SUMMER TRAINING REPORT

On

NJ Indiainvest Pvt. Ltd.

Project title -:

MUTUL FUND IN INDIAN PERSPECTIVE

By
Saty Narayan Sharma
MBA

SHRINATHJI INSTITUTE OF TECHNOLOGY & ENGINEERING

NATHDWARA
 ACKNOWLEDGEMENT

In reference to my Project in Mutual Fund I would like to thank each and

every one who offered help, guideline and support whenever required.
This project report and the learning process behind it, would not have been
possible without the guidance of Mr. Vinod Agrawal (Branch Manager N.J India
invest, Ajmer). He was able to impart me with the right approach that my training
required for its successful practical implementation and was able to introduce me the
idea of Mutual Funds
I was involved with N.J India Invest for three months, and I came across a lot
of people who put in their time and effort towards acclimatizing me to the workings of
their organization. I express my thanks to Mr. Vinod Agrawal under whose guidance
and leadership I was able to enhance my financial as well as inter-personal skills. I
also express my gratitude to Ms. Vinita Joshi for her constant support and guidance.
She helped me to understand NJ and its services.
I am also grateful to our teacher Ms PRANBH SIR for the help and guidance
provided to make me learn, and understand the concepts and complete my project
work. Without her help I would not have been able to complete my work in the
present form.
I thank GBS-A and its management team, CRP for their co operation, help and
guidance and the opportunity.
I am grateful for each and every valuable interaction that brought me to a
better understanding of the workings of the Mutual Fund industry.
These three months were of utmost importance as they added value towards
my path of knowledge. I would like to end this acknowledgement by thanking the
customers, clients, investors, and people at large with whom I have interacted during
the course of my training.

2
 APROVAL FROM GUIDE

This is to certify that Ms. SATY NARAYAN SHARMA student of SHRINATHJI

INSTITUTE OF TECHNOLOGY & ENGINEERING
NATHDWARA
has completed project work on “MUTUL FUND IN INDIAN PERSPECTIVE” under
my guidance and supervision.
I certify that this is an original work and has not been copied from any
source.

Signature of Guide

DATE:

Name of Project Guide

Mr.Vinod Agrawal

3
 DECLARATION
I hereby declare that this Project Report entitled “MUTUL FUND IN INDIAN
PERSPECTIVE” IN N.J INDIA INVEST” submitted in the partial fulfillment of
the requirement of M.B A of is based on primary & secondary data found by me in
various departments, books, magazines and websites & Collected by me under
guidance of Mr. Vinod Agrawal.

DATE: SATY NARAYAN

SHARMA

4
 CONTENT

 Mutual Fund
09
 Global Scenario
25
 Recent trends in Mutual Fund Industry
28
 Future Scenario
31
 SWOT Analysis
34
 Important terms related to Mutual Fund
38
 SEBI Regulations
44
 Company profile
51
 Research Methodology
51
 Analysis and Interpretation
55
 Conclusion
68

5
 Recommendations
70
 Limitations
73
 Bibliography
75
 Questionnaire
77

MUTUAL FUND

6
 MUTUAL FUNDS – AN
INTRODUCTION

“….Mutual funds are popular among all income

levels. With a mutual fund, we get a diversified
basket of stocks managed by a professional……”

7
 - Barbara Stanny, author of Prince Charming Isn’t
Coming &
How Women Get Smart About Money

“…A mutual fund is a company that brings together

money from many people and invests it in stocks,
bonds or other assets. The combined holdings of
stocks, bonds or other assets the fund owns are
known as its portfolio. Each investor in the fund
owns shares, which represent a part of these
holdings……..”

MUTUAL FUND
A Mutual Fund is a body corporate that pools the saving
of a member of investors and invests the same in a
variety of different financial instruments or securities.

Investments in securities are spread across a wide

cross-section of industries and sectors depending upon
the objective of the schemes. Mutual Funds invest in
various asset classes like equity, bonds, debentures,
commercial papers and government securities. The
income earned through these investments and the
capital appreciations realized by the scheme are shared
by its unit holders in proportion to the number of units
owned by them.

Mutual Funds can thus be considered as financial

intermediaries in the investment business that collects
funds from the public and invest on behalf of the
investor. The losses and gains access to the investors
only. The investment objectives outlined by a Mutual
Fund in its prospectus are building on the Mutual funds

8
Scheme. The investment objectives specify a mutual
fund can invest in.

A Mutual fund is the ideal investment while for today's

complex and modern financial scenario. Markets for
equity shares, bonds and other fixed income
instruments, real estate, derivatives and other assets
have become very mature and information drives Price
changes in these assets are drives by global events
occurring in fare way place. A mutual fund is the answer
to all these situations qualified and experienced
professionals' managers' mutual funds on a full time
basis. Further mutual funds make investments is a
number of stocks, the resultant diversification reduces
risk.

The investor is shared the time and effort of tracking

investment, collecting income, etc from various
issuers, etc. they provide the small investors with an
opportunity to invest in a larger basket of securities.
The effect, the mutual fund vehicle exploits economies
of sale in all the three areas Research, Investments and
Transaction processing.
Globally there are thousand of firms offering terms of
thousands of mutual fund with different investment
objectives. A mutual fund is set up in the form of a trust
that has sponsor, trustees, assets Management
Company (AMC) and custodian. The trust is established
by a sponsor or more than one sponsor who is like
promoter of a company. The trustees of the mutual fund
hold it property for the benefit of the unit holders.
Assets Management Company (AMC) approached by
Stock and Exchange Board of India managers the
funds by making investments in various types of
securities. Custodian, who is registered with Stock and
Exchange Board of India, holds the Securities of various
Scheme of the fund in its custody. The trustees are
vested with the general power of performance and
compliance of SEBI Regulation by the mutual fund.

9
A mutual fund is required to be registered with Stock and
Exchange Board of India that regulates securities
markets before it can collect funds from the public.
Stock and Exchange Board of India (SEBI) Regulations
require that at least two third of the directors of trustee
company or Board of trustee must be independent i.e.
they should not be associated with the sponsors. Also
50% of the directors of asset management company
must be independent. All mutual funds are required to
be registered with Stock and Exchange Board of India
before they launch any Scheme. However, Unit Trust of
India is not registered with Stock and Exchange Board of
India (as on Jan 15, 02).

A DVANTAGES O F MUTUAL FUNDS

PROFESSIONAL MANAGEMENT
Mutual fund provides the service of experienced and
skilled professional, backed up by a dedicated
investment research team they analysis the performance
and prospect of companies and selects suitable
investments to achieve the objectives of the Scheme.
Also fund manages monitor market and economic
trends and analyze securities is order to make informed
investment decisions.

DIVERSIFICATION
Mutual funds invest is a number of companies across a
broad cross-section of industries and sectors. This
diversification reduces the risk because seldom do all
stocks declined at the same time and is the same
proportion.

LOW COSTS
Mutual funds are relatively less expensive way to
invest compared to directly investing in the capital
market because the benefits of brokerage, custodial, and
other fees translate into lower costs for investors.

ADMINISTRATION

10
Investing in a mutual fund reduces paper work and helps
in avoiding many problems such as bad delivers,
delayed payments and follows up with brokers and
companies mutual funds save time and makes investing
easy and convenient.

LIQUIDITY
In case of open- ended funds, the investments are very
liquid as it can be redeemed at any time with the fund
unlike direct investment in stocks/bonds. In close-ended
scheme, the unit can be sold on a stock exchange at
the preventing market price or the investor can avail
of the facility of direct repurchases of net asset value
related price by the mutual fund.

TRANSPARENCY
Regular information on the value of investment in
addition to disclosure on the specific investment made
by each scheme, the proportion invested in each of
assets and the fund managers' investment strategy and
outlook.

FLEXIBILITY
Through feature such as regular investment plans, regular
withdrawal plan and dividend re-investment plans, and
investors can systematically invest or withdraw funds
according to his needs and convenience.

AFFORDABILITY
Investors individually may lack sufficient funds to invest
in high grade stocks. A mutual fund because of its large
corpus allows even and small investor to take benefits
of its investment strategy.

TAX-BENEFITS
Various tax benefits are granted to investor of mutual
funds. Income distribution of equity-oriented funds is
exempt from tax and confessional rates of tax are
applicable on capital gains from units of mutual funds.
Besides, tax saving schemes provides the investor with
tax benefits U/S 88 U/S 54 EC.
100% Income tax exemption on all mutual funds dividend.

11
WELL REGULATED
All mutual funds are registered with Stock and
Exchange Board of India and they function within the
provisions of strict regulation designed to protect the
interest of investors. Stock and Exchange Board of
India regularly monitor the operations of the mutual
funds.

TYPES OF MUTUAL FUNDS

Mutual Funds schemes may be classified on the basis of
its structure and its investment objectives.

• By Structure
I. Open-ended Funds/Schemes
An open ended fund or schemes is one that is
available for subscription and repurchase on a
continuous basis. These schemes do not have a fixed
maturity period. Investors can conveniently buy and sell
units at Net Asset Value (NAV) related prices that are
declared on a daily basis. The key feature of open-end
scheme is liquidity.

II. Close ended Funds/ Schemes

A closed ended fund or scheme has a stipulated
maturity period eg 5-7 year. The fund is open for
subscription only during a specified period atthe time of
launch of the scheme. They can buy or sell the units of
the scheme on the stock exchange where the units are
listed. In order to provide an exit route to the investors
some close ended funds give an option of selling back
the units to the mutual fund periodic repurchase of NAV
related prices SEBI Regulations stipulate that at least
one of the two exit route is provided to the investor i.e.
either repurchase facility or through listing on stock
exchange.

III. Interval Funds

12
These funds combine the feature of both open ended
and close ended funds wherein the fund is close ended
for the first couple of years and open ended thereafter.
Some funds allows fresh subscription and redemption
at fixed times every year (say every six months) in
order to reduce the administrator aspects of daily entry
or exit yet providing reasonable liquidity.

• By Investment Objective
A scheme can be also be classified as growth scheme
income scheme, or balanced scheme considering its
investment objective.

I. Growth / Equity Oriented Schemes

The aim of the growth funds is to provide capital
appreciation over the medium to long-term. Such
schemes normally invest a major part of their corpus in
equities. Such funds have comparatively high risks.
These schemes provide different options to the
investors like dividend option, capital appreciation, etc,
and the investors may choose an option depending on
their preferences.

II. Income / Debt Oriented Schemes

The aim of income funds is to provide regular and
steady income to investors. Such schemes generally
invest in fixed income securities such as bonds,
corporate debenture, Government Securities and
money market instruments. Such funds are less risky
compare to equity schemes. The Net Asset Values of
such funds are affected because of change in interest
rate in the country.

III. Balanced Funds

The aim of balanced funds is to provide both growth and
regular income such as schemes invest both in equities
and fixed income-securities in the proportion indicated
in their offer documents. These are appropriate for
investors looking for moderate growth. They generally
invest 40-60% in equity and debt instruments.
However, Net Asset Values of such funds are likely to
be same volatile compared to pure-equity funds.

13
IV. Money Market / Liquid Funds
These funds are also income funds and their aim is to
provide easy liquidity presentation of capital and
moderate income. These schemes invest exclusively in
safer short-term instruments such as treasury bills,
certificates of deposits, commercial paper and inter-
bank call money, government securities, etc. Returns
on these schemes fluctuate much less compared to
other funds. These funds are appropriate for corporate
and individual investors as a means to park their
surplus funds for short periods.

V. Gilt Funds
These funds invest exclusively in Government
securities. Government securities have no default
risk. Net Asset Values of these schemes also fluctuate
due to changes in invest rates and other economic
factors as in the case with income or debt oriented
schemes.

VI. Load Funds

A load fund is one that changes a commission for entry
or exit. That is, each time you buy or sell units in the
fund, a commission will be payable. Typically, entry or
exit loads range from 1% to 20%.

VII. No-Load Funds

A No-load fund is one that does not change a
commission for entry or exit. That is no commission is
payable on sale or purchase of units in the fund.

• Other Schemes
I. Tax Saving Fund/ Schemes
These funds offer tax benefits to investors under the
Income Tax Act opportunities provided under these
schemes are in the form of tax rebates U/S 88 as well as
saving in Capital Gains U/S54EA and 54EB. Investments
made in Equity Linked Saving allowed as deduction U/S
88 of the Income Tax Act, 1961.

14
They are rests suited for investors seeking tax
concessions.

II. Index Funds

Index fund replicate the portfolio of a particular index such
as BSE Sensitive Index, S&P NSE 50 Index (Nifty), etc.
These schemes invest in the securities in the same
weightage comprising of an index. NAVs index, though
not exactly by the same percentage due to some factors
known as "tracking error" in technical terms.

III. Industry specific Schemes

Industry Specific Schemes invest only in the industry
specified in the offer document. The investment of these
funds is limited to specific industries like Info. Tech,
FMCG, Pharmaceuticals, etc.

HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the

formation of Unit Trust of India, at the initiative of the
Government of India and Reserve Bank the. The history of
mutual funds in India can be broadly divided into four
distinct phases

First phase - 1964-87

This phase began with the inception of the Unit Trust

of India (UTI). It remained the only mutual fund
player in the country till 1987. UTI started its
operations in July 1964 “With a view to encouraging
savings and investment and participation in the
income, profits and gains accruing to the corporation
from the acquisition, holding, management and
disposal of securities.” In short, it was set up by the
Indian Government with a view to augment small
savings in the country and to channelize these
savings to the capital markets. UTI witnessed a slow
and steady growth over the 1970s and the 1980s and
by the end of 1988 it had an AUM of Rs. 67 bn.

15
Second phase - 1987-1993 (Entry of Public Sector
Funds)

Public sector mutual funds set up by public sector

banks, Life Insurance Corporation of India (LIC) and
the General Insurance Corporation of India(GIC)
entered the market in 1987. The first non-UTI Mutual
Fund was the SBI Mutual Fund established in June
1987, followed by Can bank Mutual Fund in
December 1987, Punjab National Bank Mutual Fund
in August 1989, Indian Bank Mutual Fund in
November 1989, Bank of India Mutual Fund in June
1990 and Bank of Baroda Mutual Fund in October
1992. LIC set up its mutual fund in June 1989 while
GIC established its mutual fund in December 1990.
During this period, the total assets of the industry
grew to about Rs. 610 bn with the total number of
schemes increasing to about 167 by the end of 1994.

Third phase - 1993-2003 (Entry of Private Sector

Funds)

This phase marked the entry of private sector funds.

The phase also signaled the intensification of the
competition. Both domestic and foreign players
entered the market, offering a wide variety of
schemes to investors. Kothari Pioneer Mutual Fund
was the first private sector fund to be established in
association with a foreign fund. The opening up of the
market to private players saw international players
like Morgan Stanley, Jardine Fleming, JP Morgan,
George Soros and Capital International entering the
market. The total AUM by the end of January 31,
2005 increased to $34,927 mn from $23,260 mn in
March 1995 with a CAGR of 6.92%.

Fourth phase (since February2003,UTI’s

restructuring and beyond)

In February 2003 the Unit Trust of India Act 1963 was

repealed and UTI was bifurcated into two separate
entities: Specified Undertaking of the Unit Trust of

16
 India, which is still under the Government of India,
and the UTI Mutual Fund Ltd. This was done in the
wake of the severe payment crisis that UTI suffered
on account of its assured return schemes of US-64
that finally resulted in an adverse impact on the
Indian capital markets. US-64 was the first scheme
launched by UTI with a significant equity exposure
and the returns of which were not linked to the
market. However, the industry has overcome that
shock and is hoped to have learnt its lesson.

On a Growth Trajectory

During the current year, while initially there had been

a decline in the AUM until April 2004, the situation
reversed as, riding on a positive market sentiment, a
Slew of new offerings from mutual fund houses
swelled the AUM, which stands at Rs. 2,31,862 cr as
on March 2006. This is remarkable increase for the
industry which according to AMFI was Rs. 1, 52,280 cr
as on January 2005. Which in 1993 had less than 10
schemes, today has 521 schemes offered by mutual
funds. The schemes are more diverse and offer a
wide array of choices to investors.

The graph indicates the growth of assets over the

years.

Assets under management in Mutual Funds in

India (as on March 31, 2006)

17
No. of Schemes of Mutual funds in India (as on
March 31, 2006)

No. of Schemes in India

592
600
500 451
403
400
277
300 Schemes
200 167
100
21
0
1989 1994 1999 2004 2005 2006

VARIOUS SCHEMES OF RELIANCE MUTUAL FUND

Equity/Growth Schemes

18
The aim of growth funds is to provide capital appreciation
over the medium to long- term. Such schemes normally
invest a major part of their corpus in equities. Such funds
have comparatively high risks. These schemes provide
different options to the investors like dividend option,
capital appreciation, etc. and the investors may choose an
option depending on their preferences. The investors must
indicate the option in the application form. The mutual
funds also allow the investors to change the options at a
later date. Growth schemes are good for investors having
a long-term outlook seeking appreciation over a period of
time.

Reliance Equity Fund:

(An open-ended diversified Equity Scheme.) The primary
investment objective of the scheme is to seek to generate
capital appreciation & provide long-term growth
opportunities by investing in a portfolio constituted of
equity & equity related securities of top 100 companies by
market capitalization & of companies which are available
in the derivatives segment from time to time and the
secondary objective is to generate consistent returns by
investing in debt and money market securities.

Reliance Tax Saver (ELSS) Fund:

(An Open-ended Equity Linked Savings Scheme.) The
primary objective of the scheme is to generate long-term
capital appreciation from a portfolio that is invested
predominantly in equity and equity related instruments.

Reliance Equity Opportunities Fund:

(An Open-Ended Diversified Equity Scheme.) The primary
investment objective of the scheme is to seek to generate
capital appreciation & provide long-term growth
opportunities by investing in a portfolio constituted of
equity securities & equity related securities and the
secondary objective is to generate consistent returns by
investing in debt and money market securities.

Reliance Vision Fund:

(An Open-ended Equity Growth Scheme.) The primary
investment objective of the Scheme is to achieve long

19
term growth of capital by investment in equity and equity
related securities through a research based investment
approach.

Reliance Growth Fund:

(An Open-ended Equity Growth Scheme.) The primary
investment objective of the Scheme is to achieve long
term growth of capital by investment in equity and equity
related securities through a research based investment
approach.

Reliance Index Fund:

(An Open Ended Index Linked Scheme.) The Investment
Objective under the Nifty Plan is to replicate the
composition of the Nifty, with a view to endeavor to
generate returns, which could approximately be the same
as that of Nifty. The Investment Objective under the
Sensex plan is to replicate the composition of the Sensex,
with a view to endeavor to generate returns, which could
approximately be the same as that of Sensex.

Reliance NRI Equity Fund:

(An open-ended Diversified Equity Scheme.) The Primary
investment objective of the scheme is to generate optimal
returns by investing in equity or equity related
instruments primarily drawn from the Companies in the
BSE 200 Index.

Debt/Income Schemes:
The aim of income funds is to provide regular and steady
income to investors. Such schemes generally invest in
fixed income securities such as bonds, corporate
debentures, Government securities and money market
instruments. Such funds are less risky compared to equity
schemes. These funds are not affected because of
fluctuations in equity markets. However, opportunities of
capital appreciation are also limited in such funds. The
NAVs of such funds are affected because of change in
interest rates in the country. If the interest rates fall, NAVs
of such funds are likely to increase in the short run and
vice versa. However, long term investors may not bother
about these fluctuations.

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Reliance Monthly Income Plan:
(An Open Ended Fund. Monthly Income is not assured & is
subject to the availability of distributable surplus) The
Primary investment objective of the Scheme is to generate
regular income in order to make regular dividend
payments to unitholders and the secondary objective is
growth of capital.Primarily the investment shall be made
in debt and money market securities (i.e. 80%) with a
small exposure (i.e. upto 20%) in equity.

Reliance Gilt Securities Fund - Short Term Gilt Plan

& Long Term Gilt Plan:
Open-ended Government Securities Scheme) The primary
objective of the Scheme is to generate Optimal credit risk-
free returns by investing in a portfolio of securities issued
and guaranteed by the central Government and State
Government

Reliance Income Fund:

(An Open-ended Income Scheme) The primary objective of
the scheme is to generate optimal returns consistent with
moderate levels of risk. This income may be
complemented by capital appreciation of the portfolio.
Accordingly, investments shall predominantly be made in
Debt & Money Instruments.

Reliance Medium Term Fund:

(An Open End Income Scheme with no assured returns.)
The primary investment objective of the Scheme is to
generate regular income in order to make regular dividend
payments to unitholders and the secondary objective is
growth of capital.

Reliance Short Term Fund:

(An Open End Income Scheme) The primary investment
objective of the scheme is to generate stable returns for
investors with a short investment horizon by investing in
Fixed Income Securities of short term maturity.

21
Reliance Liquid Fund:
(Open-ended Liquid Scheme). The primary investment
objective of the Scheme is to generate optimal returns
consistent with moderate levels of risk and high liquidity.
Accordingly, investments shall predominantly be made in
Debt and Money Market Instruments.

Reliance Fixed Term Scheme:

(Close-ended Income Scheme) The primary objective of
the Scheme is to seek to achieve regular returns / growth
of capital by investing in a portfolio of fixed income
securities normally maturing in line with the time profile of
the plan with the objective of limiting interest rate
volatility.

Reliance Floating Rate Fund:

(An Open End Income Scheme) The primary objective of
the scheme is to generate regular income through
investment in a portfolio comprising 3 substantially of
Floating Rate Debt Securities (including floating rate
securitised debt and Money Market Instruments and Fixed
Rate Debt Instruments swapped for floating rate returns).
The scheme shall also invest in Fixed rate debt Securities
(including fixed rate securitised debt, Money Market
Instruments and Floating Rate Debt Instruments swapped
for fixed returns

Reliance NRI Income Fund:

(An Open-ended Income scheme) The primary investment
objective of the Scheme is to generate optimal returns
consistent with moderate levels of risks. This income may
be complimented by capital appreciation of the portfolio.
Accordingly, investments shall predominantly be made in
debt Instruments.

Reliance Fixed Maturity Fund - Series I:

(A Close Ended Income Scheme)
The primary investment objective of the Scheme is to seek
to achieve regular returns / growth of capital by investing
in a portfolio of fixed income securities normally maturing

22
in line with the time profile of the Plan with the objective
of limiting interest rate volatility.

Reliance Fixed Maturity Fund - Series II:

(A closed ended Income Scheme) The primary investment
objective of the Scheme is to seek to achieve growth of
capital by investing in a portfolio of fixed income securities
normally maturing in line with the time profile of the
respective plans.

Reliance Liquidity Fund:

(An Open - ended Liquid Scheme) The investment
objective of the Scheme is to generate optimal returns
consistent with moderate levels of risk and high liquidity.
Accordingly, investments shall predominantly be made in
Debt and Money Market Instruments.

Reliance Regular Savings Fund:

(An Open - ended scheme)

The Investment Objectives:

Debt Option: The primary investment objective of this

plan is to generate optimal returns consistent with
moderate level of risk. This income may be complemented
by capital appreciation of the portfolio. Accordingly
investments shall predominantly be made in Debt &
Money Market Instruments.

Equity Option: The primary investment objective is to

seek capital appreciation and or consistent returns by
actively investing in equity / equity related securities.

Hybrid Option: The primary investment objective is to

generate consistent return by investing a major portion in
debt & money market securities and a small portion in
equity & equity related instruments.

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

23
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. They may also seek advice of an
expert.

Sector Specific Schemes:

Sector Funds are specialty funds that invest in stocks
falling into a certain sector of the economy. Here the
portfolio is dispersed or spread across the stocks in that
particular sector. This type of scheme is ideal for investors
who have already made up their mind to confine risk and
return to a particular sector.

Reliance Banking Fund:

Reliance Mutual Fund has an Open-Ended Banking Sector
Scheme which has the primary investment objective to
generate continuous returns by actively investing in equity
/ equity related or fixed income securities of banks.

Reliance Diversified Power Sector Fund:

Reliance Diversified Power Sector Scheme is an Open-
ended Power Sector Scheme. The primary investment
objective of the Scheme is to seek to generate consistent
returns by actively investing in equity / equity related or
fixed income securities of Power and other associated
companies.

Reliance Pharma Fund:

Reliance Pharma Fund is an Open-ended Pharma Sector
Scheme.
The primary investment objective of the Scheme is to
generate consistent returns by investing in equity / equity
related or fixed income securities of Pharma and other
associated companies.

24
Reliance Media & Entertainment Fund:
Reliance Media & Entertainment Fund is an Open-ended
Media & Entertainment sector scheme. The primary
investment objective of the Scheme is to generate
consistent returns by investing in equity / equity related or
fixed income securities of media & entertainment and
other associated companies.

25
 GLOBAL
SCENARIO

26
Basic Facts:
• The money market mutual fund segment has a total
corpus of $ 7.58 trillion in the U.S. against a corpus of
$34.3 billion in India.
• Out of the top 10 mutual funds worldwide, eight are
bank- sponsored. Only Fidelity and Capital are non-
bank mutual funds in this group.
• In the U.S. the total number of schemes (over 8000)
is higher than that of the listed companies while in
India we have just 592 schemes.
• Internationally, mutual funds are allowed to go short.
In India fund managers do not have such leeway.
• In the U.S. about 9.7 million households will manage
their assets on-line by the year 2003, such a facility
is not yet of avail in India.
• On- line trading is a great idea to reduce
management expenses from the current 2 % of total
assets to about 0.75 % of the total assets.

Internationally, on- line investing continues its meteoric

rise. Many have debated about the success of e-
commerce and its breakthroughs, but it is true that this
aspect of technology could and will change the way
financial sectors function. However, mutual funds cannot
be left far behind. They have realized the potential of the
Internet and are equipping themselves to perform better.
In fact in advanced countries like the U.S.A, mutual funds
buy- sell transactions have already begun on the Net,
while in India the Net is used as a source of Information.

Such changes could facilitate easy access, lower

intermediation costs and better services for all. A research
agency that specializes in internet technology estimates
that over the next four years Mutual Fund Assets traded
on- line will grow ten folds from $ 128 billion to $ 1,227
billion; whereas equity assets traded on-line will increase
during the period from $ 246 billion to $ 1,561 billion. This
will increase the share of mutual funds from 34% to 40%
during the period.

27
Such increases in volumes are expected to bring about
large changes in the way Mutual Funds conduct their
business.
Here are some of the basic changes that have taken place
since the advent of the Net.
• Lower Costs: Distribution cost of funds will fall in the
online trading regime by 2003. Mutual funds could
bring down their administrative costs to 0.75% if
trading is done on- line. As per SEBI regulations, bond
funds can charge a maximum of 2.25% and equity
funds can charge 2.5% as administrative fees.
Therefore if the administrative costs are low, the
benefits are passed down and hence Mutual Funds
are able to attract mire investors and increase their
asset base.
• Better advice: Mutual funds could provide better
advice to their investors through the Net rather than
through the traditional investment routes where
there is an additional channel to deal with the
Brokers. Direct dealing with the fund could help the
investor with their financial planning.
• In India, brokers could get more Net savvy than
investors and could help the investors with the
knowledge through get from the Net.
• New investors would prefer online: Mutual funds can
target investors who are young individuals and who
are Net savvy, since servicing them would be easier
on the Net.
• India has around 1.6 million net users who are prime
target for these funds and this could just be the
beginning. The Internet users are going to increase
dramatically and mutual funds are going to be the
best beneficiary. With smaller administrative costs
more funds would be mobilized .A fund manager
must be ready to tackle the volatility and will have to
maintain sufficient amount of investments which are
high liquidity and low yielding investments to honor
redemption.

In the U.S. most mutual funds concentrate only on

financial funds like equity and debt. Some like real estate
funds and commodity funds also take an exposure to

28
physical assets. The latter type of funds are preferred by
corporate who want to hedge their exposure to the
commodities they deal with.

For instance, a cable manufacturer who needs 100 tons of

Copper in the month of January could buy an equivalent
amount of copper by investing in a copper fund. For
Example, Permanent Portfolio Fund, a conservative U.S.
based fund invests a fixed percentage of it’s corpus in
Gold, Silver, Swiss francs, specific stocks on various
bourses around the world, short –term and long-term U.S.
treasuries etc.

In U.S.A. apart from bullion funds there are copper funds,

precious metal funds and real estate funds (investing in
real estate and other related assets as well.).In India, the
Canada based Dundee mutual fund is planning to launch a
gold and a real estate fund before the year-end.

In developed countries like the U.S.A there are funds to

satisfy everybody’s requirement, but in India only the tip
of the iceberg has been explored. In the near future India
too will concentrate on financial as well as physical funds.

29
RECENT TRENDS
IN MUTUAL
FUND INDUSTRY

30
The most important trend in the mutual fund industry is
the aggressive expansion of the private owned mutual
fund companies and the decline of the companies floated
by nationalized banks and smaller private sector players.

Many nationalized banks got into the mutual fund business

in the early nineties and got off to a good start due to the
stock market boom prevailing then. These banks did not
really understand the mutual fund business and they just
viewed it as another kind of banking activity. Few hired
specialized staff and generally chose to transfer staff from
the parent organizations. The performance of most of the
schemes floated by these funds was not good. Some
schemes had offered guaranteed returns and their parent
organizations had to bail out these AMCs by paying large
amounts of money as the difference between the
guaranteed and actual returns. The service levels were
also very bad. Most of these AMCs have not been able to
retain staff, float new schemes etc. and it is doubtful
whether, barring a few exceptions, they have serious
plans of continuing the activity in a major way.

The experience of some of the AMCs floated by private

sector Indian companies was also very similar. They
quickly realized that the AMC business is a business, which
makes money in the long term and requires deep-
pocketed support in the intermediate years. Some have
sold out to foreign owned companies, some have merged
with others and there is general restructuring going on.
The foreign owned companies have deep pockets and
have come in here with the expectation of a long haul.
They can be credited with introducing many new practices
such as new product innovation, sharp improvement in
service standards and disclosure, usage of technology,
broker education and support etc. In fact, they have forced
the industry to upgrade itself and service levels of
organizations like UTI have improved dramatically in the
last few years in response to the competition provided by
these.

MARKET TRENDS

31
Last six years have been the most turbulent as well as
exiting ones for the industry. New players have come in,
while others have decided to close shop by either selling
off or merging with others. Product innovation is now
passé with the game shifting to performance delivery in
fund management as well as service. Those directly
associated with the fund management industry like
distributors, registrars and transfer agents, and even the
regulators have become more mature and responsible.

The industry is also having a profound impact on financial

markets. While UTI has always been a dominant player on
the bourses as well as the debt markets, the new
generations of private funds, which have gained
substantial mass, are now seen flexing their muscles. Fund
managers; by their selection criteria for stocks have forced
corporate governance on the industry. By rewarding
honest and transparent management with higher
valuations, a system of risk-reward has been created
where the corporate sector is more transparent then
before.

Funds have shifted their focus to the new sectors like

pharmaceuticals, FMCG and technology sector. Funds
performances are improving. Net increase in assets under
management for the current year ending 2004-05 is
expected to reach 15698 crore.

Mutual funds are now also competing with commercial

banks in the race for retail investor’s savings and
corporate float money. The power shift towards mutual
funds has become obvious. The coming few years will
show that the traditional saving avenues are losing out in
the current scenario. Many investors are realizing that
investments in savings accounts are as good as locking up
their deposits in a closet. The fund mobilization trend by
mutual funds in the current year indicates that money is
going to mutual funds in a big way.

India is at the first stage of a revolution that has already

peaked in the U.S. The U.S. boasts of an Asset base that is
much higher than its bank deposits. In India, mutual fund

32
assets are not even 10% of the bank deposits, but this
trend is beginning to change. Recent figures indicate that
in the first quarter of the current fiscal year mutual fund
assets went up by 115% whereas bank deposits rose by
only 17%. This is forcing a large number of banks to adopt
the concept of narrow banking wherein the deposits are
kept in Gilts and some other assets which improves
liquidity and reduces risk. The basic fact lies that banks
cannot be ignored and they will not close down
completely. Their role as intermediaries cannot be
ignored. It is just that Mutual Funds are going to change
the way banks do business in the future.

33
 FUTURE
SCENARIO

34
The assest under management in India is Rs. 2,31,862
crores as compared to Rs. 427,00,000 crore in the USA. In
USA the investment in the mutual funds is more than the
investment in the banks which shows the importance of
mutual funds. In USA there are about 8002 schemes of
mutual funds running as compared to only 521 in India
which shows the enormous growth opportunities that
Indian market have.

The asset base in India will continue to grow at an annual

rate of about 30 to 35 % over the next few years as
investor's shift their assets from banks and other
traditional avenues like the other developed economies
have done. Some of the older public and private sector
players will either close shop or be taken over.

Out of ten public sector players five will sell out, close
down or merge with stronger players in three to four
years. In the private sector this trend has already started
with two mergers and one takeover. Here too some of
them will their shutters in the near future to come.

But this does not mean there is no room for other players.
The market will witness a flurry of new players entering
the arena. There will be a large number of offers from
various asset management companies in the time to
come. Some big names like Fidelity, Principal, and Old
Mutual etc. are looking at Indian market seriously. One
important reason for it is that most major players already
have presence here and hence these big names would
hardly like to get left behind.

The mutual fund industry is awaiting the introduction of

derivatives in India as this would enable it to hedge its
risk and this turn would be reflected in its Net Asset Value
(NAV).

SEBI is working out the norms for enabling the existing

mutual fund schemes to trade in derivatives. Importantly,

35
many market players have called on the Regulator to
initiate the process immediately, so that the mutual funds
can implement the changes that are required to trade in
derivatives.

After seeing the present situation of the

Mutual Fund market in the whole world
and the way it is increasing in the Indian
market, it is not wrong to say that the
future of Mutual Funds in India is very
bright and the investments made today in
them will today will pay a long way in
future.

36
SWOT
ANALYSIS

37
STRENGTHS
• Diversified schemes
Mutual Funds are having a number of schemes
from which an investor can choose according to
his requirements, time to get returns etc.

• Less risk
The risk involved in mutual fund is very less.
The asset management companies make sure
that the investments they are making in are not
very risky.

• Easy procedure
The procedure involved for purchasing or selling
mutual funds is not very complicated. Common
investor can also easily understand and can
himself buy or sell the units of mutual fund.

• Professional Management
The mutual funds are managed by professionals
who have an in-depth knowledge of the market.

WEAKNESS

• Market risk
The capital market is highly volatile in nature.
No matter how much one is precautious, he will
always be under threat of incurring losses.
Although these mutual funds have reduced the
level of risk but they have not been able to
completely avoid it.

• No control over cost

38
 There is not much control over the cost of
operations as the market is volatile and the cost
increases quickly

• Blockage of Money
Mutual funds investment is generally for long
term and because of this large amount of money
is blocked in the funds.

Problems of managing large portfolio

of funds
No. of mutual fund schemes offered by AMCs is
increasing day by day and managing all these big
portfolios is not that easy for them and thus they
are not able to give proper attention towards some
of them which results in lesser profits then
expected or could have achieved if give proper
attention.

OPPORTUNITIES
• Growing capital market
Capital market in India is growing at a very fast
pace and if this pace continuous then Indian
capital market will be one of the strongest
economies of the world and investment in this
today will then be very fruitful.

• Tailor made product

We have tailor made products like sector specified
schemes & even diversified schemes.

• Branch expansion

39
 Large no. of branches are opening day by day and
even we are trapping the countries having almost
same type of socio-economic condition & even
same culture etc.

• Untapped rural market

Rural market in India is still not covered fully by
the various AMCs. Rural market in India is a very
big market and if this market is tapped then
these mutual funds can boost a lot.

THREATS

• Tough competition
There is a very tough competition because of large
number of Asset Management Companies.

• Unawareness
Major % of population is not aware of mutual
funds, so it’s hard to convince people.

• Changing scenario
Our market scenario is changing day by day i.e.
our market is fluctuating, so this makes investor
hard to invest

40
 IMPORTANT
TERMS RELATED
TO MUTUAL
FUNDS

41
NET ASSET VALUE (NAV)
The NAV of the fund is the cumulative market value of the
assets fund net of its liabilities. In other words if the fund is
dissolved or liquidated, by selling off all the assets in the
fund, this is the amount that the shareholders would
collectively own. This gives rise to the concept of NAV per
unit, which is the value, represented by the ownership of one
unit in the fund. It is calculated simply by dividing the NAV
of the fund by the no. of units. However, most people refer
loosely to the NAV per unit as NAV ignoring the "per unit".
We also abide by the same convention.

Calculation of NAV

The most important part of the calculations is the valuation

of the assets owned by the fund. Once it is calculated, the
NAV is simply the net value of assets divided by the no. of
units outstanding. The detailed methodology for the
calculation of the asset value is given below.

Asset value is equal to =

Sum of
• Market value of share/ debenture
• Liquid assets/ cash held, if any
• Dividends / interest accrued
• Amount due on unpaid assets
• Expenses accrued but not paid

Details on the above items

For liquid shares/debentures, valuation is done on the

basis of the last or closing market price on the principal
exchange where the security is traded.

For illiquid and unlisted and/or thinly traded

share/debentures, the value has to be estimated. For
shares, this would be the book value per share or an

42
estimated market price if suitable benchmarks were
available. For debentures and bonds, value is estimated on
the basis of yields of comparable liquid securities after
adjusting for illiquidity. The value of fixed interest bearing
securities moves in a direction opposite of interest rate
changes. Valuation of debentures and bonds is a big
problem since most of them are unlisted and thinly traded.
This gives considerable leeway to the AMC's on valuation
and some of the AMC’s are believed to take advantage of
this end adopt flexible valuation policies depending on the
situation.

Interest is payable on debenture/bonds on a periodic say

every 6 months. But, with every passing day, interest is
said to be accrued, at the daily interest rate, which is
calculated by dividing the periodic interest payment with
the no. of days in each period. Thus, accrued interest on a
particular day equal to the daily interest rate multiplied by
the no. of days since the last interest payment date.

Usually, dividends are proposed at the time of the

Annual General Meeting and become due on the record
date. There is a gap between the dates on which it
becomes due and the actual payment date. In the
intermediate period, it is deemed to be "accrued."

Expenses including management fees, custody charges

etc. are calculated on a daily basis.

ASSET MANAGEMENT COMPANY (AMC)

Asset Management Company controls the operations and
functioning of a mutual fund. It is very critical to the
performance of a mutual fund as it decided on the style of
functioning people who are going to manage the funds, the
commitment to service quality and overall supervision.

The financial strength and the commitment of the AMC

sponsors to the business are very key issue. This is because

43
most AMC's lose money in the first few years of operations.
In most cases, these losses are much more than the capital
requirements stipulated by SEBI. Hence, a sponsor which is
financially weak or which cannot capital to the business
either because of its inability or unwillingness will result in an
unhealthy operation. This is the last place where high quality
persons would want to remain and work. The Asset
Management Company then remains stunted and the
sponsors lose interest. The worst affected are the investors.
This is exactly what has happened with some AMC's
promoted by Indian business houses.

This is also a problem that has afflicted of the Asset

Management Company's floated by nationalized banks.
In these organizations, the traditional thinking is
prevalent which can be summarized, as "money is power".
Since mutual fund business did not have access to too
much money, a posting in the AMC became punishment
posting for some personnel who were not doing well in
the parent organization or who lost out in the
organizational policies. The management of the banks also
did not all these Asset Management Company's to become
independent viable business. The CEO's of the AMC's did
not have any clue of the mutual fund business and neither
were they interested in it - the entire effort was spent in
getting a posting back in the parent. The fund managers had
no experience in the activity making a mockery of
"professional management". The sad results are there to
see. Some of the parents had to provide funds to bridge
the gap in "assured return schemes". It looks extremely
likely that some of these AMC's will no longer exist in a few
years.

LOAD AND NO-LOAD FUNDS

Some asset management company (AMCs) levy service
changes for allowing subscribes entry into/exit from
mutual fund schemes, the service change is termed as
entry/exit load and such schemes are called "load"

44
schemes. In contrast, funds for which no entry/exit charge
is levied are called "no-load" funds.
The load is levied to cover the up-front cost incurred by the
AMC is the process of marketing and selling the fund and
other one-time transaction processing costs.

INVESTMENT STYLES OF DIFFERENT

MUTUAL FUNDS
Different mutual funds have very different investing
styles. These styles are a function of the individuals
managing the fund with overall investment objective and
policies of the organization acting as a constraint. These
are manifest in things like-
Portfolio turnover—Buy and hold strategy versus
frequent investment changes.
Kinds of investment made—small versus large
companies, multibaggars (investment which yield high
gains) versus percentage players (investing in shares
which will give small gains in line with the market), high
quality-low yield bonds versus low quality-high yield
bonds.
Asset Allocations—varying percentage of cash
depending on aggressive views on markets.

The following examples serve to illustrate a few styles of

equity fund managers. Some fund managers are passive
value seekers and some are value creators. The former
type buys undervalued assets and patiently waits for the
market to discover the value. The latter aggressively
promote the undervalued stocks they have bought.
Some fund managers restrict themselves to liquid stocks
while some think on illiquid stocks, which offer themselves
easily to large price changes.
Some fund managers are masters of the momentum
game and seek to buy stocks that are in market fancy.

45
They attach lesser importance to fundamentals and believe
that a rising stock price and favorable momentum
indicators imply that fundamentals are changing. In fact,
they are following the philosophy. "The trend is my friend".
Other fund managers go more by deep fundamental
analysis completely ignoring price movements. They do
not mind price going down and arc in fact happy to buy
more.
Some fund managers are growth investor's i.e. they buy
stocks with a high P/E using the forecast growth to justify
the high valuation. Others are value investors who buy
shares with low P/E or P/BV multiples— typically companies
rich with undervalued assets.

BENCHMARKS FOR PERFORMANCE OF A MUTUAL FUND

All mutual funds have different objective and therefore
their performance would vary. A mutual funds
performance should be benchmarked against mutual funds
of similar type or India info line mutual fund index for a
particular type eg. Equity fund index, income fund index or
balanced fund index or liquid fund index. One can also
benchmark the fund against the Sensex or any other broad
based index for the particular asset class.

One has to be very careful about choosing the comparison

period. Ideally, one should compare the performance of
equity or an index fund over 1-2 years horizon.
Any comparison over a shorter period could be distorted by
short term, volatile price movements. Comparisons over a
longer period need to be interpreted carefully by looking
at other factors such as change in individuals managing
the funds, one-time investment successes etc. Similarly,
the ideal comparison period for a debt fund would be 6-12
months while that for a liquid/money market fund would be
1-3 months. Apart from the entire period, one should also
compare the performance in smaller intervals within the
some period say intervals of 1-month duration.

46
To make comparison meaningful, one has to compare the
average annual compounded rate of return. This adjusts for
comparisons of different period and also facilities
comparison across different classes. The return also
incorporates dividend payouts. Thus, for example, one
can say that ABC income funds has given a compounded
annual growth rate (CAGR) of 13% p. a. Including dividends
in the last 2 years while XYZ income fund has given CAGR
of 13.2% over the last 3 years.

Apart from plain numerical comparison of NAV's, several

other things can be checked, eg. Correction of changes
in NAV with changes on portfolio composition and
appreciation/depreciation in valuation of individuals'
items, increase in the size of the corpus etc. In debt
funds, it is useful to compare the extent to which the
growth in NAV comes from interest income and from
changes in valuation of illiquid assets like bonds and
debentures. It is also useful to compare expense ratios of
funds eg. Birla Income plus has an expense ratio of 1.7%
which is one of the lowest expense ratios of all income
funds in the industry—this means that, everything else
been equal, the performance of that fund will be higher
by 0.55% than other funds, which have an expense ratio
of 2.25%. Last, but not the least, one has to compare the
risk profile of two funds. For income funds, this could
mean credit quality of the portfolio and the fluctuations
in the NAV with periodic changes in the interest rate
environment. For equity funds, it could mean the
volatility of the NAV with the ups and downs in the market
or the percentage exposure to smaller company shares etc.

47
 SEBI
REGULATIONS

48
There was no uniform regulation of the mutual funds
industry till a few years ago. The UTI was regulated by a
special Act of Parliament while funds promoted by public
sector banks were subject to RBI Guidelines of July 1989. The
Securities & Exchange Board of India (SEBI) was formed in
1993 as a capital market regulator. One of its responsibilities
was to regulate the mutual fund industry and it came up with
comprehensive regulations for the industry in 1993. The
rules for the formation, administration and management of
mutual funds in India were clearly laid down. Regulations
also prescribed disclosure requirements.

The regulations were thoroughly reviewed and re-notified in

December 1996. The revised guidelines tighten the
accounting and disclosure requirements in line with
recommendations of The Expert Committee on Accounting
Policies, Net Asset Values and Pricing of Mutual Funds. The
SEBI (Mutual Funds) Regulations, 1996 have been further
amended in 1997, 1998 and 1999. Today, all mutual funds
are regulated by SEBI. Efforts have been made to bring UTI
schemes under SEBI's ambit with the result that all schemes,
with the exception of Unit 64, are now regulated by the
capital market regulator.

Regulatory Aspects

• The asset management company shall launch no

scheme unless the trustees approve such scheme and a
copy of the offer document has been filed with the
Board.
• Every mutual fund shall along with the offer document
of each scheme pay filing fees.
• The offer document shall contain disclosures which are
adequate in order to enable the investors to make
informed investment decision including the disclosure
on maximum investments proposed to be made by the
scheme in the listed securities of the group companies
of the sponsor A close-ended scheme shall be fully
redeemed at the end of the maturity period. "Unless a

49
 majority of the unit holders otherwise decide for its
rollover by passing a resolution".
• The mutual fund and asset management company shall
be liable to refund the application money to the
applicants,-
(i) If the mutual fund fails to receive the minimum
subscription amount referred to in clause (a) of
sub-regulation (1);
(ii) If the moneys received from the applicants for
units are in excess of subscription as referred to in
clause (b) of sub-regulation(1).

Rules Regarding Advertisement:

• The offer document and advertisement materials shall

not be misleading or contain any statement or opinion,
which are incorrect or false.

Investment Objectives and Valuation Policies:

• The price at which the units may be subscribed or sold

and the price at which such units may at any time be
repurchased by the mutual fund shall be made
available to the investors.

General Obligations:

• Every asset management company for each scheme

shall keep and maintain proper books of accounts,
records and documents, for each scheme so as to
explain its transactions and to disclose at any point of
time the financial position of each scheme and in
particular give a true and fair view of the state of affairs
of the fund and intimate to the Board the place where
such books of accounts, records and documents are
maintained.

50
 • The financial year for all the schemes shall end as of
March 31 of each year. Every mutual fund or the asset
management company shall prepare in respect of each
financial year an annual report and annual statement of
accounts of the schemes and the fund as specified in
Eleventh Schedule.

• Every mutual fund shall have the annual statement of

accounts audited by an auditor who is not in any way
associated with the auditor of the asset management
company.

Procedure For Action In Case Of Default:

• On and from the date of the suspension of the

certificate or the approval, as the case may be, the
mutual fund, trustees or asset management company,
shall cease to carry on any activity as a mutual fund,
trustee or asset management company, during the
period of suspension, and shall be subject to the
directions of the Board with regard to any records,
documents, or securities that may be in its custody or
control, relating to its activities as mutual fund, trustees
or asset management company.

Restrictions on Investments:

• A mutual fund scheme shall not invest more than 15%

of its NAV in debt instruments issued by a single issuer,
which are rated not below investment grade by a credit
rating agency authorized to carry out such activity
under the Act. Such investment limit may be extended
to 20% of the NAV of the scheme with the prior
approval of the Board of Trustees and the Board of
asset Management Company.

• A mutual fund scheme shall not invest more than 10%

of its NAV in unrated debt instruments issued by a

51
 single issuer and the total investment in such
instruments shall not exceed 25% of the NAV of the
scheme. All such investments shall be made with the
prior approval of the Board of Trustees and the Board of
asset Management Company.

• No mutual fund under all its schemes should own more

than ten per cent of any company's paid up capital
carrying voting rights.

• Such transfers are done at the prevailing market price

for quoted instruments on spot basis. The securities so
transferred shall be in conformity with the investment
objective of the scheme to which such transfer has
been made.

• A scheme may invest in another scheme under the

same asset management company or any other mutual
fund without charging any fees, provided that
aggregate inter scheme investment made by all
schemes under the same management or in schemes
under the management of any other asset management
company shall not exceed 5% of the net asset value of
the mutual fund.

• The initial issue expenses in respect of any scheme may

not exceed six per cent of the funds raised under that
scheme.

• Every mutual fund shall buy and sell securities on the

basis of deliveries and shall in all cases of purchases,
take delivery of relative securities and in all cases of
sale, deliver the securities and shall in no case put itself
in a position whereby it has to make short sale or carry
forward transaction or engage in badla finance.

• Every mutual fund shall, get the securities purchased or

transferred in the name of the mutual fund on account

52
 of the concerned scheme, wherever investments are
intended to be of long-term nature.

• Pending deployment of funds of a scheme in securities

in terms of investment objectives of the scheme a
mutual fund can invest the funds of the scheme in short
term deposits of scheduled commercial banks.

• No mutual fund scheme shall make any investment in;

i. Any unlisted security of an associate or group
company of the sponsor; or
ii. Any security issued by way of private
placement by an associate or group
company of the sponsor; or
The listed securities of group companies
of the sponsor which is in excess of 30%
of the net assets [of all the schemes of a
mutual fund]
• No mutual fund scheme shall invest more than 10 per
cent of its NAV in the equity shares or equity related
instruments of any company. Provided that, the limit of
10 per cent shall not be applicable for investments in
index fund or sector or industry specific scheme.

• A mutual fund scheme shall not invest more than 5% of

its NAV in the equity shares or equity related
investments in case of open-ended scheme and 10% of
its NAV in case of close-ended scheme.

Who can invest in Mutual Funds?

The following persons (subject, wherever relevant, to

purchase of units being permitted under their respective
constitutions and relevant State Regulations) are eligible to
subscribe to the units:

• Adult Resident Indian Individuals, either single or jointly

(not exceeding three).

53
 • Non - resident Indians, Overseas Corporate Bodies, and
persons of Indian origin residing abroad, on a full
repatriation basis

• Parents / Lawful guardians on behalf of Minors

• Hindu Undivided Families (HUFs) in the name of HUF or

Karta

• Companies (including Public Sector Undertakings),

Bodies Corporate, Trusts (through Trustees ) and Co-
operative Societies

• Banks (including Regional Rural Banks) and Financial

Institutions

• Religious and Charitable Trusts

• Foreign Institutional Investors registered with SEBI /

Special Purpose Vehicles (SPVs) approved by
appropriate authority ( subject to RBI approval )

• International Multilateral Agencies approved by the

Government of India

• Army/Navy/Air Force / Para Military Units and other

eligible institutions

• Unincorporated body of persons as may be accepted by

RCTC

• Partnership Firms Provident Fund, Pension Funds,

Superannuating Funds and Gratuity Funds can invest
only in Reliance Gilt Securities Fund.

How to Invest In Mutual Funds:

• STEP ONE- Identify your investment needs.

54
  Your financial goals will vary, based on your age,
lifestyle, financial independence, family
commitments, level of income and expenses
among many other factors. Therefore, the first
step is to assess your needs. Here you need to be
very categorical in the investment objectives and
needs. E.g. one may require income to finance a
wedding or education of children. You need to
analyze risk and the cash flow requirements. By
going through such an exercise, you will know
what you want out of your investment and can set
the foundation for second mutual Fund investment
strategy.

• STEP TWO- Choose the right Mutual Fund

 Once you have a clear strategy in mind, you now
have to choose which Mutual Fund and scheme
you want to invest in. The offer document of the
scheme tells you its objectives and provides
supplementary details like the track record of
other schemes managed by the same Fund
Manager.

• STEP THREE-Select the ideal mix of schemes

 Investing in just one mutual fund scheme may not
meet all your investment needs. You may consider
investing in a combination of scheme to achieve
your specific goals.

• STEP FOUR-Invest regularly

 For must of us, the approach that works best is to
invest a fixed amount at intervals, say every
month. By investing a fixed sum each month, you
buy fewer units when the price is higher and more
units when the price is low, thus bringing down
you average cost per unit. This is called rupee cost

55
 averaging and is a disciplined investment strategy
followed by investors all over the world.

• STEP FIVE-Keep your taxes in mind.

 If you are in a high tax bracket and have utilized
fully the exemptions under section 80L of the
Income Tax Act, investing in growth funds that do
not pay dividends might be more tax efficient and
improve your post tax return.

• STEP SIX-Start early

 It is desirable to start investing early and stick to a
regular investment plan. If you start now, you will
make more than if you wait and invest later. The
power of compounding lets you earn income on
income and your money multiplies at a
compounded rate of return.

• STEP SEVEN- The final step

 All you need to do now is to get in touch with a
Mutual Fund or you agent/broker or a Bank
Distributor (like IDBI Bank) and start investing.

56
57
 COMPANY PROFILE AND HISTORY

NJ Indiainvest Pvt. Ltd. Is one of the leading advisors and distributors of financial
products and services in India. Established in year 1994,by Mr. Neeraj and Mr. Jignesh.
NJ has over a decade of rich exposure in financial investments space and portfolio
advisory services. From a humble beginning. NJ over the years has evolved out to be a
professionally managed, quality conscious and costumer focused financial/investment
advisory & distribution firm.

The strength of NJ lies in the strong domain knowledge in investment consultancy

and the delivery of sustainable value to clients with support from cutting-edge
technology platform, developed in-house by NJ.

58
Divisions of NJ Indiainvest

1.

NJ Fundz Network was established in year 2003 as a dedicated platform offering

comprehensive services and support to the independent financial advisors. The services
offered by NJ fundz Network are increasingly recognized as the best and
Most comprehensive in nature.
The scope, depth, and quality of the services and support is unmatched in the industry.
NJ Fundz Network is proud to be the pioneers in India in providing the 360◦ Advisor
platform to independent advisors. With this NJ has managed to successfully transform the
business of many independent financial advisors, bringing them on equal footing or even
better than the strongest competitors in the industry.

2.
Established as a distinct entity, NJ Wealth advisors Pvt.Ltd. seeks to offer comprehensive
financial planning and portfolio advisory services to premium clients . With NJ Wealth
Advisors, NJ seeks to leverage
strong financial advisory and portfolio management skills gained in over a decade of
experience in the industry . NJ Wealth Advisors offers its clients with quality, unbiased,
need-based advisory services & investment solutions.

3.

Technology has traditionally been NJ’s key strength. The fact that we have set-up distinct
entity with a very strong, talented work-force for the sole purpose of providing the best to
NJ in terms of technology and support. Finlogic technologies (India) Pvt. Ltd. does all the

59
development & support work in- house on a continuous basis. It has successfully
developed & implemented a powerful support system for y the mutual fund distribution
business at NJ with a provision for integrating same with other investment products as
well as the financial accounting system.

4. NJ Gurukul
NJ Gurukul is a separate division of NJ Indiainvest which is responsible for providing
training and development program to the partners and employees of NJ Indiainvest.

5. NJ Reality
NJ Indiainvest also forayed into real estate NJ Reality is the division of NJ Indiainvest
that takes care of real estate business at NJ Indiainves

NJ Fundz partner-

NJ Indiainvest has over 8,000 NJ Fundz Network partners and over 4,000 Normal
advisors associated with NJ. NJ presently has over Rs.7,000 Crores of assets under
advice.

Branches-:
NJ has over 105 PSCs (Partner Service Centers) in 18 states spread across India. The
numbers are reflections of the trust, commitment and value that NJ shares with its clients.
As a leading player in the industry, NJ continues to successfully meet the expectations of
its clients, through meaningful and comprehensive solutions offered by NJ Fundz
Network.

60
NJ’s main focus is though on mutual funds advisory and distribution. At NJ, we believe
that mutual funds, as an asset class, can be looked at for almost all of the financial needs.

Products and services offered by NJ Indiainvest-

NJ offers advisory and distribution services on the following products

1. Mutual funds- covering all AMCs & all schemes.

2. Life insurance- Prudential ICICI

3. Fixed deposits of companies,

4. Government/RBI bonds,

5. Infrastructure Bonds,

6. Approved securities for charitable trusts, etc

Management at NJ Indiainvest
The key members of the management are:

Mr. Neeraj Choksi Jt. Managing Director

Mr. Jignesh Desai Jt. Managing Director

Sales Team:
Mr. Misbah Baxamusa National Head

61
Mr. Naveen Rathod V.P.

Mr. Kulbhushan Nandwani A.V.P.

Mr. Prashant Kakkad A.V.P.

Executive Team:

Mr. Shirish Patel Information Technology

Mr. Vinayak Rajput Finance & Operations

Mr.Abhishek Dubey Marketing & Deveopment

Mr. Viral Shah Research

Mr. Dhaval Desai Human Resources

62
 RESEARCH
METHODOLO
GY

63
 RESEARCH METHODOLOGY

Objective of the study

"Creating awareness about Mutual Funds and to know the
investor’s behaviour towards Mutual Funds and to
determine the market potential in Jodhpur City."

Research Design
Research Design is the overall description of all the steps
though which the projects have preceded from the setting
of objectives to the writing of the project report. The
success of the project depends on the soundness of the
research design, which includes problem definition, specific
method of data collection and analysis and time required for
the project.

The research we took was “Descriptive Research” in nature

as it dealt with describing the market and buying behaviours
of consumers. The research was designed to discover the
potential of the mutual fund market at Jodhpur and also the
survey of the investors to know about their perception
towards various investment options available especially
mutual funds, the psychological factors associated with the
product, the benefits they are looking forth from the product
and how do they rank it on terms of risk and returns
associated with it.

Sources of Data Collection

64
The primary sources
First hand collection of data with the help of Surveys,
questionnaires, interviews.

The secondary sources

There are the sources with are already collection for some
earlier research work and are applicable in the study the
researcher has presently undertaken.

Data collection method

There are two types of data secondary and primary data.
The Secondary data refers to those data, which were
gathered for some other purpose and are already
available in the firm's internal records and commercials
papers, magazines and who sites.
On the other hand, primary data do not exist already in
records and publications. One has to gather primary data
a fresh from the specific study undertaken by him.

• Main source of the data was primary source of the

data collection for determining the awareness level
among the people and to study the terms and the
factors related to mutual funds secondary sources of
data were used.

 Secondary sources of data

The main of the secondary data was newspaper like
investors guide. The Economic Times, Business Times, and
electronic media i.e. Internet (sites related to mutual funds
i.e. amfiindia.com, Indian mutual funds etc.)

 Primary sources of data

The Survey method was used. Personal interviews were

conducted. Questionnaire was specially designed for the
research. The questionnaire was highly structured and was
undisguised in nature. The purpose of the Study was not
hidden from the respondents.

65
The questions asked were mainly close ended and were
direct in nature. Most of the questions were having a
multiple choice Sequencing and the structuring of the
questionnaire was done in such a way that they were able to
generate maximum out of the respondents.

Method of Data Collection

As our research was descriptive and data required was
primary. Primary data can be collected by three methods.
a. Observation
b. Experimentation
c. Survey

The Survey Method was found to be the most appropriate

for the purpose of data collection. As Survey research is
systematic gathering of data from respondent through
questionnaires. The Survey is for facilitating, understanding
or enabling prediction of some aspects of behaviour of the
population being surveyed. Thus it was the best available
tool, was convenient to use as it enabled to collect data in
short time from the sample selected and it was the most
approachable.

Sampling procedure

Defining the population

Element - people from middle class, upper middle class
and high-income group people of Jodhpur City.
Time – 20th May to 20th July 2006
Sampling method
A mixture of random sampling and the stratified random
sampling was chosen. The whole list of the potential
investors and the part inventors was divided into strata
based on their income capabilities and the occupation in
which they were involved. The data was also taken from
the yellow pages and the telephone directory and also from

66
the database which was readily available with Reliance
Mutual Fund.

Size of the Sample:

Since, the population was homogenous in nature to a large
extent, hence a sample size of 300 respondents were taken
into account to achieve the objective of the study. Other
prominent factors, kept in view while determining the size of
the sample, were size of the population, the number of
questions in the schedule , the sampling procedure adapted
and the time constraint’s. Thus a sample consisting of the
300 respondents were chosen which fulfilled the requirement
of efficiency, representative ness, reliability and flexibility.

Methods of Data Collection:

Questionnaire was developed to conduct the survey. The
researcher put to the respondents the question from
Performa and recorded the replies, simultaneously.
The questionnaire was the best alternative for data
collection. The other option was that of interview. Interview
as a tool, is quite easy but it is difficult to record and retain
the information and especially if the question include
subjective question. Moreover questionnaire serves the
purpose of structured interview.

67
 ANALYSIS AND
INTERPRETATION

68
 Q1. What is your annual income?

Annual Income of respondents

140 124
120 96
100
80
48
60
32
40
20
0
60000-1Lakh 1Lakh-2Lakh 2Lakh-3Lakh 3Lakh &
Above

69
5% 38 Q2. How much do you invest out of your total
0%
Than 10%
69
43
income?

Investment made by the Investors of

their total income

25%
29%

46%

Upto 5% 5%-10% More Than 10%

70
 Q3. Which age group you are in?

Age Group of Various Investors

Between 20-
30
17%

Between 30- Above 50

50 51%
32%

Above 50 Be tw ee n 30-50 Be tw e en 20-30

71
 Q4. For how many years you have been
investing?

1-5 Years
16%

10 Years &
Above
47%

5-10 Years
37%

1-5 Years 5-10 Years 10 Years & Above

72
Q5. What
In vis
e s your
t m e n t investment
P r e fe re n c e preference?
30%
30%
25% 20%
18% 17%
20% 15%
15%
10%
5%
0%
F D 's , P ro p e rt yB o n d s M u t u a l S h a re
In s u ra n c e F u n d s M a rk e t
O p ti o n s a v a i l a b l e

73
Expectation Of Inv estors regarding
their Inv estments to grow

Q6. What is your expectation of your

investment to grow?
13%
25%
S teadily
At average
Fast

62%

74
Q7. What is your perception with respect to
returns?

Perception of Investors with

respcetive to returns
21% 15%

64%

Safety of Principal
Earning return above inflation rate
Earning High returns

75
 Q8. Are you aware of various mutual fund
schemes?
Investor's knowledge about various
mutual fund schemes
80%
80%
70%
60%
50%
40%
30%
20%
20%
10%
0%
Y es No

76
 Q9. Have you invested in mutual funds?

30 %

Yes
No

70 %

77
 25%
25%
Q10.2 If
0 %yes, then in which company(s) have
20% you 1 8 %
16%
invested?
15% 13%

10% 8%

5%

0%
U TI P ru IC IC I H D F C R e lia n c e Ta t a other
V a ri o u s A M C s

78
 24%
25% 22%
20% 20%
20% Q11. What affects your decision most?
14%
15%

10%

5%

0%
M a r k e t T r e n dB sr a n d N a m e C o m p a n yA d v e r t is e m e n tFsr ie n d s
Pro d u ct

79
 Views of the Investors if the stock
market crashed down
Q12. How will you react if stock market crashes
down?
Invest Withdraw
29% 19%

Wait
52%

80
81
 CONCLUSION

• From the analysis of the responses received from the

investors in Jodhpur city, a majority of investors are
found to be conscious and enlightened regarding their
investments, returns & growth.

• We have very good market in Jodhpur which comprises

potential investors but due to lack of basic promotion &

82
 publicity these investors are not fully aware of mutual
fund schemes.

• Their investment decisions are done on the basis of

security & few parameters like demographic,
physiological, income, etc.

• So mutual fund companies should make little more

efforts to trap the potential investors by media
advertisements, paper advertisements, seminars &
business meets & building a good relationship with
potential customers.

83
RECOMMENDATIONS

84
• Investors above the age of 50 taken be taken into
consideration.
During our research we found that people above the
age group of 50 years have both time and money to
invest but they are not completely aware of the mutual
funds and thus they are investing more in the
conventional mediums. Therefore more attention must
be given towards this segment to educate them about
mutual funds and to make them invest in mutual funds.
• Increase in Service centers.
Though India has a good savings rate, the savings
are channelized more into insurance and banking
schemes, which carry lesser risk. Mutual fund players
are slowly realizing the potential of the B and C class
cities of India, many of which are seeing good growth
in income levels as major players from diversified
industries such as IT, Services, Banking, Retailing and
Petroleum are setting up their bases in these cities.
Increased penetration is helping the industry improve
its assets under management. The potential will be
huge for the Indian mutual fund industry as the
present markets are still dominated by corporate and
investors from A class cities. Therefore more and more
service centers must be opened.
• Promote as Tax incentive tool.
Tax benefits extended to the mutual fund investors
investing in equity mutual fund schemes, too have
acted as a catalyst for the growth of the industry. As of
now, dividend is tax-free in the hands of investors.
Also, the removal of long-term capital gains tax is a
major catalyst.
• Investor Education program.
Timely organizing investor’s education programs by
the calling professionals from various fields of finance
and especially from the members from fund managing
team will increase investor trust in the company.

85
• Promotional Program – on local TV, Newspaper.
More and more promotional programs should be
run to educate and create awareness among the
people so that they can fully understand the mutual
fund concepts which will help them in investing in
them better and more and more. And this can be done
by giving advertisements in local newspapers, T.V.
channels, bill-boards and catchy hoardings that can be
displayed in public places.

• Investor Friendly Environment

The company should categorized its investor into-
potential, high net worth individuals, there profile
should be maintained which will help in better under
standing the needs of the customers and optimum mix
of the schemes accordingly.
• Product innovation.
The innovative schemes launched by the mutual
fund houses have given investors option to choose
funds, which suits his investment needs. Introduction
of innovative schemes like hybrid funds (fund for
funds), children funds, fixed maturity plans and new
schemes such as exchange-traded funds and
commodity- based funds have helped galvanize the
industry growth. The innovations have changed the
once uninteresting mutual fund offerings to a menu
consisting of tailor-made schemes for investors.
• Disclosure of Facts should be easier.
Disclosure of NAV should be made easier with help
of telephone or email and should be done at each
branch office.
• Use of Technology.
The technology wave, which has transformed many
industries in how they operate and survive, has also

86
come to the aid of the mutual fund industry to widen
its reach, offer flexibility and convenience to investors.

87
 LIMITATIONS

• UNCERTAINTY OF MARKET
Mutual Funds are securities investments are subject
to market risks and there is no assurance or
guarantee that the objectives of the Scheme will be
achieved.
As with any investment in securities, the NAV of the
units issued under the Scheme can go up or down
depending on the factors and forces affecting the
capital markets.

• LACK OF PUBLIC AWARENESS

In Jodhpur Mutual Fund Industry is in infantry stage
so people are unaware of it. So people are afraid to
invest & they only trust some Government funds like
UTI, SBI. They preferably like to invest in Insurance
especially in LIC. They generally ask that who will
give them assured returns.

88
• HIGH COMPETITION
Due to the existence of large number of AMC’s the
competition is high. Investors are confused that
where they have to invest and where not. Other
AMC’s offered the same type of products/schemes
which diversified the investors

• RIGID AND TRADITIONAL STRUCTURE

People believe investing in Bank FD’s and Post Office
saving and are reluctant to invest in Mutual Fund.
People like to secure money in terms of lending to
the people on high interest they meant their amount
is safe.

• SOCIO- ECONOMIC FACTOR

The standard of living is low and people have low
saving so investment in Mutual Fund is low. The most
of the people of this country are agriculture
dependent so they have less to invest.

• POLITICAL FACTOR
Due to volatile government & their policies regarding
investor & investment, the stock market is not
integrated which in turn affects the mutual fund
industry.

89
 BIBLIOGRAPHY

• BOOKS:

₪ C.R Kothari: Research Methodology; Wishva

Publication, New Delhi

90
• NEWSPAPERS:

₪ Economic Times.

₪ Business Times.

• WEBSTIES:
₪ www.reliancemutualfund.com

₪ www.amfindia.com

₪ www.google.com

• MAGAZINES:

₪ Business world

₪ Fund Fact Sheets of Reliance Mutual Fund.

91
 QUESTIONNAIRE

QUESTIONNAIRE
1. NAME: _____________________

92
 2. ADDRESS: _____________________
3. PHONE NO: (R) __________ (O) __________
4. AGE:  20-30  30-50  Above 50

5. PROFESSION:
Entrepreneur Private Job Government Job
Industrialist Others

6. INCOME LEVEL:
 60,000 – 1, 00,000  2, 00,000 – 3, 00,000
 1, 00,000 – 2, 00,000  Above 3, 00,000

7. How much do you invest as a part of your total income?

 Up to 5% 5%- 10% 10% &
Above

8. Have you ever invested in the market?

 Yes  No

9. If Yes, What is your Portfolio?

 Mutual Fund  Bonds  Shares
 FDs  Insurance
Others_________(Specify)

10. Are you aware of various Mutual Fund investment

schemes?
 Yes  No

11. Have you ever invested in Mutual Fund?

 Yes  No

12. If yes, you’re Diversification (Mention your preferences)

Equity  Debt  Cash 

13. How long you are investing in market?

 Never  1-5 years  5-10 years  Above 10
years

93
14. You made invested through:
 Your own  Through Distribution house
 Through broker  others

15. Are you a:

 Long term investor  Short term investor

16. What would you take into account while investing?

 Safety principle Earning high returns
 Earning return above inflation rate

17. Views of the investor – if the stock market crashes

down:
 Wait and Watch  State of withdrawal
 State of more investment

94