ltd. Mobilizes Mutual Funds and other personal
investment products such as bonds, fixed deposits, etc.

India Info line Insurance Services Ltd. Is the corporate agent of ICICI Prudential Life
Insurance, engaged in selling Life Insurance products.

India Info line Commodities Pvt. Ltd. is a registered commodities broker MCX and offers
futures trading in commodities.

India Info line Ltd.

Research and Online Media Property

India Info line Securities Pvt. Ltd.

Secondary market securities trading and

Portfolio Management Services

India Infoline.com Distribution Co. Ltd.

Mobilization of Mutual Funds and other

Personal investment Products

India Info line Insurance Services Ltd.

Corporate agent for ICICI Prudential Life Insurance Company

India info line Commodities Pvt. Ltd.

Commodities trading

India Info line Investment Services Pvt. Ltd

Margin Funding
IN CAPABLE HANDS

India Info line is a professionally managed Company. The promoters who run the
company/s day-to-day affairs as executive directors have impeccable academic professional track
records.

Nirmal Jain, chairman and Managing/ director, is a Chartered SAILountant, (All India
Rank 2); Cost SAILountant, (All India Rank l) and has a post-graduate management degree from
IIM Ahmadabad. He had a successful career with Hindustan Lever, where he inter alia handled
Commodities trading and export business. Later he was CEO of an equity research organization.

R. Venkataraman, Director, is armed with a post- graduate management degree from IIM
Bangalore, and an Electronics Engineering degree from IIT, Kanpur. He spent eight fruitful years
in equity research sales and private equity with the cream of financial houses such as ICICI group,
Barclays de Zoette and G.E. Capital

The non-executive directors on the board bring a wealth of experience and expertise.

Satpal chatter -Reeshanar investments, Singapore. The key management team comprises
seasoned and qualified professionals.

Mukesh Sing- Director, India Info line Securities Pvt Ltd.

Seshadri Bharathan- Director, India Info line. Com Distribution Co Ltd

S Sriram- Vice President, Technology

Sandeepa Vig Arora- Vice President, Portfolio Management Services

Dharmesh Pandya- Vice President, Alternate Channel

Toral Munshi- Vice President, Research

Anil Mascarenhas- Chief Editor

Pinkesh Soni Financial controller

Harshad Apte Chief Marketing Officer

VISION:

To be the most respected financial services company in india.

Not necessarily the largest or most profitable.

MISSION 2020:

From an entrepreneurial start up in 1995, we have steadily grown to emerge as one of india’s leading financial
services group. Ever since our inception , our strategy has to be align our capabilities and market insights to the
country’s rapidly changing business environment . Our growth trajectory has only served to reinforce our
focus on our domain of financial services.

IIFCL Provides various services to customers:

 Demat Account

 Home Loan

 Gold Loan

 Personal Loam

 Mutual Funds

 Investment Banking

 Loan against property

 NRI Services

 Commercial Vehicle Loan

 Wealth Management

 Asset Management
 These are the services are providing to customers by IIFCL ( India Info line )

CORPORATE INFRASCTRUCTURE:

IIFCL
HOLDINGS Ltd

IIFL Wealth
India
IndiaInfoline
Infoline Management Ltd IIFL Securities Ltd
Finance
FinanceLtd
Ltd

IIFL IIFL Asset

IIFLHome
HomeFinance
FinanceLtd
ltd
Management Ltd

Samasta Microfinance
International
Ltd
Subsidaries

Competitors:
HDFC Mutual Funds

SBI Mutual Funds

UTI Mutual Funds

Reliance Mutual Funds

 CHAPTER-2

CONCEPTUAL BACKGROUND & LITERATURE REVIEW

Personal financial discipline demands every individual to plan for expenditure and saving
against current income. While moving up the hierarchy of needs, one must simultaneously save
money for future. As one goes on in life, the standard of living raises, needs increases and the
expenditure to meet those needs also increases. Without proper financial planning, the future can
be a miserable struggle to meet these demands.

“You don’t want to see yourself in a position where you won’t be able to buy your dream
house, can’t go on that cruise or can’t pay your children’s’ education fees”. This sums up an
individual’s investment needs. Investment is the best option to meet the need and value for money
in the future because it uses money saved today to earn for tomorrow.

Several investment options are available today – bank deposits, corporate bonds, gold, real
estate, stocks etc. Mutual Fund is an investment option that has become very attractive for
investors who are interested in the financial markets but do not have the time, expertise and
experience in good stock picking. Problems faced by small investors in the share market have been
offset by the emergence of mutual funds.

Essentially, a mutual fund is an investment company that pools funds from numerous
investors and uses this corpus of funds for investment in diversified securities of other companies.
It continually offers new units and buys them back at the request of unit holders. The following
chart describes the working of a mutual fund:

Meaning of Mutual Funds

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market instruments
such as shares, debentures and other securities. The income earned through these investments and
the capital appreciation realized is shared by its unit holders in proportion to the number of units
owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managed basket of securities at a
relatively low cost. The flow chart below describes broadly the working of a mutual fund.
 In Short, a mutual fund is a common pool of money in to which investors with common
investment objective place their contributions that are to be invested in accordance with the stated
investment objective of the scheme. The investment manager would invest the money collected
from the investor in to assets that are defined permitted by the stated objective of the scheme. For
example, an equity fund would invest equity and equity related instruments and a debt fund would
invest in bonds, debentures, gilts etc. Mutual Fund is a 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.

NEED AND IMPORTANCE OF MUTUAL FUNDS

Mutual funds pool money from individuals and organizations to invest in stocks, bonds, and other
assets in different industry sectors and regions of the world. You can buy whole or fractional fund
units directly from fund companies or through your broker. The price of each mutual fund unit
reflects the market prices of the fund holdings, adjusted for management fees and expenses.

Long Term Value Fund

A truly diversified equity fund for those who value 'Value Investing'

Selection

You can choose from hundreds of mutual funds offered by dozens of mutual fund companies. This
wide selection gives you the flexibility to pick mutual funds that suit your financial objectives and
risk tolerance. For example, equity and growth funds are suitable for aggressive investors who can
tolerate periods of extreme market volatility. Balanced funds could be suitable for a more
moderate investor looking for both capital gains and income, while bond funds would suit
conservative investors who want preservation of capital and regular income.

Diversification

Mutual funds are a cost-effective way to diversify your portfolio across different asset categories
and industry sectors. Instead of buying and monitoring potentially dozens of stocks, you could buy
a few mutual funds to achieve broad diversification at a fraction of the cost. For example, equity
funds offer an indirect way to invest in dozens of companies in different industry sectors, while
balanced funds offer exposure to both stocks and bonds. Further diversification is possible within
each asset category. For example, you could buy mutual funds that specialize in certain industries
within equities, such as technology and energy. Similarly, international funds and emerging
market funds are convenient ways to diversify geographically.

Expertise

Professional money management expertise at a reasonable cost is another important attribute of

mutual funds. Fund managers typically have postgraduate finance degrees, and several years of
stock analysis and investment management experience. Mutual fund companies use a
combination of in-house research staff and the services of external research firms to determine the
composition of fund portfolios. Fund managers may use information technology and
sophisticated trading strategies to rebalance portfolios and hedge against market volatility.

OTHERS

ADVANTAGES OF MUTUAL FUNDS

I) Professional investment management

Mutual fund companies hire full-time, high-level investment professionals. Funds can
afford to do so as they manage large amount of money. The managers have real-time access to
crucial market information and are able to execute trades on the largest and most cost-effective
scale.
ii) Diversification

Mutual funds invest in a broad range of securities. This limits investment risk by reducing
the effect of a possible decline in the value of any one security. Mutual fund unit-holders can
benefit from diversification techniques usually available only to investors wealthy enough to buy
significant positions in a wide variety of securities.

iii) Low Cost

A mutual fund let's you participate in a diversified portfolio for as little as Rs.5,000/-, and
sometimes less. And with a no-load fund, you pay little or no sales charges to own them.

iv) Convenience and Flexibility

You own just one unit rather than many, yet enjoy the benefits of a diversified portfolio
and a wide range of services. Fund managers decide what securities to trade collect the interest
payments and see that your dividends on portfolio securities are received and your rights
exercised. It also uses the services of a high quality custodian and registrar in order to make sure
that your convenience remains at the top of our mind.

v) Personal Service

One call puts you in touch with a specialist who can provide you with information you can
use to make your own investment choices. They will provide you personal assistance in buying and
selling your fund units, provide fund information and answer questions about your account status.
Our Customer service centers are at your service and our Marketing team would be eager to hear
your comments on our schemes.

vi) Liquidity

In open-ended schemes, you can get your money back promptly at net asset value related
prices from the mutual fund itself.

vii) Transparency
You get regular information on the value of your investment in addition to disclosure on the
specific investments made by the mutual fund scheme

STRUCTURE OF MUTUAL FUNDS

The SEBI (Mutual Funds) Regulations 1993 define a mutual fund (MF) as a fund
established in the form of a trust by a sponsor to raise monies by the Trustees through the sale of
units to the public under one or more schemes for investing in securities in accordance with these
regulations.

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

A mutual fund comprises four separate entities, namely sponsor, mutual fund trust, AMC
and custodian. The sponsor establishes the mutual fund and gets it registered with SEBI.

The mutual fund needs to be constituted in the form of a trust and the instrument of the
trust should be in the form of a deed registered under the provisions of the Indian Registration Act,
1908.

The sponsor is required to contribute at least 40% of the minimum net worth (Rs. 10 crore) of the
asset management company. The board of trustees manages the MF and the sponsor executes the
trust deeds in favor of the trustees. It is the job of the MF trustees to see that schemes floated and
managed by the AMC appointed by the trustees are in accordance with the trust deed and SEBI
guidelines

Chart No: 2.1 STRUCTURE OF MUTUAL FUNDS

TYPES OF MUTUAL FUND SCHEMES

There are wide varieties of Mutual Fund schemes that cater to investor needs, whatever
the age, financial position, risk tolerance and return expectations. The mutual fund schemes can be
classified according to both their investment objective (like income, growth, tax saving) as well as
the number of units (if these are unlimited then the fund is an open-ended one while if there are
limited units then the fund is close-ended).
OPEN-ENDED SCHEME

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

Open-ended funds are bringing in a revival of the mutual fund industry owing to
increased liquidity, transparency and performance in the new open-ended funds promoted by the
private sector and foreign players. Open-ended funds score over close-ended ones on several
counts. Some of these are listed below:

a) Any time exit option: The issuing company directly takes the responsibility of providing an entry
and an exit. This provides ready liquidity to the investors and avoids reliance on transfer deeds,
signature verifications and bad deliveries.
b) Tax advantage: Though Budget 2004 proposals envisage a tax rate of 20.91% (Corporate
investors) and 13.06875 %( Non-Corporate investors) on dividend distribution made by the Debt
funds, the funds continue to remain attractive investment vehicles. In equity plans there is no
distribution tax.

c) Any time entry option: An open-ended fund allows one to enter the fund at any time and even to
invest at regular intervals (a systematic investment plan).

CLOSE-ENDED SCHEMES

Schemes that have a stipulated maturity period, limited capitalization and the units are
listed on the stock exchange are called close-ended schemes.

These schemes have historically seen a lot of subscription. This popularity is estimated to
be on account of firstly, public sector MFs having floated a lot of close-ended income schemes
with guaranteed returns and secondly easy liquidity on account of listing on the stock exchanges.

INTERVAL SCHEMES

Interval Schemes are that scheme, which combines the features of open-ended and close-
ended schemes. The units may be traded on the stock exchange or may be open for sale or
redemption during pre-determined intervals at NAV related prices.

ACCORDING TO INVESTMENT OBJECTIVE

Mutual funds have specific investment objectives such as growth of capital, safety of
principal, current income or tax-exempt income. In general mutual funds fall into three general
categories:

 Equity Funds invest in shares or equity of companies.

 Fixed-Income funds invest in government or corporate securities that offer fixed rates of
return.

 Balanced Funds invest in a combination of both stocks and bonds.

Growth Schemes:
 Growth Schemes are also known as equity schemes. The aim of these schemes is to
provide capital appreciation over medium to long term. These schemes normally invest a major
part of their fund in equities and are willing to bear short-term decline in value for possible future
appreciation.

Income Schemes:

Income Schemes are also known as debt schemes. The aim of these schemes is to provide
regular and steady income to investors. These schemes generally invest in fixed income securities
such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.

Balanced Schemes:

Balanced Schemes aim to provide both growth and income by periodically distributing a
part of the income and capital gains they earn. These schemes invest in both shares and fixed
income securities, in the proportion indicated in their offer documents (normally 50:50).

Money Market Schemes:

Money Market Schemes aim to provide easy liquidity, preservation of capital and
moderate income. These schemes generally invest in safer, short-term instruments, such as
treasury bills, certificates of deposit, commercial paper and inter-bank call money.

OTHER SCHEMES

Tax Saving Schemes:

Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from
time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked
Savings Scheme (ELSS) are eligible for rebate.

SPECIAL SCHEMES

Index Schemes:
Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or
the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the
index. The percentage of each stock to the total holding will be identical to the stocks index weight
age. And hence, the returns from such schemes would be more or less equivalent to those of the
Index.

Sector specific schemes:

These are the funds/schemes which invest in the securities of only those sectors or
industries as specified in the offer documents. E.g. Pharmaceuticals, Software, Fast Moving
Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the
performance of the respective sectors/industries. While these funds may give higher returns, they
are more risky compared to diversified funds. Investors need to keep a watch on the performance of
those sectors/industries and must exit at an appropriate time.

Overview of existing schemes existed in mutual fund category:

By Nature

1. Equity Fund:

These funds invest a maximum part of their corpus into equity shares of the different
companies. The structure of the fund may vary different for different schemes and the fund
manager’s outlook on different stocks. The Equity Funds are sub-classified depending upon their
investment objective, as follows:

Diversified Equity Funds

Mid-Cap Funds

Sector Specific Funds

Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on
the risk-return matrix.

2. Debt Funds:
 The objective of these Funds is to invest in debt instruments. Government authorities,
private companies, banks and financial institutions are some of the major issuers of debt
instruments. By investing in debt instruments, these funds ensure low risk and provide stable
income to the investors. Debt funds are further classified as:

Gilt Funds:

Invest their corpus in securities issued by Government, popularly known as Government

of India debt instruments. These Funds carry zero Default risk but are associated with Interest Rate
risk. These schemes are safer as they invest in papers backed by Government.

Income Funds:

Invest a major portion into various debt instruments such as bonds, corporate debentures and
Government securities.

Maximum Investment Plans (MIPs):

Invests maximum of their total corpus in debt instruments while they take minimum exposure in
equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the
risk-return matrix when compared with other debt schemes.

Short Term Plans (STPs):

Meant for investment horizon for three to six months. These funds primarily invest in short term
papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the
corpus is also invested in corporate debentures.

Liquid Funds:

Also known as Money Market Schemes, These funds provides easy liquidity and preservation of
capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money
market, CPs and CDs. These funds are meant for short-term cash management of corporate houses
and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-
return matrix and are considered to be the safest amongst all categories of mutual funds.

3. Balanced Funds:
 As the name suggest they, are a mix of both equity and debt funds. They invest in both
equities and fixed income securities, which are in line with pre-defined investment objective of the
scheme. These schemes aim to provide investors with the best of both the worlds. Equity part
provides growth and the debt part provides stability in returns.

NET ASSET VALUE:

A mutual fund is a common investment vehicle where the assets of the fund belong directly
to the investors. Investors’ subscriptions are account Ed for by the fund not as liabilities or deposits
but as Unit Capital. On the other hand, the investments made on behalf of the investors are reflected
on the assets side and are the main constituent of the balance sheet. There are, however, liabilities
of a strictly short-term nature that may be part of the balance sheet. The fund’s Net Assets are
therefore defined as the assets minus the liabilities. As there are many investors in a fund, it is
common practice for mutual funds to compute the share of each investor on the basis of the value of
Net Assets per Share/Unit, commonly known as the Net Asset Value (NAV).

The following are the regulatory requirements and accounting definitions laid down by
SEBI.

Market / fair value of schemes investments+ receivables + accrued income+ other

assets – accrued expenses –payables – other liabilities

NAV = --------------------------------------------------------------------------------------------

Number of units outstanding

For the purpose of the NAV calculation, the day on which NAV is calculated by a fund is
known as the valuation date.

CHAPTER – 3
RESEARCH DESIGN
Research Design
 Research design: Descriptive Research

 Sources of data: The study is purely based on secondary data.

  SECONDARY DATA COLLECTION:
The data is collected from the secondary sources of annual reports of the
company’s web site.

 TOOLS used :
 The performance analysis of selected funds are Treynor Ratio and Sharpe
ratio
 To compare the fund performance with benchmark are Standard deviation
and Beta

 Data Analysis Methods

1. Standard Deviation
2. Beta
3. Treynor’s Measure
4. Sharpe’s Measure

SHARPE’S RATIO

( RP  R f )
S
p

Where

S =Sharpe ratio

Rp = Average return on portfolio

Rf =Risk free Rate of Return

TREYNOR’S RATIO

RP  R f
T
p

Where,

T =Treynor ratio

Rp = Average return on portfolioI

Rf =Risk free Rate of Return

: Measure of systematic risk

Need for the study :

Mutual Fund boom is going from last 7 years. In other side country’s development is also
increasing day by day. So there is a need is to know the Mutual Funds

 A study required to analyze the performance of selected tax saving schemes to fulfill the
objectives of the investors.

 An evaluation of the returns on tax savings schemes of the selected mutual fund companies
would help the investors and even the mutual fund operators in their strategies

Scope of the study:

 The scope is limited to the various tax saving schemes in mutual fund industry.

 The study will also helpful to know the performance of the various tax saving schemes in
different mutual fund companies.

 To evaluate the performance of tax saving schemes by taking last five years

NAV i.e. from 2012-2017.

Objectives of the study:

 To evaluate the risk and return of selected tax saving schemes.

 To analyze and evaluate the performance of tax saving funds of various mutual fund
companies.

 To suggest the best scheme to the investors

Limitations of the study:

 The study is limited to tax saving schemes with dividend option only.

 The study is limited for selected AMCs only

 The study time period between 2012-13 to 2016-17

CHAPTER – 4
i ANALYSIS OF INTERPRETATION

Performance of AMC’s by calculating BETA

4.1 SBI magnum tax gain scheme
Calculation of return from SBI Magnum Tax gain scheme

Table No: 4.1

Year Opening Price Closing price Returns

2013-2014 30.10 39.82 32.29
2014-2015 39.58 37.08 -6.32
2015-2016 36.76 31.94 -13.11
2016-2017 31.98 32.11 0.41
2017-2018 32.47 35.15 8.25

4.2 Standard deviation calculation for SBI returns

Year Fund returns Average (R-Ṝ) (R-Ṝ)²

(R) returns (Ṝ)

2013-2014 32.29 4.30 27.99 783.44

2014-2015 -6.32 4.30 -10.62 112.78

2015-2016 -13.111 4.30 -17.41 303.11

2016-2017 0.41 4.30 -3.89 15.15

2017-2018 8.25 4.30 3.95 15.60

Total 21.52 − − 1230.06

INTERPRETATION:

5 years average return of SBI magnum tax gain scheme is 4.30 and S.D is 15.68 for 5 years

4.3 Calculation of Beta

Year market Fund X² XY
returns (X) returns(Y)
2013-2014 50.91 32.29 2591.82 1643.88

2014-2015 9.11 -6.32 82.99 -57.57

2015-2016 -9.91 -13.11 98.20 129.92

2016-2017 12.28 0.41 150.79 5.03

2017-2018 14.61 8.25 213.45 120.53

Total 77.00 21.52 3137.25 1841.79

INTERPRETATION:

The Beta of SBI Magnum tax gain is less than the Bench mark i.e.0.77<1.hence, It is a
defensive security.

Reliance Tax Fund

Table No: 4.4

Calculation of return from reliance tax saver fund

 Year Opening price Closing price Returns

2013-2014 9.99 15.18 51.95

2014-2015 15.07 15.11 0.27

2015-2016 15.02 13.67 -8.99

2016-2017 13.64 13.13 -3.74

2017-2018 13.25 15.19 14.64

4.5 Calculation of Standard Deviation

Year Fund returns Average returns (R-Ṝ) (R-Ṝ)²

(R) (Ṝ)
2013-2014 51.95 10.8 41.15 1693.32
2014-2015 0.27 10.8 -10.53 110.88
2015-2016 -8.99 10.8 -19.79 391.64
2016-2017 -3.74 10.8 -14.54 211.41
2017-2018 14.64 10.8 3.84 14.75
Total 54.13 − − 2422

S.D=√∑(R-Ṝ) =√ (2422)/5=22.00

INTERPRETATION:

5 years average return of Reliance tax saver fund is 10.8 and S.D is 22.00 for 5 years

4.6 Calculation of BETA

Year market returns Fund X² XY
(X) returns(Y
)

2013-2014 50.91 51.95 2591.82 2644.77

2014-2015 9.11 0.27 82.99 2.46

2015-2016 -9.91 -8.99 98.20 89.09

2016-2017 12.28 -3.74 150.79 -45.93

2017-2018 14.61 14.64 213.45 213.89

Total 77.00 54.13 3137.25 2904.2

INTERPRETATION:

The Beta of Reliance tax saver fund is more than the Benchmark i.e1.06>1.so, it is an
aggressive security

UTI Equity Tax Saving Plan

Calculation of return from UTI tax saving plan

Table No: 4.7

Year Opening price Closing price Returns

2013-2014 11.37 16.04 41.07

2014-2015 15.09 16.05 6.36

2015-2016 15.91 14.83 -6.79

2016-2017 14.82 16.50 11.34

2017-2018 16.69 16.69 0.00

4.8 Calculation of Standard Deviation

Year Fund returns (R) Average (R-Ṝ) (R-Ṝ)²

returns (Ṝ)

2013-2014 41.07 10.39 30.68 941.26

2014-2015 6.36 10.39 -4.03 16.24

2015-2016 -6.79 10.39 -17.18 295.14

2016-2017 11.34 10.39 0.95 0.90

2017-2018 0.00 10.39 -10.39 107.95

Total 51.98 − − 1361.50

 S.D=√∑(R-Ṝ) ²/n = √ (1361.5)/5 = 16.5

INTERPRETATION:

5 year Average return of UTI tax saving plan is 10.39 and standard Deviation is 16.5 for 5 year

Year market returns (X) Fund returns(Y) X² XY

2013-2014 50.91 41.07 2591.82 2090.87

2014-2015 9.11 6.36 82.99 57.94
2015-2016 -9.91 -6.79 98.20 67.29
2016-2017 12.28 11.34 150.79 139.26
2017-2018 14.61 0.00 213.45 0.00
Total 77.00 51.98 3137.25 2355.36

4.9 Calculation of BETA

INTERPRETATION:
The beta of UTI equity tax saving plan is less than Bench Mark i.e., 0.79<1.hence, it
is a defensive security

HDFC Tax Saver

Calculation of return from HDFC tax saver fund

Table No: 4.10

Year Opening price Closing price Returns

2013-2014 36.31 58.76 61.82

2014-2015 58.55 59.77 2.08

2015-2016 59.59 49.98 -16.12

2016-2017 49.79 46.56 -6.42

2017-2018 46.93 50.81 8.26

4.11Calculation of Standard Deviation

Year Fund returns (R) Average returns (Ṝ) (R-Ṝ) (R-Ṝ)²

2013-2014 61.82 9.86 51.86 2689.45

2014-2015 2.08 9.86 -7.78 60.52

2015-2016 -16.12 9.86 -25.98 674.96

2016-2017 -6.42 9.86 -16.28 265.04

2017-2018 8.26 9.86 -1.60 2.56

Total 49.32 − − 3692.53

S.D= √∑ (R-Ṝ) ²/n=√ (3692.53)/5=27.17

INTERPRETATION:

5 years Average Return of HDFC tax saver fund is 9.86 and Standard Deviation is
27.17 for 5 years
4.12Calculation of BETA

Year market returns (X) Fund returns(Y) X² XY

2013-2014 50.91 61.82 2591.82 3147.26

2014-2015 9.11 2.08 82.99 18.95

2015-2016 -9.91 -16.12 98.20 155.59

2016-2017 12.28 -6.40 150.79 -78.59

2017-2018 14.61 8.26 213.45 120.68

Total 77.00 49.32 3137.25 3363.89

INTERPRETATION:

The Beta of HDFC debt fund greater than the Bench Mark i.e., 1.33>1, hence it is an
aggressive security
4.13 Comparison Table
Name of the company Standard Deviation beta Average return on fund

SBI 15.68 0.77 4.3

Reliance 22.00 1.06 10.8

UTI 16.50 0.79 10.39

HDFC 27.17 1.33 9.86

Comparison table of standard Deviation, Beta and returns of various tax saving funds

4.14 Comparison Chart

30 27.17

25 22
20 16.5
15.68
15 SBI
10.810.399.86
10 Reliance
5
4.3 UTI
0.771.060.791.33
0 HDFC
Standard Beta Average
Deviation Return On
fund

INFERENCE:

The average return on fund is better for UTI tax saver fund. Total risk and
systematic risk is more and the returns is average for HDFC tax saver fund
4.15 Sharpe Ratio Calculation

( RP  R f )
S
p

Rp = fund average return

Rf = Risk free rate of investment (which is constant i.e.,8)

σp = Standard Deviation

Sharpe Ratio For

SBI = 4.3-8/15.68=-0.24

Reliance = 10.8-8/22.00=0.13

UTI= 10.39-8/16.5=0.14

HDFC=9.86-8/27.17=0.07

4.16 Sharpe Ratio

0.2
0.13 0.14
0.1 0.07

0
sharpe ratio
-0.1

-0.2
-0.24
-0.3
4.17 Treynor Ratio

RP  R f
T
p

Rp = fund average return

Rf = Risk free rate of investment (which is constant i.e., 8)

𝛽p= Beta value (systematic risk)

Treynor Ratio:

SBI: 4.3-8/0.77=-4.81

Reliance: 10.8-8/1.06=2.60

UTI: 10.39-8/0.79=3.03

HDFC: 9.86-8/27.17=1.39
4.18 Treynor Ratio

4 3.03
2.6
2 1.39

0
Treynor Ratio
-2

-4

-6 -4.81

INFERENCE:

From the above graphs UTI and Reliance got 1st and 2nd ranks with respective,
Sharpe ratio and Treynor ratio that indicates the risk adjusted performance of the
fund is good, SBI scored low on risk adjusted performance
 CHAPTER – 5

FINDINGS, SUGGESTIONS, CONCLUSIONS

Findings :

 After analyzing the data, it is understood that UTI, Reliance has performed
with better average Rate of returns.

 SBI magnum tax gain scheme performance is lower, when compared to the
other tax gaining schemes

 By applying the Sharpe and Treynor ratio performance measures UTI and
Reliance tax saver fund got 1st and 2nd ranks among the four AMC’s taken
under study
 Suggestions :

 SBI AMC has to revise the inclusion of securities in order to increase fund
returns

 It is suggested for risk averse investors, to invest in SBI Magnum tax saving
scheme as the standard deviation is less.

 The companies should advertise their tax saving plans more so that they can
gain more customers
 i Conclusion

The SBI tax saving scheme is suitable for the risk averse investors and the investors
who to take high returns with high risk can invest in other mutual fund companies
 Bibliography

 FACT SHEETS

 RELIANCE

 UTI

 HDFC

 SBI

 WEB-SITES
 www.iifcl.com
 www.Reliancemutual.com
 www.moneycontrol.com
 www.utimutualfunds.com
 www.investopedia.com