Srinivas Akula

A PROJECT ON

“CREATI NG AWARE NESS ABOUT MUTUAL FU

NDS

AND UNIT LI NK I NSURAN CE PLA N AS AN IN VE STMEN TO PTIO N & A GATE WAY TO OP TIMIZE YOUR EAR NIN GS”

FOR

KAR VY STO CK BR OKING LTD.

IN PARTIAL FULFILLMENT OF MASTER IN BUSINESS ADMINISTRATION (MBA)

-<< SUBMITTED BY >>SRINI VAS AKULA

MBA CO LL EGE OF MA NAGEM ENT RES EARC H & ENG IN EERI NG

(CMRE), PUNE-52 (2005-2007) SRINIVAS AKULA College of Management Research & Engineering, Pune-52

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ACKNOWLDGEMENT I wish to express my Thankful to one and all who helped me while I complete this project as a part of my Master Business Administration (MBA) course. It was a great learning experience and I came to know about the various sides of the finance business and the marketing also. I wish to express my acknowledgment to Mr. Ravi Gaikwad for giving me a good opportunity to fully explore in his company. A successful project can never be prepared by a singular effort of person, It’s a group efforts. I wish to express my sincere Thankful to our Director Mr.Anshul Sharma for allowing me to carry on this project. Finally, I would like to thank Prof. Shusmita Nande and co-ordinator Mr.Chanrdashaker Ranade for always being there when I needed them during the project.

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INDEX S.NO

CONTENTS

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EXCUTIVE SUMMARY COMPANY PROFILE OBJECTIVE & SCOPE INTRODUTION WHAT IS MUTUAL FUND ORGANISATION OF A MUTUAL FUND MUTUAL FUND INDUSRIES IN INDIA TYPES OF MUTUAL FUND SCHEMES MUTUAL FUND COMPANIES ADVANTAGES OF MUTUAL FUNDS DISADVANTAGES OF MUTUAL FUNDS PROJECT PROFILE RESEARCH METHODOLOGY OPERATIONS AND DATA COLLECTION RISK MANAGEMENT AND THE MUTUAL FUND PERFOMENCE OF MUTUAL FUNDS SUGGESTION UNIT LINK INSURANCE POLICY(ULIP) ULIP DOES THE MARRIAGE WORK? AWARENESS OF THE RISKIN ULIP CONCLUSION PERSONAL INFORMATION BIBLIOGRAPHY

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EXCUTIVE SUMMARY

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EXCUTIVE SUMMARY Today an investor is interested in tracking the value of his investments, whether he invests directly in the market or indirectly through Mutual Funds. This dynamic change has taken place because of Liberalization, Privatization and globalization and the growing competition in the investments opportunity available he would have to make guided and rational decisions on whether he gets an acceptable return on his investments in the funds selected by him, or if he needs to switch to another fund. The basis of appropriate In order to achieve such an end the investor has to understand preference measurement for the fund, and acquire the basic knowledge of the different measures of evaluating the performance of the fund. Only then would he be in a position to judge correctly whether his fund is performing well or not, and make the right decision. This project t is undertaken to help the investors in tracking the performance of their investments in Mutual Funds and has been carried out with the objective of giving and understanding of Mutual Fund as a financial product, the meaning, importance, working etc. of Mutual Fund, the current position of Mutual Fund Industry in India, the number of competitors and other Mutual Fund position. The methodology for carrying out the project was very simple that is through secondary data obtained through various mediums like fact sheet of the funds, the Internet, Business magazines, Newspaper, etc. the analysis of Principal PNB Funds has been done with respect to its various competitors on the basis of its ranking system mentioned in the ‘Analysis and Findings’ part, which is formulated keeping the benefits and convenience to the investors in mind. The funds have been analyzed under various types such as Equity Funds, Income Funds and Balanced Funds. It is of paramount importance to keep in mind the risk involved while investment as bearing or rather being able to bear risks is as important as analyzing the profit of

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the investment. Investments that have the greatest return potential tend to give the greatest risk potential. This project represents a information regarding company’s brand awareness and the customer perceptions about the various services which the organization provides. The main objective of the project is to understand the customer investment preferences more effectively and efficiently. For execution of the project methodology adopted is the collection of data through questionnaire, processing and analyzing the data. The natures of respondent, which are selected, are the professionals and having a handsome salary. The area of the project work is pune city and its location where the survey has been undertaken those are Hinjewadi IT Park, Magarpatta IT Park, WNS, Baner Symphony Soft Ware, Zenser IT Park, and Senapati Bapat Road. Karvy is the only personalized service provider offering a range of investment services depending on the customer needs and wants. The idea behind the project is to find the customer awareness and perception regarding mutual funds that are available in market.

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COMPANY PROFILE

COMPANY PROFILE KARVY, is a premier integrated financial services provider, and ranked among the top five in the country in all its business segments, services over 16 million individual investors in various capacities, and provides investor services to over 300 corporate, comprising the who is who of Corporate India. KARVY covers the entire spectrum of financial services such as Stock broking, Depository Participants, Distribution of financial products - mutual funds, bonds, fixed deposit,

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equities, Insurance Broking, Commodities Broking, Personal Finance Advisory Services, Merchant Banking & Corporate Finance, placement of equity, IPOs, DEMAT services, PAN card application, among others. Karvy has a professional management team 6500 employees and ranks among the best in technology, operations and research of various industrial segments. All this complimented with a nationwide network of 500 Branches, spanned across 350 cities and growing. The KARVY Group main Branch in Andhra pradesh in Hyderabad, Mr.C.Parthasarathy is a chairman of KARVY group. The birth of Karvy was on a modest scale in 1981. It began with the vision and enterprise of a small group of practicing Chartered Accountants who founded the flagship company …Karvy Consultants Limited. They started with consulting and financial accounting automation, and carved inroads into the field of registry and share accounting by 1985. Since then, they have utilized their experience and superlative expertise to go from strength to strength…to better their services, to provide new ones, to innovate, diversify and in the process, evolved Karvy as one of India’s premier integrated financial service enterprise. Thus over the last more than two decades Karvy has traveled the success route, towards building a reputation as an integrated financial services provider, offering a wide spectrum of services. And its employees have made this journey by taking the route of quality service, path breaking innovations in service, versatility in service and finally…totality in service.

Karvy’s highly qualified manpower, cutting-edge technology, comprehensive infrastructure and total customer-focus has secured for it the position of an emerging financial services giant enjoying the confidence and support of an enviable clientele across diverse fields in the financial world. On market trends, investment options, opinions etc. Thus empowering the investor to base every financial move on rational thought and prudent analysis and embark on the path to wealth creation. Their monthly magazine, Finapolis, provides up-dated market information.

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The major achievements of Karvy are: 1. Ranking among the top 3 stock broking firms in India 2. India's No. 1 Registrar & Securities Transfer Agents 3. Among the to top 3 Depository Participants 4. Largest Network of Branches & Business Associates 5. First ISO- 9002 certified operations by DNV 6. Among top 10 Investment bankers 7. Largest Distributor of Financial Products 8. Adjudged as one of the top 50 IT uses in India by MIS Asia 9. Full Fledged IT driven operations

10.The most admired and preferred financial advisor Basic Strategy of Karvy 1. Focus on retail segment. 2. Build a strong pan-India network managed by experienced Professionals build presence across metros & class A/B town. 3. Build full-service capabilities leveraging the network-offer the Entire gamut of financial services, backed by strong transaction Processing and high volume handling capability. 4. Established a high degree of customer ownership and top-of-mind recall in the local markets- ensures steady customer traffic and repeat business. 5. Build a trusted brand; ensure high visibility.

OBJECTIVES AND SCOPE The project was conducted for the following objective: •

To gain an understanding and knowledge of Mutual Funds as an Investment Tool.

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To study the product profile of the company.

•

To evaluate the performance of selected schemes of Mutual Fund of different companies.

•

To compare the Mutual fund schemes on different parameters such as Annualized Returns, Standard Deviation and Sharpe Ratio.

•

To analyze the performance factor of the Fund based on different drivers associated with the specific fund.

SCOPE The Indian securities market is the scope of this project and funds floated therein .The whole project was based with the agenda to analyze existing mutual funds and determine their performance factors .In depth analysis of individual fund is not the scope but on the other hand Performance of funds and finding their reasons as in general is the primary motive behind this project

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INTRODUCTION

INTRODUCTION

Mutual funds are being perceived as a complete service provider for the investing public. The stature of mutual funds has been growing among the professional investors in recent times unlike earlier times when mutual funds were associated with risk. Today mutual funds are considered to be vehicles for risk control and the

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entire focus has been on this theme. Also, as regards risk, the investing community has begun to realize that even debt carries nominal risk. Specialization of money management, which has an impact on all aspects of life, is being instilled and is beginning to dawn on investors. Mutual funds are no longer a matter of choice but are rather imperative to the investment decision. Mutual funds provide critical advantages such as risk control-by which safety is ensured, convenience-wherein professional investment management is facilitated, flexibility-by which switch over from debt to equity and vice-versa is facilitated and transparency-whereby investors know on a day to day basis what their investment is worth. The response has been stronger from the generally uninformed investing population. As ironical again it has been found that for financial advisors, brokers, chartered accountants etc, the awareness level was low even in the case of this community which one would expect to be enlightened to these facts. Expectation management is one of the most crucial aspects of running a mutual fund. At present, the mutual fund IPO segment is witnessing the same frenzy that the IPO market was witnessing in the early to mid-nineties. However, the potential investor should be fully aware that there exists no common cure for all ailments. Mutual funds are a vehicle for managing the investment goals of an individual provided he/she does his/her homework as to identifying the needs and goals that are to be attained. The philosophy to work on is that the investor should buy rather than the funds sell.

Mutual fund-Concept 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 are shared by its unit holders in proportion to the 12 SRINIVAS AKULA College of Management Research & Engineering, Pune-52

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:

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WHAT IS MUTUAL FUND?

What is a Mutual Fund…? A Mutual Fund is a trust that pool of the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depend upon the objective of the scheme. These could range from shares to the debentures to money market instruments. The income earned through these investments and the capital appreciation realized by the scheme 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 portfolio at a relatively low cost. The small savings of all the investors are

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put together to increase the buying power and hire a professional manager to invest and monitor the money. Anybody with an investible surplus of as a little as a few thousand rupees can invest in mutual fund. Each Mutual Fund scheme has a defined investment objective and strategy.

Characteristics of Mutual Funds  A Mutual Fund actually belongs to the investors who have pool their funds. The mutual fund is in the hands of the investors.  Investment professionals and other service providers, who earn a fee for their service from the fund, manage a mutual fund.  The pool of fund is invested in a portfolio of marketing investments. The value of the portfolio is updated every day.  The investor’s shares in the fund is denominated by “units” . The value of the unit changes with change in the portfolio value, every day. The value of one unit of investment is called as the net asset value (NAV).  The investment portfolio of the mutual fund is created according to the stated investment objectives of the fund.

ORGANISATION OF A MUTUAL FUND There are many entities involved and the diagram below illustrates the organisation al set up of a mutual fund:

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Legislation, the Unit Trust of India Act, 1963. In 1987 public sector banks and insurance companies were permitted to set up mutual funds and accordingly since 1987, 6 public sector banks have set up mutual funds. Also the two Insurance companies LIC and GIC established mutual funds. Securities Exchange Board of India (SEBI) formulated the Mutual Fund (Regulation) 1993, which for the first time established a comprehensive regulatory framework for the mutual fund industry. Since then several mutual funds have been set up by the private and joint sectors.

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MUTUAL FUND INDUSTRIES IN INDIA

Mutual Funds Industry in India The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. The initiative of the Government of India and The mutual fund industry in India began with the setting up of the Unit Trust In India (UTI) in 1964 by the Government of India. During the last 36 years, UTI has grown

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to be a dominant player in the industry with assets of over Rs. 76,547 Crores as of March 31, 2000. A special Reserve Bank of India governs the UTI. The history of mutual funds can be divided into four distinct phases.

First Phase - 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 corers of assets under management.

Second Phase - 1987-1993 (Entry of Public Sector Funds) Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by could bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47, 004 as assets under management.

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

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and

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governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21, 805 corers. The Unit Trust of India with Rs.44, 541 corers of assets under management was way ahead of other mutual funds.

Fourth Phase - Since February 2003 This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29, 835 corers (as on January 2003). The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI, which had in March 2000 more than Rs.76, 000 corers of AUM, and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September 2004, there were 29 funds, which manage assets of Rs.153108 corers under 421 schemes. The second is the UTI Mutual Fund Ltd., sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76000 Crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations and with recent mergers taking

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place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 Crores under 421 schemes. The Graph indicates the growth of assets over the years.

GROWTH IN ASSETS UNDER MANAGEMENT

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Note: Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India Effective from February 2003. The Assets under management of the Specified Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from February 2003 on wards.

TYPES OF MUTUAL FUND SCHEMES

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TYPES OF MUTUAL FUND SCHEMES Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.

TYPES OF MUTUAL FUND SCHEMES  By Structure 

Open - End Schemes

An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at net asset value (NAV) related prices. The key feature of open-end scheme is liquidity.



Close - Ended Schemes

A close-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund open for subscription only during a specified period. Investors can invest in the scheme at the time of initial public issue and thereafter they can buy and sell the units of the scheme on the stock exchanges where they 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 through periodic repurchase at NAV related prices. SEBI regulations stipulate that at least one of the two exit routes is provided to the investors.

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

Interval Schemes

Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices.

 By Investment Objective 

Growth Schemes

The aim of growth fund is to provide capital appreciation over the medium

to

long term. Such schemes normally invest a majority of their corpus in equities. It has been provided that returns from stock, have out performed most other kind of investments held over the long term outlook seeing growth over a period of time.

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Income Schemes

The aim of income fund is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as Bonds, Corporate Debentures and Government securities. Income funds are ideal for capital stability and regular income.



Balanced Schemes

The aim of balanced fund is to provide both growth and regular income. Such schemes periodically distribute a part of their earnings and invest both equities and fixed income securities in the proportion indicated in their offer documents. Ina rising stock market, the NAV of these scheme may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth.

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

Money Market Schemes

The aim of money market fund is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificate of deposits, commercial papers and inter bank call money. Returns on this scheme may fluctuate depending upon the interest rate prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short period.

 Other Schemes 

Tax Saving Schemes

These schemes offer tax rebate to the investors under specific provisions of the Indian income tax laws as the Government offers tax incentives for the investment in specified avenue. Investment made in Equity linked Savings schemes (ELLS) and pension schemes are allowed as deduction under section 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains under section 54EA and 54EB by investing in Mutual Funds.



Special Schemes 

Index Schemes

Index funds attempts to replicate the performance of a particular index such as BSE sensex or the NSE 50.

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Sector Specific Schemes

Sectoral funds are those, which invest exclusively in a specific sector. This could be an Industry or a group of industries or various segments such as ‘A’ Group shares or initial public offerings.



Industry specific schemes Industry specific Schemes invest in only in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, pharmaceuticals etc.

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MUTUAL FUND COMPANIES

Mutual Fund companies The concept of mutual funds in India dates back to the year 1963. The era between 1963 and 1987 marked the existence of only one mutual fund Company in India with Rs. 67bn assets under management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By the end of the 80s decade, few other mutual fund companies in India took their position in mutual fund market. 26 SRINIVAS AKULA College of Management Research & Engineering, Pune-52

The new entries of mutual fund companies in India were SBI Mutual Fund, Can bank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund. The succeeding decade showed a new horizon in Indian mutual fund industry. By the end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started penetrating the fund families. In the same year the first Mutual Fund Regulations came into existence with re-registering all mutual funds except UTI. The regulations were further given a revised shape in 1996. Kothari Pioneer was the first private sector mutual fund company in India, which has now merged with Franklin Templeton. Just after ten years with private sector players’ penetration, the total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India. Major Mutual Fund Companies: Franklin Templeton India Mutual Fund HDFC Mutual Fund Reliance Mutual Fund State Bank of India Mutual Fund Tata Mutual Fund Unit Trust of India Mutual Fund Bank of Baroda Mutual Fund (BOB Mutual Fund) HSBC Mutual Fund ABN AMRO Mutual Fund Birla Sun Life Mutual Fund SRINIVAS AKULA College of Management Research & Engineering, Pune-52

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ING Vysya Mutual Fund Prudential ICICI Mutual Fund Sahara Mutual Fund Kotak Mahindra Mutual Fund Standard Chartered Mutual Fund Morgan Stanley Mutual Fund India Escorts Mutual Fund Alliance Capital Mutual Fund Benchmark Mutual Fund Chola Mutual Fund Can bank Mutual Fund LIC Mutual Fund GIC Mutual Fund

Franklin Templeton India Mutual Fund The group, Franklin Templeton Investments is a California (USA) based company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world. Investors can buy or sell the Mutual Fund through their financial advisor or through mail or through their website. They have Open end Diversified Equity schemes, Open end Sector Equity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income and

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Liquid schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer.

HDFC Mutual Fund HDFC Mutual Fund was setup on June 30, 2000 with two sponsors namely Housing Development Finance Corporation Limited and Standard Life Investments Limited.

Reliance Mutual Fund Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund, which was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities. State Bank of India Mutual Fund State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes out of which 15 have already yielded handsome returns to investors. State Bank of India Mutual Fund has more than Rs. 5,500 Corers as AUM. Now it has an investor base of over 8 Lakhs spread over 18 schemes. Tata Mutual Fund Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsors for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset Management Limited and its Tata Trustee

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Company Pvt. Limited. Tata Asset Management Limited is one of the fastest in the country with more than Rs. 7,703 corers (as on April 30, 2005) of AUM.

Unit Trust of India Mutual Fund UTI Asset Management Company Private Limited, established in Jan 14, 2003, manages the UTI Mutual Fund with the support of UTI Trustee Company Private Limited. UTI Asset Management Company presently manages a corpus of over Rs.20000 Corer. The sponsors of UTI Mutual Fund are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds, Income Funds, Asset Management Funds, Index Funds, Equity Funds and Balance Funds. Bank of Baroda Mutual Fund (BOB Mutual Fund) Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the AMC of BOB Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the custodian.

HSBC Mutual Fund HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund. ABN AMRO Mutual Fund ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset

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Management (India) Ltd. was incorporated on November 4, 2003. Deutsche Bank A G is the custodian of ABN AMRO Mutual Fund.

Birla Sun Life Mutual Fund Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Sun Life Financial is a global organization evolved in 1871 and is being represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual Fund follows a conservative long-term approach to investment. Recently it crossed AUM of Rs. 10,000 corers.

ING Vysya Mutual Fund ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It is a joint venture of Vysya and ING. The AMC, ING Investment Management (India) Pvt. Ltd. was incorporated on April 6, 1998. Prudential ICICI Mutual Fund The mutual fund of ICICI is a joint venture with Prudential Plc. of America; one of the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of October 1993 with two sponsors, Prudential Plc. and ICICI Ltd. The Trustee Company formed is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Management Company Limited incorporated on 22nd of June 1993. Sahara Mutual Fund Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. as the sponsor. Sahara Asset Management Company Private Limited incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs 25.8 crore.

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Kotak Mahindra Mutual Fund Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is presently having more than 1,99,818 investors in its various schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk - return profiles. It was the first company to launch dedicated gilt scheme investing only in government securities. Standard Chartered Mutual Fund Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated with SEBI on December 20,1999. Morgan Stanley Mutual Fund India Morgan Stanley is a worldwide financial services company and its leading in the market in securities, investment management and credit services. Morgan Stanley Investment Management (MISM) was established in the year 1975. It provides customized asset management services and products to governments, corporations, pension funds and non-profit organizations. Its services are also extended to high net worth individuals and retail investors. In India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMF). This is the first close end diversified equity scheme serving the needs of Indian retail investors focusing on a long-term capital appreciation.

Escorts Mutual Fund Escorts Mutual Fund was setup on April 15, 1996 with Escorts Finance Limited as its sponsor. The

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Trustee Company is Escorts Investment Trust Limited. Its AMC was incorporated on December 1, 1995 with the name Escorts Asset Management Limited. Alliance Capital Mutual Fund Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital Management Corp. of Delaware (USA) as sponsor. The Trustee is ACAM Trust Company Pvt. Ltd. and AMC, the Alliance Capital Asset Management India (Pvt) Ltd. with the corporate office in Mumbai. Benchmark Mutual Fund Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services Pvt. Ltd. as the sponsor and Benchmark Trustee Company Pvt. Ltd. as the Trustee Company. Incorporated on October 16, 2000 and headquartered in Mumbai, Benchmark Asset Management Company Pvt. Ltd. is the AMC.

Can bank Mutual Fund Can bank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as the sponsor. Can bank Investment Management Services Ltd. incorporated on March 2, 1993 is the AMC. The Corporate Office of the AMC is in Mumbai.

Chola Mutual Fund Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the Trustee Company and AMC is Cholamandalam AMC Limited.

LIC Mutual Fund Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It

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contributed Rs. 2 Corers towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882. . The Company started its business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund.

GIC Mutual Fund GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a Government of India undertaking and the four Public Sector General Insurance Companies, viz. National Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The Oriental Insurance Co. Ltd (OIC) and United India Insurance Co. Ltd. (UII) and is constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882

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ADVANTAGES AND DISADVANTAGES OF MUTUAL FUNDS

ADVANTAGES OF INVESTIN IN MUTUAL FUNDS  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 shareowners can benefits from diversification techniques usually available only to buy significant positions in a wide variety of securities.

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 Low cost: If you tried to create your own diversified portfolio of stocks, you’d need at least $100000 and you’d pay thousands of dollars in commission to assemble your portfolio. A mutual fund lets you participate in a diversified portfolio for as little as 1000, and sometimes less. And if you buy a no-load, you pay or no sales changes own them.

 Professional Management: Most mutual funds pay topflight professionals to manage their investments. These managers decide what securities the fund will buy and sell.

 Liquidity: It's easy to get your money out of a mutual fund. Write a check, make a call, and you've got the cash.

 Regulatory oversight: Mutual funds are subject to many government regulations that protect investors from fraud.

 Convenience: You can usually buy mutual fund shares by mail, phone, or over the Internet.

 Online service: The Internet provides facts, convenient way or investors’ access financial information. Hosts of service are available to the online investors including direct access to no-load companies.

 Automatic Direct Deposit: You can usually arrange to have regular, third party payments—such as social security or pension checks— deposited directly into your fund account. This puts your money to work immediately, without waiting to clear your checking account, and it saves you from worrying about cheques being lost in mail.

 Record keeping Service With your own portfolio of stocks and bonds, you would have to do your own record keeping of purchases, sales, dividends, interest, short-term and longterm gains and losses. Mutual funds provide confirmation of your transactions

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and necessary tax forms to help you keep track of your investments and tax reporting.

 Safekeeping When you own shares in a mutual fund, you own securities in many companies without having to worry about keeping stock certificates in safe deposit boxes or sending them by registered mail. You don’t even have to worry about handling the mutual fund stock certificates; the fund maintains your account on its books and sends you periodic statements keeping track of all year transactions.

 Retirement and College Plans Mutual funds are well suited to Individual Retirement Accounts and most funds offer IRA-approved prototype and master plans for individual retirement accounts (IRAs) and Keogh. 403(b), SEP-IRA and 401(k) retirement plans. Funds also make it easy to Invest-for College. Children or other long-term goals. Many offer special investment products or programs tailored specifically for investments for children and college.

 Asset Management Accounts These master accounts, available from many of the larger fund groups, enable you to manage all your financial service needs under a single umbrella from unlimited check writing and automatic bill paying to discount brokerage and credit card accounts.

 Margin Some mutual fund shares are marginal. You may buy them on margin or use them as collateral to borrow money from your bank or broker. Call your fund company for details.

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 Market Cycle Planning For investors who understand how to actively manage their portfolio, mutual fund investments can be moved as market conditions change. You can place your funds in equities when the market is on the upswing and move into money market funds on the downswing or take any number of steps to ensure that your investments are meeting your needs in changing market climates. A word of caution: since it is impossible to predict what the market will do at any point in time, staying on course with a long-term, diversified investment view is recommended for most investors.

 Transparency Regulations for mutual funds have made the industry very transparent. You can track the investments that have been made on you behalf and the specific invest

DI SAD VANT AGES O F MU TU AL F UN DS Mutual funds have their disadvantages and may not be for everyone:

 No Guarantees: No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through a mutual fund runs the risk of losing money.

 Taxes: During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your

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fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made.

 Fees and commissions: All funds charge administrative fees to cover their day-to-day expenses. Some funds also charge sales commissions or "loads" to compensate brokers, financial consultants, or financial planners. Even if you don't use a broker or other financial adviser, you will pay a sales commission if you buy shares in a Load Fund.

 Management risk: When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in Index Funds, you forego management risk, because these funds do not employ managers

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PROJECT PROFILE

PROJECT PROFILE

A major portion of the people in India is not aware of the mutual funds and its benefits. The main objective of the project was to educate the people about mutual fund industry and to make them aware about the different types of mutual funds and also educate them for AMFI examination. Which is mandatory to clear for becoming a mutual fund advisor. A major portion of the household savings in India

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is concentrated in bank, providents, life insurance funds etc. Only 2-3 in invested in mutual fund and stock market. The following graph gives an idea of distribution of household savings.

Distribution of Household Savings 2001

Shares&mutual fund Currency 13%

2%

6%

Bank Deposits

21%

Non Bank Deposits 42% 13%

3%

Life Insurance Provident&Pension Government Securities

Unlike the other developed markets where bank deposits constitutes around 10%, in India the concentrated of the savings is highly towards currency and bank deposits (Approximately 50%). A shift of only 10% of the house hold savings towards mutual funds can give a growth of over 25000 Crores on a year on year basis with the current base. The motive of the project was to change the mind set of the people regarding the mutual funds and to move their savings from deposits and currency to mutual funds. Keeping this in view our company in to the training and development of independent financial advisor who can give advise on mutual funds and create awareness among the household about his investment opportunity. To know response and to gather knowledge about the various financial advisors we have conducted a survey.

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RESEARCH METHODOLOGY

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RESEARCH METHODOLOGY A research is a careful investigation or enquiry, especially through search foe new facts in any branch of knowledge. It is a systemized effort to gain more knowledge.” Research Methodology is a way to systematically solve the research problem. It includes not only the research methods, but also the logic behind using the methods.” The methods of research used in this project were as follows: Analytical Research  Applied Research

Analytical Research: In analytical research the researcher has to use the facts already available, and analyze these to make the critical evaluation of the material.

In this project I have used many raw data from the various sources and analyzed it for underlying trends.

Applied Research:Applied Research aims at finding a solution for an immediate problem. Research aimed at certain conclusions (say a solution) facing a concrete social or business problem is an example of applied research. Thus the central aim of applied research is to find a solution for some pressing practical problem. In this project, in the last section, by means of assumptions I have found the feasibility of a project that the organization means to undertake.

The analysis of the trends followed by the mutual funds was Analytical Research. 44 SRINIVAS AKULA College of Management Research & Engineering, Pune-52

OPERATIONS AND DATA COLLECTION

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OPERATIONS & DATA COLLECTION From the secondary data available from the fact sheet, Internet etc. Analyses between three different types of funds are as follows: Equity Diversified Fund  Income Fund  Balanced Fund

PARAMETERS USED FOR COMPARISION The parameters that are used for comparison of Principal PNB Mutual Fund Schemes with other Mutual Fund Schemes are done on the following basis:•

Annualized Returns

•

Standard Deviation

•

Sharpe Ratio

•

Beta Ratio

•

Alpha Ratio

•

R-Squared

•

Annualized Returns

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Top 10 Funds R ank 1 2 3

4

5

6

- Period (Last 1 Month)

Scheme Name

UTI Mahila Unit Scheme Franklin India

Date May 30, 2006 May 29,

International Fund 2006 Reliance Regular Savings May 30,

NAV (Rs.)

% Return as on NAV date

25.9723 2.0266 10.1491 1.8444

11.0149 1.728 Fund - Hybrid - Growth 2006 Prudential ICICI Blended May 30, Plan - Option A 10.5433 1.3711 2006 Dividend Prudential ICICI Blended May 30, 10.8058 1.3687 Plan - Option A - Growth 2006 HDFC Fixed Maturity Plan - 13 Month - March May 30, 2006 - Regular Plan -

2006

10.1898 1.0722

Growth HDFC Fixed Maturity 7

Plan - 13 Month - March May 30, 2006 - Regular Plan -

2006

10.1898 1.0722

Dividend HDFC Fixed Maturity 8

Plan - 13 Month - March May 30, 2006 - Institutional Plan - 2006

10.1898 1.0722

Growth HDFC Fixed Maturity 9

10

Plan - 13 Month - March May 30, 2006 - Institutional Plan - 2006 Dividend Kotak Cash Plus -

10.1898 1.0722

May 30, 10.5198 1.0625

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Growth

2006

Some facts for the growth of mutual funds in India  100% growth in the last 6 years.  Number of foreign AMC's are in the queue to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide.  Our saving rate is over 23%, highest in the world. Only canalizing these savings in mutual funds sector is required.  We have approximately 29 mutual funds, which is much less than US having more than 800. There is a big scope for expansion.  'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities.  Mutual fund can penetrate rural like the Indian insurance industry with simple and limited products.  SEBI allowing the MF's to launch commodity mutual funds.  Emphasis on better corporate governance.  Trying to curb the late trading practices.

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RISK MANAGEMENT AND MUTUAL FUNDS

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RISK MANAGEMENT AND THE MUTUAL FUNDS The basic objective of a mutual fund is to provide a diversified portfolio so as to reduce the risk in investments at a lower cost. The mutual fund industry worldwide is based on this premise. Investors who take up mutual fund route for investments believe that their risk is minimized at lower costs, and they get an optimum portfolio of securities that match their risk appetite. They are ignorant about the diverse techniques and hedging products that can be used for minimizing the market volatility and hence take the help of the fund managers. It is very daunting to note that the drop in the NAV of some of the schemes is higher than the erosion of value in some of the ICE stocks. The recent survey conducted by Price water house Coopers (PWC) on risk management by mutual funds has posted interesting as well as worrying results. According to the survey, as many as 50 percent of the respondent mutual funds are not managing risk properly. If this is not all, 50 percent of the respondents did not even have documented risk procedures or dedicated risk managers. The respondents included among others, some of the heavyweights of the Indian MF industry viz. Templeton, Alliance, Prudential and IDBI Principal MF.

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The Beta of some of the favorite 2.09

Taurus Libra Leap (5.68%), DSP

stocks is shown below. The Table

ML Tech. (6.06%)

contains the Beta of some of the ICE scrips that constitute the top 10 holdings across various equity funds. DSQ Software Ltd. Satyam Computer Services Ltd. 2.00

ING Growth Port (11.2%), Alliance Equity Fund (9.7%), Chola freedom Tech (11.51%)

SSI Ltd.

1.98

IL&FS eCom (9.63%), LIC Dhansamridhi (9.18%)

Wipro Ltd.

1.87

ING Growth (23.8%), Magnum Sector Fund -InfoTech (15%), Alliance Alliance New Millennium (10%)

Himachal Futuristic

1.82

Communications Ltd. Global Tele-Systems Ltd.

UTI Sector- Services (9.48%), Taurus Discovery Stock (10.45%)

1.81

UTI US 92 (7.02%), ING Growth Portfolio (3.8%)

Zee Telefilms Ltd.

1.70

UTI Sector- Services (7.21%), ING Growth Portfolio (10.06%),

Infosys Technologies Ltd.

1.54

ING Growth Portfolio (20.5%), Alliance New Millennium (11.5%)

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As can be seen, some of the stocks are too volatile and can cause wild movements in the NAVs of funds that have taken exposures in them. The standard deviation of the returns in some of these funds points to it. While Alliance Equity Fund has a Standard Deviation of 2.53, Birla Advantage has its Standard Deviation at 2.57. ING Growth has a standard deviation of 3.3, which is relatively high due to its exposure to two volatile ICE scrips. Birla Advantage has reduced its exposures to Infosys drastically in the last two months and taken steps to contain volatility. SBI Mutual Fund that is recasting its equity portfolio to reduce risks as they can scare investors is planning similar steps.

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PERFORMANCE MEASURES OF MUTUAL FUNDS

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PERFOMANCE MEASURES OF MUTUAL FUNDS Mutual Fund industry today, with about 34 players and more than five hundred schemes, is one of the most preferred investment avenues in India. However, with a plethora of schemes to choose from, the retail investor faces problems in selecting funds. Factors such as investment strategy and management style are qualitative, but the funds record is an important indicator too. Though past performance alone cannot be indicative of future performance, it is, frankly, the only quantitative way to judge how good a fund is at present. Therefore, there is a need to correctly assess the past performance of different mutual funds.

Worldwide, good mutual fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. For mutual funds to grow, AMCs must be held accountable for their selection of stocks. In other words, there must be some performance indicator that will reveal the quality of stock selection of various AMCs. Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme, it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. Risk associated with a fund, in a general, can be defined as variability or fluctuations in the returns generated by it. The higher the fluctuations in the returns of a fund during a given period, higher will be the risk associated with it. These fluctuations in the returns generated by a fund are resultant of two guiding forces. First, general market fluctuations, which affect all the securities, present in the market, called market risk or systematic risk and second, fluctuations due to specific securities present in the portfolio of the fund, called unsystematic risk. The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations in the NAV of the fund vis-à-vis market. The more responsive the NAV of a mutual fund is to the changes in the market; higher will be its beta. Beta is calculated by relating the returns on a mutual

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fund with the returns in the market. While unsystematic risk can be diversified through investments in a number of instruments, systematic risk cannot. By using the risk return relationship, we try to assess the competitive strength of the mutual funds vis-à-vis one another in a better way.

In order to determine the risk-adjusted returns of investment portfolios, several eminent authors have worked since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative portfolios within a particular risk class. The most important and widely used measures of performance are: •

The Treynor Measure

•

The Sharpe Measure

•

Jenson Model

•

Fama Model

The Treynor Measure Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor's Index. This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government, as there is no credit risk associated), during a given period and systematic risk associated with it (beta). Symbolically, it can be represented as: Treynor's Index (Ti) = (Ri - Rf)/Bi. Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta of the fund. All risk-averse investors would like to maximize this value. While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor's Index is an indication of unfavorable performance.

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The Sharpe Measure In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it. According to Sharpe, it is the total risk of the fund that the investors are concerned about. So, the model evaluates funds on the basis of reward per unit of total risk. Symbolically, it can be written as: Sharpe Index (Si) = (Ri - Rf)/Si Where, Si is standard deviation of the fund. While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

Comparison of Sharpe and Treynor Sharpe and Treynor measures are similar in a way, since they both divide the risk premium by a numerical risk measure. The total risk is appropriate when we are evaluating the risk return relationship for well-diversified portfolios. On the other hand, the systematic risk is the relevant measure of risk when we are evaluating less than fully diversified portfolios or individual stocks. For a well-diversified portfolio the total risk is equal to systematic risk. Rankings based on total risk (Sharpe measure) and systematic risk (Treynor measure) should be identical for a well-diversified portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly diversified fund that ranks higher on Treynor measure, compared with another fund that is highly diversified, will rank lower on Sharpe Measure.

Jenson Model Jenson's model proposes another risk adjusted performance measure. This measure was developed by Michael Jenson and is sometimes referred to as the Differential Return Method. This measure involves evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund given the level of its systematic risk. The surplus between the two returns is called Alpha, which measures the performance of a fund compared with the actual returns over the period. Required return of a fund at a given level of risk (Bi) can be calculated as: Ri = Rf + Bi (Rm - Rf)

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Where, Rm is average market return during the given period. After calculating it, alpha can be obtained by subtracting required return from the actual return of the fund. Higher alpha represents superior performance of the fund and vice versa. Limitation of this model is that it considers only systematic risk not the entire risk associated with the fund and an ordinary investor cannot mitigate unsystematic risk, as his knowledge of market is primitive.

Fama Model The Eugene Fama model is an extension of Jenson model. This model compares the performance, measured in terms of returns, of a fund with the required return commensurate with the total risk associated with it. The difference between these two is taken as a measure of the performance of the fund and is called net selectivity. The net selectivity represents the stock selection skill of the fund manager, as it is the excess return over and above the return required to compensate for the total risk taken by the fund manager. Higher value of which indicates that fund manager has earned returns well above the return commensurate with the level of risk taken by him. Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf) Where, Sm is standard deviation of market returns. The net selectivity is then calculated by subtracting this required return from the actual return of the fund. Among the above performance measures, two models namely, Treynor measure and Jenson model use systematic risk based on the premise that the unsystematic risk is diversifiable. These models are suitable for large investors like institutional investors with high risk taking capacities as they do not face paucity of funds and can invest in a number of options to dilute some risks. For them, a portfolio can be spread across a number of stocks and sectors. However, Sharpe measure and Fama model that consider the entire risk associated with fund are suitable for small investors, as the ordinary investor lacks the necessary skill and resources to diversified. Moreover, the selection of the fund on the basis of superior stock

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selection ability of the fund manager will also help in safeguarding the money invested to a great extent. The investment in funds that have generated big returns at higher levels of risks leaves the money all the more prone to risks of all kinds that may exceed the individual investors' risk appetite

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SUGGESTIONS

SUGGESTIONS SRINIVAS AKULA College of Management Research & Engineering, Pune-52

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 Self-assessment of one’s needs; expectations and risk profile is of prime importance failing which, one will make more mistakes in putting money in right places than otherwise. One should identify the degree of risk bearing capacity one has and also clearly state the expectations from the investments. Irrational expectations will only bring pain.  The quality of service should be improved with they are providing to the existing customer.  They have to educate Advisors through conducting seminars, distributing free broachers, informing about financial planning, mutual fund etc.  Proper care should be taken to motivate the advisor so that they can also make effort from their side to increase their AUM. Some incentive should be provided to them for Advertisement and their sales should be measured so that they can do the promotional activities and regular follow-ups.  The company should take due care in selecting an advisor because they are the most important person in the process of all. The company should push them regularly so that they can make their effort to increase their AUM in their area which at present is not. Advisors are not taking due care, they are even hesitating to spend small amount on doing a promotional activity.

 It is important to identify the nature of investment and to know if one is compatible with the investment. One can lose substantially if one picks the wrong kind of mutual fund. In order to avoid any confusion it is better to go through the literature such as offer document and fact sheets that mutual fund companies provide on their funds.  One first has to decide what he wants the money for and it is this investment goal that should be the guiding light for all investments done. It is thus important to know the risks associated with the fund and align it with the quantum of risk one is willing to take. One should take a look at the portfolio of the funds for the purpose. Excessive exposure to any specific sector should be avoided, as it will only add to the risk of the entire portfolio. Mutual funds invest with a certain ideology such as the "Value Principle" or "Growth Philosophy". Both have their share of critics but both philosophies work for investors of different kinds. Identifying the proposed investment

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philosophy of the fund will give an insight into the kind of risks that it shall be taking in future.  A common investor is limited in the degree of risk that he is willing to take. It is thus of key importance that there is thought given to the process of investment and to the time horizon of the intended investment. One should abstain from speculating which in other words would mean getting out of one fund and investing in another with the intention of making quick money. One would do well to remember that nobody could perfectly time the market so staying invested is the best option unless there are compelling reasons to exit.  Investing should be a habit and not an exercise undertaken at one’s wishes, if one has to really benefit from them. As we said earlier, since it is extremely difficult to know when to enter or exit the market, it is important to beat the market by being systematic. The basic philosophy of Rupee cost averaging would suggest that if one invests regularly through the ups and downs of the market, he would stand a better chance of generating more returns than the market for the entire duration. The SIPs (Systematic Investment Plans) offered by all funds helps in being systematic. All that one needs to do is to give post-dated cheques to the fund and thereafter one will not be harried later. The Automatic investment Plans offered by some funds goes a step further, as the amount can be directly/electronically transferred from the account of the investor.

 It is important for all investors to research the avenues available to them irrespective of the investor category they belong to. This is important because an informed investor is in a better decision to make right decisions. Having identified the risks associated with the investment is important and so one should try to know all aspects associated with it. Asking the intermediaries is one of the ways to take care of the problem.

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 Finding funds that do not charge much fees is of importance, as the fee charged ultimately goes from the pocket of the investor. This is even more important for debt funds as the returns from these funds are not much. Funds that charge more will reduce the yield to the investor. Finding the right funds is important and one should also use these funds for tax efficiency. Investors of equity should keep in mind that all dividends are currently tax-free in India and so their tax liabilities can be reduced if the dividend payout option is used. Investors of debt will be charged a tax on dividend distribution and so can easily avoid the payout options.

 Finding the right fund is important but even more important is to keep track of the way they are performing in the market. If the market is beginning to enter a bearish phase, then investors of equity too will benefit by switching to debt funds as the losses can be minimized. One can always switch back to equity if the equity market starts to show some buoyancy.  Knowing when to exit a fund too is of utmost importance. One should book profits immediately when enough has been earned i.e. the initial expectation from the fund has been met with. Other factors like nonperformance, hike in fee charged and change in any basic attribute of the fund etc. are some of the reasons for to exit.

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UNIT LINK INSURANCE PLAN (ULIP) SRINIVAS AKULA College of Management Research & Engineering, Pune-52

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UNIT LINK INSURANCE POLICIES (ULIPs)

Most insurers in the year 2004 have started offering at least a few unitlinked plans. Unit-linked life insurance products are those where the benefits are expressed in terms of number of units and unit price. They can be viewed as a combination of insurance and mutual funds. The number of units, which the customer would get, would depend on the unit price when he pays his premium. The daily unit price is based on the market value of the underlying assets (equities, bonds, government securities etc.) and computed from the net asset value.

The advantages of Unit linked plans are that they are simple, clear, and easy to understand. Being transparent the policyholder gets the entire upside on

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the performance of his fund. Besides all the advantages they offer to the customers, unit-linked plans also lead to an efficient utilization of capital.

According to the IRDA, a company offering unit linked plans must give the investor an option to choose among debt, balanced and equity funds. If you opt for a unit-linked endowment policy, you can choose to invest your premiums in debt,

Balanced or equity plans. If you choose a debt plan, the majority of your premiums will get invested in debt securities like gilts and bonds. If you choose equity, then a Major portion of your premiums will be invested in the equity market. The plan you choose would depend on your risk profile and your investment need.

The ideal time to buy a unit-linked plan is when one can expect long-term growth ahead. This is especially so if one also believes that current market values (stock valuations) are relatively low. So if you are opting for a plan that invests primarily in equity, the buzzing market could lead to windfall returns. However, should the buzz die down, investors could be left stung. If one invests in a unit-linked pension plan early on, say 25, one can afford to take the risk associated with equities, at least in the plan's initial stages. However, as one approaches retirement the quantum of returns should be subordinated to capital preservation. At this stage, investing in a plan that has an equity tilt may not be a good idea. Onside ring that unit-linked plans are relatively new launches, their short history does not permit an assessment of how they will perform in different phases of the stock market. Even if one views insurance as a

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long-term commitment, investments based on performance over such a short time span may not be appropriate.

ULIPs: DOES THE MARRIAGE WORK? Unit-linked insurance plans (ULIPs) have become something of a rage with their 'promise' of market-linked returns combined with the dual benefit of insuring your life from eventualities.

To put it simply, ULIPs attempt to fulfill investment needs of an investor with protection/insurance needs of an insurance seeker. ULIPs work on the premise that there is class of investors who regularly invest their savings in products like fixed deposits (FDs), coupon-bearing bonds, debt funds, diversified equity funds and stocks. There is another class of individuals who take insurance to provide for their family in case of an eventuality. So typically both these categories of individuals (which also overlap to a large extent) have a portfolio of investments as well as life insurance. ULIP as a product combines both these products (investments and life insurance) into a single product. This saves the investor/insurance-seeker the hassles of managing and tracking a portfolio of products.

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Novel and noble as it appears, investor/insurance-seekers rarely understand the cost implications of the marriage between investments and life insurance. To be sure, it is intricate and not everyone is able to unravel it. Abhishek Bhatia (Head – Marketing ICICI Prudential Life Insurance) explains, ‘Unit-linked products are designed to put control in the hands of the customer. While some customers are comfortable with this, there are others who require some more explanation about the features. This is provided by the insurance agent. All the charges are clearly disclosed in the product brochures that are given to customers. Moreover, customers get a benefit illustration, which clearly illustrates the up-front, investment and mortality charges that are levied on the premium, and shows how the monies will grow over time, under a certain set of assumptions.’ In this backdrop let’s understand the costs of owning a ULIP. For illustration purpose, we have taken ULIPs of ICICI Prudential and HDFC Standard Life, two leading private insurers. Investors need to understand that this should only give them an indicative idea about the costs associated with a ULIP as different insurers have varying cost structures. We will start with the investment costs. Since ULIPs manage a portfolio of investments for clients, they incur a cost known as the fund management cost. This is similar to a mutual fund that incurs costs on managing the equity and debt portfolio for investors. In this regard, ICICI Prudential ULIP has a three-tier cost structure.

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SO INVESTORS OPT FOR ULIPs?

First and foremost, investors need to understand that a ULIP is a bundled product of their investments and their insurance proceeds. So if you have a ULIP invested in equities, you are exposing your life insurance monies as well as your investible surplus to the vagaries of equity markets. While it is fine and even sensible to let your investible assets get an equity flavor, the same cannot be said about your life insurance monies, which to a large extent should be sacred. The volatility in equity markets can disturb the calmest of minds and the last thing you want to see is your nest egg being eroded by the latest slide in equity markets. Abhishek Bhatia elaborates, ‘A ULIP policyholder has the option to invest in a variety of funds, depending on his risk profile. If one does not have the appetite to invest in equity, they can choose a debt or balanced fund.’

However, the structure of a ULIP takes care of quite a bit of the uncertainty in the markets. Insurance companies understand the need to give insuranceseekers the flexibility to rethink their investment strategy in view of market histrionics. There is an option for the insurance-seeker to switch to another plan with a lower or zero equity component to stem the loss in a falling equity market. Abhishek points out, ‘the switch option allows customers to switch between fund

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options, thereby making adjustments to any perceived risks.’ ICICI Pru allows policyholders to make this switch four times a year at no cost, with Rs 100 at every additional switch after that. HDFC Standard Life allows policyholders to make as many switches as they like. However, for investors to make the right switch they need to track markets actively and be well informed, which is actually the job of the investment advisor/consultant.

ULIPs are suitable for individuals who are already adequately insured and are reasonably well-informed and savvy to take active investment decisions by using the ‘switch option’ that is provided to a ULIP policyholder. Also policyholders with regular endowment plans who are not satisfied with the 4-6% returns can consider taking a ULIP with a lower equity component. It is best if insuranceseekers tread the middle path and choose balanced plans (with about 50-60% equity component). Ideally they need to avoid taking the aggressive 100% equity ULIP, which could needlessly expose their assets to market volatility. So if insurances-seekers/investors play their cards right, they can make this marriage work.

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AWARENESS OF THE RISK IN ULIPs Unit Linked Insurance Plans (ULIPs) all of sudden became a popular investment vehicle with investors in the past one year. The reason: perhaps the bull phase or the lure of market-linked returns that insurance companies have been advertising. But with the markets now having corrected significantly, many investors are wondering whether they should have opted for a ULIP in the first place.

A single cornerstone advantage ULIPs offer is that they leave the asset allocation decision in the hands of investors themselves. You are in control of how you want to distribute your money across the broad asset classes and how and when you want to reallocate. You can withdraw from these plans (after the initial lock in period) without any tax implication as withdrawals and death claim proceeds under ULIPs qualify for (capital gains) tax exemption under Section 10 (10D) of the Income Tax Act.

But such flexibility can be a big disadvantage if you are not ‘an expert’. You could choose to be more in equities (like you probably did late last year or early this year), when the time is probably right to go into low risk debt. Or vice versa. The impact of such incorrect decisions could be significant.

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CONCLUSION

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CONCLUSION  From the data base of advisors we have collected during the survey 255 of them interested to come in the mutual fund. We were able to convert more than 50% of them for the AMFI Examination.  We have seen that 75% people were not interested to come in to the field of mutual fund. The reason was that they don’t want to come out of their shell and don’t want to diversify their field of service. They also don’t have the proper knowledge of mutual funds.  There is a scarcity of independent financial advisors are not taking advisory service as a full time profession.  Life insurance as a form of protection is the single-most important financial product any earning member of a family must have. Having said this, a well-diversified portfolio is one of the first rules of financial planning, and as such one should consider different instruments as the ability to save increases. Certainly ULIPs successfully combine the first and most important need of protection, with savings, and hence are an excellent addition to your portfolio. These can be combined with various other products, after taking into account your risk appetite, financial goals and need for portfolio diversification. Possible investment options range from bank deposits and government small saving schemes to mutual funds, stocks and property.

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PERSONAL INFORMATION 1) NAME:

2) ADDRESS:

3) MOBILE NO:

4) HOW MANY CLIENTS DO YOU HAVE:

1) 0-50 2) 50-200 3) 200-500 4) 500-Above 5) HOW MANY YEARS YOU ARE IN THIS FIELD: 1) 0-3 2) 3-5 3) 5-10 4) 10-Above 6) WHAT TYPE OF SERVICE DO YOU PROVIDE: 1,INSURANCE

a) LIFE

b) GENERAL

2) MUTUAL FUND a) EQUITY MARKET b) RBI RELIEF BONDS c) POSTAL SCHEMES 7) ARE YOU INTERESTED FOR TAKING AMFI EXAM? 1) YES

2) NO

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8) OTHER ADVISORS WHOM YOU KNOW

BIBLIOGRAPHY     

COMPANY PRODUCT CATALOGUES & WEBSITE. SEBI WEBSITE. WWW.MUTUALFUNDINDIAN.COM. WWW.KARVY.COM. AMFI INDIAN WEBSITE.

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