1. MUTUAL FUNDS
MEANING
DEFINITION
WHO ARE THE PARTIES INVOLVED?
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2. MUTUAL FUNDS
ORIGIN
WHAT ARE MUTUAL FUNDS?
Mutual Fund is an investment company that pools money from shareholders
and invests in a variety of securities, such as stocks, bonds and money
market instruments. Most open-end mutual funds stand ready to buy back
(redeem) its shares at their current net asset value, which depends on the
total market value of the fund's investment portfolio at the time of
redemption. Most open-end mutual funds continuously offer new shares to
investors.
Also known as an open-end investment company, to differentiate it from a
closed-end investment company. Mutual funds invest pooled cash of many
investors to meet the fund's stated investment objective. Mutual funds stand
ready to sell and redeem their shares at any time at the fund's current net
asset value: total fund assets divided by shares outstanding.
In Simple Words, Mutual fund is a mechanism for pooling the resources by
issuing units to the investors and investing funds in securities in accordance
with objectives as disclosed in offer document.
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3. MUTUAL FUNDS
Investments in securities are spread across a wide cross-section of industries
and sectors and thus the risk is reduced. Diversification reduces the risk
because all stocks may not move in the same direction in the same
proportion at the same time. Mutual fund issues units to the investors in
accordance with quantum of money invested by them. Investors of mutual
funds are known as unitholders.
The profits or losses are shared by the investors in proportion to their
investments. The mutual funds normally come out with a number of
schemes with different investment objectives which are launched from time
to time. In India, A mutual fund is required to be registered with Securities
and Exchange Board of India (SEBI) which regulates securities markets
before it can collect funds from the public.
In Short, a mutual fund is a common pool of money in to which investors
with common investment objective place their contributions that are to be
invested in accordance with the stated investment objective of the scheme.
The investment manager would invest the money collected from the investor
in to assets that are defined/ permitted by the stated objective of the scheme.
For example, an equity fund would invest equity and equity related
instruments and a debt fund would invest in bonds, debentures, gilts etc.
Mutual Fund is a suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of
securities at a relatively low cost.
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4. MUTUAL FUNDS
DEFINITION
The securities & Exchange Board of India (mutual funds) regulations, 1993
defines a mutual fund as “a fund established in the form of a trust by a
sponsor, to raise money by trustees through the sale of units to the public,
under one or more schemes, for investing in securities in accordance with
these regulations”.
These mutual funds are referred to as Unit Trusts in the U.K. and as open
end investment companies in the U.S.A. therefore, Kamm, J.O. defines an
open end investment company as “an organization formed for the investment
of funds obtained from individuals & institutional investors who in exchange
for the funds receive shares which can be redeemed at any time at their
underlying asset values”.
According to Weston J. Fred & Brigham, Eugene, F., Unit Trusts are
“corporations which accepts dollars from savers and then use these dollars to
buy stocks, long term bonds, short term debt instruments issued by business
or government units; these corporations pool funds & thus reduce risk by
diversifications”.
Thus, mutual funds are corporations which pool funds by selling their own
shares & reduce risk by diversification.
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5. MUTUAL FUNDS
WHO ARE THE PARTIES INVOVED?
INVESTORS
Every investor, given her financial position & personal disposition, has a
certain inclination to take risk (risk profile or risk appetite). The hypothesis
is that by taking an incremental risk (of losing capital, wholly or partly), it
would be possible for the investor to earn an incremental return.
But assuming risk without regularly monitoring it is foolhardy. Therefore, it
would be prudent for investors who take a risk to be able to manage this risk.
A mutual fund is the solution for investors who lack the time, the
inclinations or the skills to actively manage their investment risk in
individual securities.
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6. MUTUAL FUNDS
The following categories of investors are eligible to invest in Indian mutual
funds:
• Resident Indian adult individuals, either singly or jointly (not
exceeding three);
• Parents & lawful guardians on behalf of minors;
• Companies, corporate bodies registered in India;
• Registered societies & co-operative societies authorized to invest in
such units;
• Partners of partnership firms;
• Hindu undivided families (HUFs), in the sole name of the karta;
• Banks (including co-operative banks & regional rural banks) &
financial institutions & investment institutions;
• Other mutual funds registered with SEBI;
TRUSTEES
Trustees are the people within a mutual fund organization who are
responsible for ensuring that investors’ interests in a scheme are properly
taken care of.
In return for their services, they are paid trustee fees, which are normally
charged to the scheme.
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7. MUTUAL FUNDS
ASSET MANAGEMENT COMPANY (AMC)
AMCs manage the investment portfolios of schemes. An AMCs incomes
comes the management fees it charges the schemes it manages. The
management fee is calculated as a percentage of net assets managed. Some
countries provide for performance based management fees as well.
In order to earn management fee, an AMC has naturally to employ people &
bear all the establishment cost that are related to its activity, such as for
premises, furniture, computers & other assets, software development,
communication costs, etc.
The break-even level of AUM is a function of cost structure of AMC &
distribution of assets between its different types of schemes since debt
schemes & index schemes generally yield a lower management fee.
DISTRIBUTORS
Distributors earn a commission for bringing investors into the schemes of a
mutual fund. This commission is an expense for the scheme, although there
are occasions when an AMC may choose to bear the cost, wholly or partly.
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8. MUTUAL FUNDS
Depending on the financial & physical resources at their disposal, the
distributors could be:
Tier 1 distributors who have their own or franchised network reaching out to
investors all across the country; or
Tier 2 distributors who are generally regional players with some reach
within their region; or
Tier 3 distributors who are small & marginal players with limited reach.
REGISTRARS
An investors holding in mutual fund schemes in typically tracked by the
scheme’s registrar & transfer agent (R&T). Some AMCs prefer to handle
this role in-house, i.e. on their own instead of appointing an R&T. The
registrar or the AMC as the case may be maintains an account of the
investor’s investments in and disinvestments from the scheme. Requests to
invest more money into a scheme or to redeem money against existing
investment in a scheme are processed by the R&T.
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9. MUTUAL FUNDS
CUSTODIAN / DEPOSITORY
The custodian maintains custody of the securities in which the schemes
invests as distinct from the registrars who tracks the investment by investors
in the schemes. This ensures an ongoing independent record of the
investments of the scheme. The custodian also follows up on various
corporate actions, such as rights, bonus & dividends declared by investee
companies.
In a situation where a securities are increasingly being dematerialized, the
role of the depository for such independent record of investments is
growing.
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10. MUTUAL FUNDS
STRENGTHS
WEAKNESS
OPPORTUNITIES
THREATS
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SWOT ANALYSIS OF MUTUAL FUNDS
STRENGTHS WEAKNESS
 Option available
 Diversification
 Professional management
 Potential returns
 Well regulated
 Technical analysis
 Convenient administration
 Return potential
 Low cost
 Transparency
 Affordability
 Flexibility.
 No control over cost
 No tailor made portfolio
 Managing a portfolio of funds
 Cost of churn.
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OPPORTUNITIES THREATS
 Bid scope for expansion
 Saving rate in India
 Growing cities
 Online trading of mutual
funds
 Like equity & commodity
 Clubbing up with other
investments.
 Uncertainity
 Change of market trends
 Increasing number of assets
management companies.
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EVALUATION & HISTORY OF MUTUAL FUND IN
INDIA
MUTUAL FUNDS INDUSTRY IN INDIA
TYPES OF MUTUAL FUND SCHEMES IN INDIA
FUTURE OF MUTUAL FUNDS IN INDIA
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MUTUAL FUND CONCEPT
A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal. The money thus collected is then invested in
capital market instruments such as shares, debentures and other securities.
The income earned through these investments and the capital appreciation
realised are shared by its unit holders in proportion to the number of units
owned by them. Thus a Mutual Fund is the most suitable investment for the
common man as it offers an opportunity to invest in a diversified,
professionally managed basket of securities at a relatively low cost. The
flow chart below describes broadly the working of a mutual fund:
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Mutual Fund Operation Flow Chart
EVALUATION & HISTORY OF MUTUAL FUND IN INDIA
Unit Trust of India (UTI) was the first mutual fund set up in India in the
year 1963. In early 1990s, Government allowed public sector banks and
institutions to set up mutual funds. UTI has an extensive marketing network
of over 40,000 agents all over the country.
In the year 1992, Securities and exchange Board of India (SEBI) Act was
passed. The objectives of SEBI are – to protect the interest of investors in
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securities and to promote the development of and to regulate the securities
market.
In 1995, the RBI permitted private sector institutions to set up Money
Market Mutual Funds (MMMFs). They can invest in treasury bills, call and
notice money, commercial paper, commercial bills accepted/co-accepted by
banks, certificates of deposit and dated government securities having
unexpired maturity upto one year.
As far as mutual funds are concerned, SEBI formulates policies and
regulates the mutual funds to protect the interest of the investors. SEBI
notified regulations for the mutual funds in 1993. Thereafter, mutual funds
sponsored by private sector entities were allowed to enter the capital market.
The regulations were fully revised in 1996 and have been amended
thereafter from time to time. SEBI has also issued guidelines to the mutual
funds from time to time to protect the interests of investors.
All mutual funds whether promoted by public sector or private sector
entities including those promoted by foreign entities are governed by the
same set of Regulations. There is no distinction in regulatory requirements
for these mutual funds and all are subject to monitoring and inspections by
SEBI. The risks associated with the schemes launched by the mutual funds
sponsored by these entities are of similar type.
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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. Though the growth was
slow, but it accelerated from the year 1987 when non-UTI players entered
the industry.
In the past decade, Indian mutual fund industry had seen a dramatic
imporvements, both qualitywise as well as quantitywise. Before, the
1963 Establishment of Unit Trust of India
1964 Unit Scheme 1964 launched
1987 Entry of non-UTI, Public Sector mutual funds
1993 Entry of private sector funds
First Mutual Fund regulations came into being
1996 Substitution of prevalent rules by SEBI (Mutual Funds)
Regulations 1996
2003 UTI bifurcated into two separate entities
- Specified Undertaking of Unit Trust of India
- UTI Mutual Fund
2004 Existence of 421 schemes, managing assets worth Rs. 153108
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monopoly of the market had seen an ending phase; the Assets Under
Management (AUM) was Rs. 67bn. The private sector entry to the fund
family raised the AUM to Rs. 470 bn in March 1993 and till April 2004; it
reached the height of 1,540 bn.
Putting the AUM of the Indian Mutual Funds Industry into comparison, the
total of it is less than the deposits of SBI alone, constitute less than 11% of
the total deposits held by the Indian banking industry.
The main reason of its poor growth is that the mutual fund industry in India
is new in the country. Large sections of Indian investors are yet to be
intellectuated with the concept. Hence, it is the prime responsibility of all
mutual fund companies, to market the product correctly abreast of selling.
The mutual fund industry can be broadly put into four phases according to
the development of the sector. Each phase is briefly described as under.
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
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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 crores 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
Canbank 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
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were to be registered and 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 crores. The Unit Trust of
India with Rs.44,541 crores 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 crores (as on January 2003). The Specified Undertaking
of Unit Trust of India, functioning under an administrator and under the
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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 crores 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 crores under 421 schemes.
The major players in the Indian Mutual Fund Industry are:
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 onwards.
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TYPES OF MUTUAL FUND SCHEMES IN INDIA
A wide variety of Mutual Fund Schemes exist 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.
BY STRUCTURE:
a) open-ended schemes
b) close-ended schemes
c) interval schemes
BY INVESTMENT OBJECTIVE:
a) growth schemes
b) income schemes
c) Balanced schemes
d) money market schemes
OTHER SCHEMES:
a) Tax saving schemes
b) special schemes
c) index schemes
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d) sector specific schemes
BY STRUCTURE
a) Open-ended schemes
Open-ended or open mutual funds are much more common than closed-
ended funds and meet the true definition of a mutual fund – a financial
intermediary that allows a group of investors to pool their money together to
meet an investment objective– to make money! An individual or team of
professional money managers manage the pooled assets and
choose investments, which create the fund’s portfolio. They are established
by a fund sponsor, usually a mutual fund company, and valued by the fund
company or an outside agent. This means that the fund’s portfolio is valued
at "fair market" value, which is the closing market value for listed public
securities. An open-ended fund can be freely sold and repurchased by
investors.
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• Buying and Selling:
Open funds sell and redeem shares at any time directly to shareholders.
To make an investment, you purchase a number of shares through a
representative, or if you have an account with the investment firm, you
can buy online, or send a check. The price you pay per share will be
based on the fund’s net asset value as determined by the mutual fund
company. Open funds have no time duration, and can be purchased or
redeemed at any time, but not on the stock market. An open fund issues
and redeems shares on demand, whenever investors put money into the
fund or take it out. Since this happens routinely every day, total assets of
the fund grow and shrink as money flows in and out daily. The more
investors buy a fund, the more shares there will be. There's no limit to the
number of shares the fund can issue. Nor is the value of each individual
share affected by the number outstanding, because net asset value is
determined solely by the change in prices of the stocks or bonds the fund
owns, not the size of the fund itself. Some open-ended funds charge an
entry load (i.e., a sales charge), usually a percentage of the net asset
value, which is deducted from the amount invested.
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• Advantages:
Open funds are much more flexible and provide instant liquidity as funds
sell shares daily. You will generally get a redemption (sell) request
processed promptly, and receive your proceeds by check in 3-4 days. A
majority of open mutual funds also allow transferring among various
funds of the same “family” without charging any fees. Open funds range
in risk depending on their investment strategies and objectives, but still
provide flexibility and the benefit of diversified investments, allowing
your assets to be allocated among many different types of holdings.
Diversifying your investment is key because your assets are not impacted
by the fluctuation price of only one stock. If a stock in the fund drops in
value, it may not impact your total investment as another holding in the
fund may be up. But, if you have all of your assets in that one stock, and
it takes a dive, you’re likely to feel a more considerable loss.
• Risks:
Risk depends on the quality and the kind of portfolio you invest in. One
unique risk to open funds is that they may be subject to inflows at one
time or sudden redemptions, which leads to a spurt or a fall in the
portfolio value, thus affecting your returns. Also, some funds invest in
certain sectors or industries in which the value of the in the portfolio can
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fluctuate due to various market forces, thus affecting the returns of the
fund.
b) Close-ended schemes
Close-ended or closed mutual funds are really financial securities that are
traded on the stock market. Similar to a company, a closed-ended fund
issues a fixed number of shares in an initial public offering, which trade on
an exchange. Share prices are determined not by the total net asset value
(NAV), but by investor demand. A sponsor, either a mutual fund company
or investment dealer, will raise funds through a process commonly known as
underwriting to create a fund with specific investment objectives. The fund
retains an investment manager to manage the fund assets in the manner
specified.
• Buying and Selling:
Unlike standard mutual funds, you cannot simply mail a check and buy
closed fund shares at the calculated net asset value price. Shares are
purchased in the open market similar to stocks. Information regarding
prices and net asset values are listed on stock exchanges; however,
liquidity is very poor. The time to buy closed funds is immediately after
they are issued. Often the share price drops below the net asset value,
thus selling at a discount. A minimum investment of as much as $5000
may apply, and unlike the more common open funds discussed below,
there is typically a five-year commitment.
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• Advantages:
The prospect of buying closed funds at a discount makes them appealing
to experienced investors. The discount is the difference between the
market price of the closed-end fund and its total net asset value. As the
stocks in the fund increase in value, the discount usually decreases and
becomes a premium instead. Savvy investors search for closed-end funds
with solid returns that are trading at large discounts and then bet that the
gap between the discount and the underlying asset value will close. So
one advantage to closed-end funds is that you can still enjoy the benefits
of professional investment management and a diversified portfolio of
high quality stocks, with the ability to buy at a discount.
• Risks:
Investing in closed-end funds is more appropriate for seasoned investors.
Depending on their investment objective and underlying portfolio,
closed-ended funds can be fairly volatile, and their value can fluctuate
drastically. Shares can trade at a hefty discount and deprive you from
realizing the true value of your shares. Since there is no liquidity,
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investors must buy a fund with a strong portfolio, when units are trading
at a good discount and the stock market is in position to rise.
BY INVESTMENT OBJECTIVE:
A scheme can also be classified as growth scheme, income scheme, or
balanced scheme considering its investment objective. Such schemes may be
open-ended or close-ended schemes as described earlier. Such schemes may
be classified mainly as follows:
a) Growth / Equity Oriented Schemes
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.
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Equity funds
As explained earlier, such funds invest only in stocks, the riskiest of asset
classes. With share prices fluctuating daily, such funds show volatile
performance, even losses. However, these funds can yield great capital
appreciation as, historically, equities have outperformed all asset classes. At
present, there are four types of equity funds available in the market. In the
increasing order of risk, these are:
Index funds
These funds track a key stock market index, like the BSE (Bombay Stock
Exchange) Sensex or the NSE (National Stock Exchange) S&P CNX Nifty.
Hence, their portfolio mirrors the index they track, both in terms of
composition and the individual stock weightages. For instance, an index
fund that tracks the Sensex will invest only in the Sensex stocks. The idea is
to replicate the performance of the benchmarked index to near accuracy.
Investing through index funds is a passive investment strategy, as a fund’s
performance will invariably mimic the index concerned, barring a minor
"tracking error". Usually, there’s a difference between the total returns given
by a stock index and those given by index funds benchmarked to it. Termed
as tracking error, it arises because the index fund charges management fees,
marketing expenses and transaction costs (impact cost and brokerage) to its
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unitholders. So, if the Sensex appreciates 10 per cent during a particular
period while an index fund mirroring the Sensex rises 9 per cent, the fund is
said to have a tracking error of 1 per cent.
To illustrate with an example, assume you invested Rs 1,000 in an index
fund based on the Sensex on 1 April 1978, when the index was launched
(base: 100). In August, when the Sensex was at 3.457, your investment
would be worth Rs 34,570, which works out to an annualised return of 17.2
per cent. A tracking error of 1 per cent would bring down your annualised
return to 16.2 per cent. Obviously, the lower the tracking error, the better the
index fund.
Diversified funds
Such funds have the mandate to invest in the entire universe of stocks.
Although by definition, such funds are meant to have a diversified portfolio
(spread across industries and companies); the stock selection is entirely the
prerogative of the fund manager.
This discretionary power in the hands of the fund manager can work both
ways for an equity fund. On the one hand, astute stock-picking by a fund
manager can enable the fund to deliver market-beating returns; on the other
hand, if the fund manager’s picks languish, the returns will be far lower.
The crux of the matter is that your returns from a diversified fund depend a
lot on the fund manager’s capabilities to make the right investment
decisions. On your part, watch out for the extent of diversification prescribed
and practiced by your fund manager. Understand that a portfolio
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concentrated in a few sectors or companies is a high risk, high return
proposition. If you don’t want to take on a high degree of risk, stick to funds
that are diversified not just in name but also in appearance.
Tax-saving funds
Also known as ELSS or equity-linked savings schemes, these funds offer
benefits under Section 88 of the Income-Tax Act. So, on an investment of up
to Rs 10,000 a year in an ELSS, you can claim a tax exemption of 20 per
cent from your taxable income. You can invest more than Rs 10,000, but
you won’t get the Section 88 benefits for the amount in excess of Rs 10,000.
The only drawback to ELSS is that you are locked into the scheme for three
years.
In terms of investment profile, tax-saving funds are like diversified funds.
The one difference is that because of the three year lock-in clause, tax-
saving funds get more time to reap the benefits from their stock picks, unlike
plain diversified funds, whose portfolios sometimes tend to get dictated by
redemption compulsions.
Sector funds
The riskiest among equity funds, sector funds invest only in stocks of a
specific industry, say IT or FMCG. A sector fund’s NAV will zoom if the
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sector performs well; however, if the sector languishes, the scheme’s NAV
too will stay depressed.
Barring a few defensive, evergreen sectors like FMCG and pharmacy, most
other industries alternate between periods of strong growth and bouts of
slowdowns. The way to make money from sector funds is to catch this
cycles–get in when the sector is poised for an upswing and exit before it
slips back. Therefore, unless you understand a sector well enough to make
such calls, and get them right, avoid sector funds.
b) Income / Debt Oriented Scheme
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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Such funds attempt to generate a steady income while preserving investors’
capital. Therefore, they invest exclusively in fixed-income instruments
securities like bonds, debentures, Government of India securities, and money
market instruments such as certificates of deposit (CD), commercial paper
(CP) and call money. There are basically three types of debt funds.
Income funds
By definition, such funds can invest in the entire gamut of debt instruments.
Most income funds park a major part of their corpus in corporate bonds and
debentures, as the returns there are the higher than those available on
government-backed paper. But there is also the risk of default–a company
could fail to service its debt obligations.
Gilt funds
They invest only in government securities and T-bills–instruments on which
repayment of principal and periodic payment of interest is assured by the
government. So, unlike income funds, they don’t face the spectre of default
on their investments. This element of safety is why, in normal market
conditions, gilt funds tend to give marginally lower returns than income
funds.
Liquid funds
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They invest in money market instruments (duration of up to one year) such
as treasury bills, call money, CPs and CDs. Among debt funds, liquid funds
are the least volatile. They are ideal for investors seeking low-risk
investment avenues to park their short-term surpluses.
The ‘risk’ in debt funds
Although debt funds invest in fixed-income instruments, it doesn’t follow
that they are risk-free. Sure, debt funds are insulated from the vagaries of the
stock market, and so don’t show the same degree of volatility in their
performance as equity funds. Still, they face some inherent risk, namely
credit risk, interest rate risk and liquidity risk.
• Interest rate risk: This is common to all three types of debt funds, and
is the prime reason why the NAVs of debt funds don’t show a steady,
consistent rise. Interest rate risk arises as a result of the inverse
relationship between interest rates and prices of debt securities. Prices
of debt securities react to changes in investor perceptions on interest
rates in the economy and on the prevelant demand and supply for debt
paper. If interest rates rise, prices of existing debt securities fall to
realign themselves with the new market yield. This, in turn, brings
down the NAV of a debt fund. On the other hand, if interest rates fall,
existing debt securities become more precious, and rise in value, in
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line with the new market yield. This pushes up the NAVs of debt
funds.
• Credit risk: This throws light on the quality of debt instruments a fund
holds. In the case of debt instruments, safety of principal and timely
payment of interest is paramount. There is no credit risk attached with
government paper, but that is not the case with debt securities issued
by companies. The ability of a company to meet its obligations on the
debt securities issued by it is determined by the credit rating given to
its debt paper. The higher the credit rating of the instrument, the lower
is the chance of the issuer defaulting on the underlying commitments,
and vice-versa. A higher-rated debt paper is also normally much more
liquid than lower-rated paper. Credit risk is not an issue with gilt
funds and liquid funds. Gilt funds invest only in government paper,
which are safe. Liquid funds too make a bulk of their investments in
avenues that promise a high degree of safety. For income funds,
however, credit risk is real, as they invest primarily in corporate
paper.
• Liquidity risk: This refers to the ease with which a security can be
sold in the market. While there is brisk trading in government
securities and money market instruments, corporate securities aren’t
actively traded. More so, when you go down the rating scale–there is
36

37. MUTUAL FUNDS
little demand for low-rated debt paper. As with credit risk, gilt funds
and liquid risk don’t face any liquidity risk. That’s not the case with
income funds, though. An income fund that has a big exposure to low-
rated debt instruments could find it difficult to raise money when
faced with large redemptions.
c) Balanced Fund
The aim of balanced funds is to provide both growth and regular income as
such 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. These funds are also affected because of
fluctuations in share prices in the stock markets. However, NAVs of such
funds are likely to be less volatile compared to pure equity funds.
As the name suggests, balanced funds have an exposure to both equity and
debt instruments. They invest in a pre-determined proportion in equity and
debt–normally 60:40 in favour of equity. On the risk ladder, they fall
somewhere between equity and debt funds, depending on the fund’s debt-
equity spilt–the higher the equity holding, the higher the risk. Therefore,
they are a good option for investors who would like greater returns than
from pure debt, and are willing to take on a little more risk in the process.
d) Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity,
preservation of capital and moderate income. These schemes invest
37

38. MUTUAL FUNDS
exclusively in safer short-term instruments such as treasury bills, certificates
of deposit, 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.
Other types of funds
a) Pooled Funds
A "pooled fund" is a unit trust in which investors contribute funds that are
then invested, or managed, by a third party. A pooled fund operates like
a mutual fund, but is not required to have a prospectus under securities
law. Pooled funds are offered by trust companies, investment
management firms, insurance companies, and other organizations.
Pooled funds and mutual funds are substantially the same, but differ in their
legal form. Like a mutual fund, a pooled fund is a trust that is set up under a
"trust indenture". This specifies how the pooled fund will operate and what
the duties of the various parties to the trust indenture will be. The trust
indenture specifies an investment policy for the pooled fund and how
management fees will be charged. Pooled funds, like mutual funds, are "unit
trusts". This means that investors deposit funds into the trust in exchange for
"units" of the fund, which reflect a pro-rata share of the fund's investments.
The fund trust indenture will specify how units are issued and redeemed, as
well as, the frequency and procedures for valuations. Pooled funds can be
38

39. MUTUAL FUNDS
either "closed" or "open". An "open" pooled fund is the most common type
of pooled fund, and allows units to be redeemed at scheduled valuations.
A "closed" pooled fund does not allow redemptions, except in specific
circumstances or at termination of the trust. Closed pooled funds are usually
established to hold illiquid investments such as real estate or very
specialized investment programs, such as hedge funds. The major difference
between pooled funds and mutual funds is their legal status under securities
law. Pooled funds are not "public" investments, which means investment
and trading in pooled funds is restricted. Securities legislation defines the
rules for a "public" security. Publicly issued securities must meet certain
requirements before issue, particularly in information disclosure through
their prospectus, or reporting by issuers. Pooled funds are exempt from
prospectus requirements under securities law, usually under the "private
placement", or "sophisticated investor", clauses in the Securities Act. This
means that investments in pooled funds must be over $150,000. Financial
institutions such as banks, trust companies or investment counselling firms
are allowed to invest their clients in their own pooled funds, by specific
exemptions granted under the Securities Act. Each pooled fund investment
must be reported to the relevant Securities Commission. Once a client is
invested in a pool fund, the result is identical to being in a mutual fund with
the same investment mandate. Fees for pooled funds can either be charged
inside or outside the fund. Valuation of pooled funds can be less frequent, as
there tends to be less activity with fewer and more sophisticated pooled fund
investors. Pooled fund fees are usually lower than mutual funds, as these
funds are created to deal with larger investors. Pooled funds are allowed to
charge their expenses from operations against the fund assets, and the trust
39

40. MUTUAL FUNDS
indenture provides for the sponsor, or trustee, to hire outside agents to
perform certain tasks, such as custody and unit record-keeping.
b) Insurance Segregated Funds
An insurance segregated fund is an insurance contract issued under
insurance legislation by an insurance company. Its value is based on
the performance of a portfolio of marketable securities, such as stocks
and bonds.
As an insurance contract, a segregated fund is an obligation of an insurance
company and forms part of its assets. Insurance companies "segregate" the
portfolios which these contracts are based on, dividing these assets from
their general assets. The contracts have a minimum value, the price at which
they were issued.
It is important to realize that insurance segregated fund might look and act
like a mutual fund, but that it is actually something quite different. A mutual
fund is a trust, or sometimes a company, which owns title to the actual
securities in the funds. The unitholders own the trust which in turn owns the
assets. An insurance segregated fund is an insurance contract or a "variable
rate annuity". Legally, the insurance company issues the contract the same
way it would an annuity or life insurance policy under the relevant insurance
legislation. The buyer or "policy holder" has contracted for a payment that is
based on the underlying prices of the portfolio that supports the contract but
does not have a direct claim or ownership on the securities that form the
40

41. MUTUAL FUNDS
portfolio. Although insurance companies "segregate" the assets to support
these contracts, the holder of the contract does not own these assets.
The insurance contract nature of a segregated fund makes for an interesting
feature that insurance companies often use in their marketing. The contract
can be issued with an initial "book value" that the company can agree to pay
no matter what the actual value of the portfolio supporting the contract. If
the market value of the portfolio falls below the book value, the company
agrees to pay no less than the book value which is known as the "minimum
value guarantee" or the "higher of book or market". Initially, this guarantee
feature has some value. Since marketable securities increase over longer
periods of time it becomes less important over time.
Another wrinkle of segregated funds is their tax status. Since they are
insurance contracts, they are taxed as such. Sometimes segregated funds are
used as investment options for "universal" or "whole life" life insurance
which provides a savings option as well as insurance. Life companies market
the tax shelter aspects of these contracts, which allow compounding of
investment income untaxed while inside the insurance contract.
Another sales aspect of segregated funds is their characteristics under
bankruptcy legislation in some jurisdictions. In Canada, for example, an
insurance contract is not available to creditors in a bankruptcy. This means
an RRSP that uses segregated funds would be protected from creditors in a
41

42. MUTUAL FUNDS
bankruptcy while an RRSP which invested in mutual funds would be
exposed.
In summary, although insurance segregated funds look and function like
mutual funds, they are actually insurance contracts based on the valuation of
a portfolio of marketable securities. As always, investors are wise to
consider all the aspects of insurance contracts in their legal jurisdiction prior
to investment.
c) Specific Sectoral & Thematic funds /schemes
These are the funds/schemes which invest in the securities of only those
sectors or industries as specified in the offer documents. e.g.
Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG),
Petroleum stocks, etc. Thematic funds are those fund which invest in a
stocks which will benefit from a particular theme like Outsourcing,
Infrastructure 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. Restrain
the urge to invest in sector/thematic funds no matter how compelling an
argument your agent or the fund house makes. Over the long-term, there is
little value that a restrictive and narrow theme can bring to the table. It is
best to opt for a broad investment mandate that is best championed by well-
diversified equity funds.
42

43. MUTUAL FUNDS
UTI Thematic Fund: UTI Mutual Fund has filed with the Securities and
Exchange Board of India for an omnibus fund that will have six options. The
UTI Thematic Fund is the umbrella fund.
It will have sub-funds that will focus on large-cap stocks, mid-cap stocks,
auto, banking, PSU stocks and basic industries. UTI now has a UTI Growth
Sectors Umbrella with five options that focus on investing in stocks in the
services, petro, healthcare pharmaceuticals, information technology, and
consumer products.
The new fund also proposes to provide investors four automatic triggers that
could be used for exit: value, appreciation, date and stop loss.
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44. MUTUAL FUNDS
FUTURE OF MUTUAL FUNDS IN INDIA
By December 2004, Indian mutual fund industry reached Rs 1,50,537 crore.
It is estimated that by 2010 March-end, the total assets of all scheduled
commercial banks should be Rs 40,90,000 crore. The annual composite rate
of growth is expected 13.4% during the rest of the decade. In the last 5 years
we have seen annual growth rate of 9%. According to the current growth
rate, by year 2010, mutual fund assets will be double.
Let us discuss with the following table:
Aggregate deposits of Scheduled Com Banks in India (Rs.Crore)
Month/Year Mar-98 Mar-00 Mar-01 Mar-02 Mar-03
Mar-
04
Sep-04 4-Dec
Deposits
60541
0
85159
3
98914
1
113118
8
128085
3
-
156725
1
1622579
Change in %
over last yr
15 14 13 12 - 18 3
Source - RBI
Mutual Fund AUM’s Growth
Month/Year
Mar-
98
Mar-
00
Mar-
01
Mar-
02
Mar-
03
Mar-04 Sep-04 4-Dec
MF AUM's 68984 93717 83131 94017 75306
13762
6
15114
1
149300
Change in % over
last yr
26 13 12 25 45 9 1
Source – AMFI
44

45. MUTUAL FUNDS
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 que 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 channelizing
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 rurals 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.
• Introduction of Financial Planners who can provide need based advice
NEWS PAPER: ECONOMIC TIMES
DATE: 21- 8- 08
45

46. MUTUAL FUNDS
46

47. MUTUAL FUNDS
WHAT IS NET ASSET VALUE?
47

48. MUTUAL FUNDS
The repurchase price is always linked to the net asset value (NAV). The
NAV in nothing but the market price of each unit of particular scheme in
relation to all the assets of the scheme. It can other wise be called “the
intrinsic value” of each unit. This value is a true indicator of the
performance of the fund. If the NAV is more than the face value of the unit,
it clearly indicates that the money invested on that unit has appreciated &
the fund has performed well.
Illustration
For instance, fortune mutual fund has introduced a scheme called millionaire
scheme. The scheme size is 100 crores. The value of each unit is Rs. 10/-. It
has invested all the funds in shares & debentures & the market value of the
investment comes to Rs. 200 crores.
Now NAV = 200 crores x value of each unit
100 crores
Thus, the value of each unit of Rs. 10/- is worth Rs. 20.
Hence the NAV = Rs. 20.
This NAV forms the basis for fixing the repurchase price & reissue price.
The investor can call up the fund any time to find out the NAV. Some MFs
publish the NAV weekly in two or three leading daily news papers.
48

49. MUTUAL FUNDS
49

50. MUTUAL FUNDS
BENEFITS OF INVESTING IN MUTUAL FUNDS &
RISK RETURN GRID
BENEFITS OF INVESTING IN MUTUAL FUNDS
1. PROFESSIONAL MANAGEMENT
Mutual funds provide the services of experienced & skilled professionals,
backed by a dedicated investment research team that analyses the
performance & prospects of companies & selects suitable investments to
achieve the objective of the scheme.
2. DIVERSIFICATION
Mutual funds invest in a number of companies across a broad cross-selection
of industries & sectors. This diversification reduces the risk because seldom
do all stocks decline at the same time & in the same proportion. You achieve
this diversification through a mutual fund with far less money than you can
do on your own.
3. CONVENIENT ADMINISTRATION
Investing in a mutual fund reduces paperwork & helps you avoid many
problems such as bad deliveries, delayed payments & follow up with brokers
& companies. Mutual funds save your time & investing easy & convenient.
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51. MUTUAL FUNDS
4. RETURN POTENTIAL
Over a medium to long-term, mutual funds have a potential to provide a
higher return as they invest in a diversified basket of selected securities.
5. LOW COSTS
Mutual funds are a relatively less expensive way to invest compared to
directly investing in the capital markets because the benefits of scale in
brokerage, custodial & other fees translate into lower costs for investor.
6. LIQUIDITY
In open-end schemes, the investor gets the money back promptly at net asset
value related prices from the mutual fund. In closed-end scheme, the units
can be sold on a stock exchange at the prevailing market price or the
investor can avail of the facility of direct repurchase at NAV related prices
by the mutual fund.
7. TRANSPARENCY
You get regular information on the value of your investment in addition to
disclosure on the specific investments made by your scheme, the proportion
Invested in each class of assets and the fund manager’s investment strategy
& outlook.
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52. MUTUAL FUNDS
8. FLEXIBILITY
Though features such as regular investment plans, regular withdrawals plans
& dividend reinvestment plans, you can systematically invest or withdraw
funds according to your needs & convenience.
9. AFFORDABILITY
Investors individually may lack sufficient funds to invest in high-grade
stocks. A mutual fund because of its large corpus allows even a small
investor to take the benefit of its investment strategy.
10. CHOICE OF SCHEMES
Mutual funds offer a family of schemes to suit your varying needs over a
lifetime.
11. WELL REGULATED
RISK RETURN GRID
52

53. MUTUAL FUNDS
RISK
TOLERANCE/
RETURN
EXPECTED
FOCUS SUITABLE
PRODUCTS
BENEFITS
OFFERED BY
MFs
LOW Debt Bank/ company
FD, debt based
funds
Liquidity, better
post-tax returns
MEDIAM Partially debt /
Partially equity
Balanced funds,
some diversified
equity funds &
some debt funds,
mix of shares &
FDs
Liquidity, better
post-tax returns,
better
management,
diversification
HIGH Equity Capital market,
equity funds
(diversified as
well as sector)
Diversification,
expertise in stock
picking, liquidity,
tax free dividends
53

54. MUTUAL FUNDS
Their appeal is not just limited to these categories of investors. Specific
goals like career planning for children & retirement plans are also catered to
buy mutual funds. Essentially debt oriented, children funds invite
investments, where the funds are locked till the child attains majority &
requires money for higher education. One can invest today & assure
financial support to your child when he/she requires them. The schemes
have given very good returns of around 14 percent in the last one-year
period. These schemes are also designed to provide tax efficiency. The
returns generated by these funds come under capital gains and attract tax at
concessional rates.
Besides this, if the objective was to save taxes, the industry offers equity
linked savings schemes as well. Equity-based funds, they can take long-term
call on stock & market conditions without having to worry about redemption
pressure as the money is locked in for three years & provide good returns.
Some of the ELSS have been exceptional performers in past & cater to
equity investor with good performances. The industry offered tax benefits
under various sections of the IT Act. For e.g. dividend income is free in the
hands of the investor while capital gains are taxed after providing for cost
inflation indexation. Hitherto, the benefits under section 54 EA/EB were
available to take benefits of the tax provisions for capital gains but have now
been removed.
The benefits listed so far have essentially been for the small retail investor
but the industry can attract investment from institutional & big investor as
well. Liquid funds offer liquidity as well as better returns than banks & so
54

55. MUTUAL FUNDS
attract investors. Many funds provide anytime withdrawal enabling a big
investor to take benefits.
Indeed, the appeal of mutual funds cuts across investor classes.
In other developed countries, mutual funds attract much more investments as
compared to the banking sector but in India the case is reverse. We lack
awareness about the benefits that are offered by these schemes. It is time that
investors irrespective of their risk capacities, made intelligent decisions to
generate better returns & mutual funds are definitely one of the ways to go
about it.
55

56. MUTUAL FUNDS
MARKETING OF MUTUAL FUNDS
Marketing of services has been considered the most vital area of operation of
mutual fund industry keeping in view the ever increasing competition of
56

57. MUTUAL FUNDS
similar or alternative products. Marketing is the management process which
identifies, anticipates & satisfies customers’ requirements profitably. Since
the purpose of any organization is to create, win & retain a customer, the
focal point of any marketing strategy of mutual funds should be the
customer or investor.
Virtually all providers of goods & services want to deliver good quality.
Mutual fund managers are also no exception to this. But a financial
investment is not a consumer product with identifiable, measurable
consistency of performance. For instance, a shampoo always looks, smells &
performs the same from bottle to bottle of the same brand. In contrast,
mutual fund managers cannot make any promises about the future
performance of the investment. They can talk only about how funds have
performed in the past & assure investors of the professional expertise of the
managers & their general expectations. Thus, the marketing of the fund
differs in some very important ways with the marketing of goods. As a
result, fund marketers must adapt their skills to fit the demands of a dynamic
investment environment. In the case of mutual funds, managerial efficiency
& investment skills would determine returns. Successful mutual fund
marketing, therefore, must create confidence among potential investors &
strengthen their desire to put their money with particular fund.
It is not only publicity, talking skills & public relations which will
strengthen confidence, but also evidence of good performance. Additionally
organizational image, visibility of operational policies & quality of
management form an indirect part of mutual fund marketing.
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58. MUTUAL FUNDS
MARKETING PLAN
In a wide market like India where investors’ awareness is yet to take shape,
mutual funds have important role to educate investors (particularly those
who are located in rural & semi-urban areas) about the main fold advantages
of investment in mutual funds. Therefore, a well planed marketing strategy
has to be designed to mobilize savings by educating investors & creating
confidence about safety & returns. In a changing environment of financial
services & increasing competition from a wide spectrum of financial
products & institutions offering them, mutual funds marketing has to
maximize customer’s satisfaction by optimizing internal & external
efficiency in resource use, competitive product development, cost efficient
distribution system, etc. this calls for a well designed marketing plan &
marketing strategy. It is essential that the marketing plan for mutual fund
services be based on a co-relation matrix of firm-product-customer relation
because of the very nature of products which are intangible & have the
elements of inseparability & perishability.
Any marketing plan for mutual funds should include the following tools of
marketing mix to form the marketing strategy to achieve the marketing
objectives, in the target market.
58

59. MUTUAL FUNDS
PRODUCT PLANNING
Mutual funds provide financial services which are intangible like any other
financial services & the quality of services depends not only on product but
SERVICINGSERVICING
PROMOTIONPROMOTION
DISTRIBUTIONDISTRIBUTION
PRICINGPRICING
BRANDINGBRANDING
PRODUCT
PLANNING
PRODUCT
PLANNING
TARGET
MARKET
TARGET
MARKET
59

60. MUTUAL FUNDS
also on performance. Mutual funds operate under a very volatile situation of
the stock market & their performance is closely scrutinized by taking stock
market performance as an index. Since the basic objective of setting up
mutual fund is to mobilize funds from the public it becomes a difficult task
of winning over the confidence of the investing public by directly appealing
to them. As the mutual fund deal with the savings of the public, they have to
shoulder more responsibility & be very cautious in introducing mutual fund
products (schemes) with innovations & new instruments to attract the
investors. The mutual fund products i.e., schemes are basically investment
object oriented & the savings mobilized by them are invested in the
instruments like shares, bonds, etc., that is protected in the schemes. There is
little scope of flexibility, therefore a lot of care need to be taken while
designing particular products. Expected changes in the financial market must
be kept in view for future investment returns & the changing profile of
customers or investors must be taken into account to identify the segments
of savings market likely to be tapped .thus it became an important function
for product designer to integrate the market segments & investment
instruments while designing new products or schemes.
Various segments of potential savings market have varied expectations.
Individual investor preferences also change under the influence of various
economic factors. Some are interested in long-term growth some in regular
income, tax benefits, etc. new products should be aimed at satisfying one or
more objectives & seasonality also has an important bearing on launching a
new product. Designing & developing a new product would need the help of
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61. MUTUAL FUNDS
market research to assess the market potential, availability of existing
product & future growth in demand. Formulation of a scheme, therefore,
will be a research based task & new ideas will require the support of facts &
exposure to feasibility tests before being acceptable.
BRANDING
This is an important part of product development. Like the manufactures of
consumer goods, sponsors of mutual fund also strive to differentiate their
products & instill recognition of their brand name in the consumers. They
seek to build the customers loyalty & generate repeat business. Brand name
signifies the market segments, inherent benefits & investment objectives &
ensures customer loyalty. Brand identity is an important marketing factor
because it facilitates product identification at the market place. In India,
most of the products or schemes are linked to the names of the mutual funds.
For example, alliance ’95 fund, alliance equity fund, alliance new
millennium fund, alliance buy India fund, alliance basic industry fund, etc.,
were launched by alliance capital mutual fund. Kothari internet opportunity
fund, kothari pioneer FMCG fund, kothari pioneer pharma fund, kothari
pioneer balances fund, kothai pioneer infotech fund, etc.
Were introduced kothari mutual funds. However, there are products not
linked to names of organizations. Example, ‘dhan series’ is identified with
LIC mutual funs, ‘master series’ with UTI & ‘magnum’ with SBI mutual
funds. It is observed that Indian mutual funds have been quite successful in
brand policy & brand identification.
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62. MUTUAL FUNDS
PRICING
We have learnt that low-cost strategy leads to success. Michael porter, a
Harvard business school professor who specializes in analyzing competition
in different industries, suggests that achieving low cost relative to the
competition is a way to cope successfully with competitive forces. Yet, we
observe that high cost load funds distributed through sales people have
dominated the industry. This happens because in the fund industry, it is the
distribution cost, not the manufacturing cost that separates one competitor
from another. Thus, we can say that the method of distribution is the primary
factor in setting prices in the fund industry. The prices of mutual fund is
inextricably linked with returns.
In comparing funds to typical consumer goods, there is a significant
difference. Mutual funds must disclose to the buyer any distribution fees
being paid. But it is not so in the case of consumer goods. Until sometime
ago up-front commissions as high as 8.5% of amt invested (paid on
purchase) were taken for granted. The commission rewarded the sales person
for their marketing efforts.
Now, many funds have started experimenting with a variety of pricing
techniques that are often confusing, if not misleading, for the investor.
Sometimes the load or sales charge is split into two, with a part deducted
from the purchase price & a part from redemption process (a back end-load).
Another pricing strategy eliminates all front-end loads but applies a stiff
back-end load, which declines the longer the shareholder remains in the fund
62

63. MUTUAL FUNDS
& reaches zero in some cases. Some charge for services that were formally
free, such as switching from one fund to another within a group. Because
these pricing experiments are quite new, there is no evidence concerning
their effect on sales. But there is substantial documentation that the presence
or absence of sales charges does not prevent or guarantee good investment
performance.
DISTRIBUTION
Mutual funds are marketed through a variety of distribution channels. The
fund sponsor may directly market to the customer or funds may be
distributed through intermediaries or middlemen who in tern sell them to the
customers. Mutual fund may be having the desired qualities but that does not
ensure spontaneous acceptance of the product by the customers. Success
depends on the use of an appropriate distribution & promotion strategy.
It can be divided into the following.
a. Direct marketing
b. Selling through intermediaries
c. Joint calls.
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64. MUTUAL FUNDS
a. Direct Marketing:
This involves purchasing of fund shares directly from a mutual fund. It
constitutes 20% of the total sales of mutual funds.
1. Personal selling:
In this case an officer at a particular branch of a mutual fund takes
appointment from the potential prospect. Once the appointment is fixed, the
branch officer then meets the prospect & gives him all the details about the
various schemes being offered by his fund
2. Telemarketing:
Here, the emphasis is to inform people about the fund. The names & phone
numbers of people are linked at random from telephone directory.
3. Direct mail:
This is one of the most common methods followed by all mutual funds.
Addresses of people are picked at random from the telephone directory. The
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65. MUTUAL FUNDS
literature of the schemes offered by the fund are then mailed to the
prospective customers. The follow-up starts after 3-4 days mailing the
literature. The customer officers than calls on the people to whom the
literature was mailed & answers their queries.
Unlike selling through intermediaries, direct marketers have little personal
contact with their customers. In some cases they can not meet the customers
or make recommendations & arguments favoring one investment over
another. Direct sellers tend to be the industry’s low cost providers because
they do not have to pay any fees or commissions (loads) to any
intermediaries, thus they are usually referred to as “no load” funds. Direct
marketed funds are used by those investors who prefer to make investment
decisions themselves. Direct marketers, therefore, try to reach such investors
through print advertising, radio & TV, informative communications, word of
mouth, etc.
b. Selling through Intermediaries
This distribution channels is also referred to as sales force distribution. Most
sales force distributed funds charge a sales commission & are commonly
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66. MUTUAL FUNDS
referred to as load funds. Selling through intermediaries is the oldest
approach to mutual funds & accounts of more than two thirds of mutual fund
sales today. Intermediaries contribute towards 80% of the total sales of
mutual funds. They comprise people/ distributors/ dealers who are in direct
touch with the investors. They perform an important role in attracting new
customers. Most of these intermediaries are also involved in selling shares &
other investment instruments. They help a lot in convincing investors to
invest in mutual funds but a lot depends on the after sales services offered by
the intermediaries to the customer. Customers prefer to work with those
intermediaries who give them right information about the fund & keep them
abreast with the latest changes taking place in the market. The major market
intermediaries are: agents appointed by respective mutual funds, stock
brokers who are members of stock exchange & are registered with the
mutual fund, institutional & corporate agents.
The basic objective of any incentive schemes is to increase sales. In the
strategy formulation of any incentive scheme it is very important to decide
the period for which it can run in line with the profitability & selling
behavior of the people involved in the distribution channel structure.
c. Joint Calls
This is generally done when the prospective customer is a high net worth
investor. The mutual fund branch officer & an agent or intermediary like a
broker or a financial planner, together visit the prospect & brief him about
66

67. MUTUAL FUNDS
the fund. Both the officer & the agent provide even after sales service in this
particular case.
PROMOTION
As the Indian markets move from a tough to a tougher position, the role of
marketing strategies has become the matter of core significance to fight the
fast growing competition. Almost a decade ago, the Indian market was more
of a sellers’ market as buyers did not have any options to choose from. With
the entry of the multinational corporations, the market slowly started
changing into a buyers’ market & the domestic mutual fund industry was
shaken up by the sudden competition growth. Mutual funds offer investors
hope – the hope of achieving acceptable investment returns on the
shareholders money. They also offer service & trustworthiness to investors.
Thus, these funds can survive & thrive only if they can live up to the hopes
& trusts of their individual members. Existing & potential investors must be
convinced of the expertise & skill with which the mutual funds operate.
Therefore, marketing manager must identify strategies & target promotion
efforts that will reach the different kinds of investors.
With the existence of the many players in mutual fund industry, it becomes
very difficult for the investor group to choose one mutual fund over another.
This has led the mutual funds to take to brand building by aggressive
promotion techniques. By their very nature, mutual funds require high
advertisement & sales promotion exercises to serve the needs of different
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68. MUTUAL FUNDS
classes of investors. As a part of their marketing campaign, mutual funds
compete by advertising heavily to reinforce brand loyalty & product
differentiation. Communication through advertisement is the most important
promotional aid for any mutual fund.
Funds regularly advertise in business newspapers & magazines besides
leading national dailies. Hoardings & banners of the funds are put at
important locations of the city where people’s movement is very high. The
loading & banner generally contains information either about one particular
scheme or brief information about all schemes of the fund. According to the
mutual fund marketers, advertising helps bring recall when customer looks
for investment opportunities. Attractive point of purchase (PoP) materials
like newsletters, intermediary magazines, etc., can also be used for
advertising. Advertising content by most of the funds has undergone a
marked change form concept-selling ads dispelling myths, to selling specific
schemes that meet defined objectives/goals. One of the limiting factors is,
however, the regulatory framework governing advertisements of mutual
fund products. For instance, in the offer documents, mutual funds are
required to mention the fund objectives in clear terms & the risk factor also
has to be mentioned.
Another hurdle is the statutory disclaimer required to be carried along with
every advertisement. Mutual funds advertisements are regulated by SEBI
which prohibit any contents that may mislead the investors. The SEBI also
lays down certain advertisement code to be followed by the mutual funds.
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69. MUTUAL FUNDS
SERVICING
Servicing has great significance in mutual funds like any other financial
service industry. The mutual fund industry has a large number of players &
each of them are differentiated by their orientation of servicing in the
competitive world of financial services. Services can be provided through
external agencies or internally through service department. Services like
timely & prompt issuing of certificates/ cheques & attending other requests,
continuous reporting of investment performance & other after sales services
like honoring the commitments made for redemptions & repurchase, paying
dividends & other entitlements, etc., aims at enduring customer relations. In
India most of the mutual fund provide after sales services through a mix of
external agencies. In order to ensure quality service to the customers, mutual
fund should conduct a service audit for controlling, monitoring & improving
the quality of service. A service standard can be fixed on the basis of
expectation level of customers. Mutual fund managers can than evaluate
their performance on each front.
Market Analysis & Research
Investment in mutual funds is not a one-time activity but is a continuous
one. An investor, if satisfied with the performance of a mutual fund, will
continue to be its customer; if not, he would switch over to other firms.
Therefore, to retain customers, it should be seen that the customers are
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70. MUTUAL FUNDS
satisfied & made happy. Since for a market driven product like mutual fund
the important determinant of success is customer satisfaction, it becomes
necessary for mutual funds to maximize customer satisfaction along with
cost minimization. Decisions regarding mutual fund schemes are to be made
after giving due thought to matters like opportunities in the market, the size
& future expansion of the market, consumer expectation, availability of
alternatives & so on. Thus, market analysis & market research becomes
important in providing insight into investor needs, preferences & behavior &
enables us to target customers, to achieve penetration, to identify new
opportunities in a highly competitive market, to monitor the effect of
economy on the savings & investment patterns of the public, etc.
HORDINGS
70

71. MUTUAL FUNDS
BANNERS OUT SIDE THE OFFICE
SEMINAR ON MUTUAL FUND
71

72. MUTUAL FUNDS
BROCHURES & FACT SHEET
NEWS PAPER
72

73. MUTUAL FUNDS
PAMPHLETS
73

74. MUTUAL FUNDS
74

75. MUTUAL FUNDS
ASSOCIATION OF MUTUAL FUND IN INDIA
(AMFI)
With the increase in mutual fund players in India, a need for mutual fund
association in India was generated to function as a non-profit organisation.
Association of Mutual Funds in India (AMFI) was incorporated on 22nd
August, 1995.
AMFI is an apex body of all Asset Management Companies (AMC) which
has been registered with SEBI. Till date all the AMCs are that have launched
mutual fund schemes are its members. It functions under the supervision and
guidelines of its Board of Directors.
Association of Mutual Funds India has brought down the Indian Mutual
Fund Industry to a professional and healthy market with ethical lines
enhancing and maintaining standards. It follows the principle of both
protecting and promoting the interests of mutual funds as well as their unit
holders.
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76. MUTUAL FUNDS
THE OBJECTIVES OF ASSOCIATION OF MUTUAL FUNDS IN INDIA
The Association of Mutual Funds of India works with 30 registered AMCs
of the country. It has certain defined objectives which juxtaposes the
guidelines of its Board of Directors. The objectives are as follows:
• This mutual fund association of India maintains a high professional
and ethical standards in all areas of operation of the industry.
• It also recommends and promotes the top class business practices and
code of conduct which is followed by members and related people
engaged in the activities of mutual fund and asset management. The
agencies who are by any means connected or involved in the field of
capital markets and financial services also involved in this code of
conduct of the association.
• AMFI interacts with SEBI and works according to SEBIs guidelines
in the mutual fund industry.
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77. MUTUAL FUNDS
• Association of Mutual Fund of India do represent the Government of
India, the Reserve Bank of India and other related bodies on matters
relating to the Mutual Fund Industry.
• It develops a team of well qualified and trained Agent distributors. It
implements a programme of training and certification for all
intermediaries and other engaged in the mutual fund industry.
• AMFI undertakes all India awarness programme for investors in order
to promote proper understanding of the concept and working of
mutual funds.
• At last but not the least association of mutual fund of India also
disseminate information’s on Mutual Fund Industry and undertakes
studies and research either directly or in association with other bodies.
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78. MUTUAL FUNDS
THE SPONSORERS OF ASSOCIATION OF MUTUAL FUNDS IN
INDIA
Bank Sponsored
• SBI Fund Management Ltd.
• BOB Asset Management Co. Ltd.
• Canbank Investment Management Services Ltd.
• UTI Asset Management Company Pvt. Ltd.
Institutions
• GIC Asset Management Co. Ltd.
• Jeevan Bima Sahayog Asset Management Co. Ltd.
Private Sector
Indian:-
• BenchMark Asset Management Co. Pvt. Ltd.
• Cholamandalam Asset Management Co. Ltd.
• Credit Capital Asset Management Co. Ltd.
• Escorts Asset Management Ltd.
• JM Financial Mutual Fund
• Kotak Mahindra Asset Management Co. Ltd.
• Reliance Capital Asset Management Ltd.
• Sahara Asset Management Co. Pvt. Ltd
• Sundaram Asset Management Company Ltd.
• Tata Asset Management Private Ltd.
Predominantly India Joint Ventures:-
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79. MUTUAL FUNDS
• Birla Sun Life Asset Management Co. Ltd.
• DSP Merrill Lynch Fund Managers Limited
• HDFC Asset Management Company Ltd.
Predominantly Foreign Joint Ventures:-
• ABN AMRO Asset Management (I) Ltd.
• Alliance Capital Asset Management (India) Pvt. Ltd.
• Deutsche Asset Management (India) Pvt. Ltd.
• Fidelity Fund Management Private Limited
• Franklin Templeton Asset Mgmt. (India) Pvt. Ltd.
• HSBC Asset Management (India) Private Ltd.
• ING Investment Management (India) Pvt. Ltd.
• Morgan Stanley Investment Management Pvt. Ltd.
• Principal Asset Management Co. Pvt. Ltd.
• Prudential ICICI Asset Management Co. Ltd.
• Standard Chartered Asset Mgmt Co. Pvt. Ltd.
ASSOCIATION OF MUTUAL FUNDS IN INDIA PUBLICATIONS
AMFI publices mainly two types of bulletin. One is on the monthly basis
and the other is quarterly. These publications are of great support for the
investors to get intimation of the know-how of their parked money.
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80. MUTUAL FUNDS
ADVANTAGES OF MUTUAL FUNDS
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81. MUTUAL FUNDS
1. PROFESSIONAL MANAGEMENT
Mutual Funds provide the services of experienced and skilled professionals,
backed by a dedicated investment research team that analyses the
performance and prospects of companies and selects suitable investments to
achieve the objectives of the scheme. This risk of default by any company
that one has chosen to invest in, can be minimized by investing in mutual
funds as the fund managers analyze the companies’ financials more minutely
than an individual can do as they have the expertise to do so. They can
manage the maturity of their portfolio by investing in instruments of varied
maturity profiles.
2. DIVERSIFICATION
Mutual Funds invest in a number of companies across a broad cross-section
of industries and sectors. This diversification reduces the risk because
seldom do all stocks decline at the same time and in the same proportion.
You achieve this diversification through a Mutual Fund with far less money
than you can do on your own.
3. CONVENIENT ADMINISTRATION
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82. MUTUAL FUNDS
Investing in a Mutual Fund reduces paperwork and helps you avoid many
problems such as bad deliveries, delayed payments and follow up with
brokers and companies. Mutual Funds save your time and make investing
easy and convenient.
4. RETURN POTENTIAL
Over a medium to long-term, Mutual Funds have the potential to provide a
higher return as they invest in a diversified basket of selected securities.
Apart from liquidity, these funds have also provided very good post-tax
returns on year to year basis. Even historically, we find that some of the debt
funds have generated superior returns at relatively low level of risks. On an
average debt funds have posted returns over 10 percent over one-year
horizon. The best performing funds have given returns of around 14 percent
in the last one-year period. In nutshell we can say that these funds have
delivered more than what one expects of debt avenues such as post office
schemes or bank fixed deposits. Though they are charged with a dividend
distribution tax on dividend payout at 12.5 percent (plus a surcharge of 10
percent), the net income received is still tax free in the hands of investor and
is generally much more than all other avenues, on a post tax basis.
5. LOW COSTS
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83. MUTUAL FUNDS
Mutual Funds are a relatively less expensive way to invest compared to
directly investing in the capital markets because the benefits of scale in
brokerage, custodial and other fees translate into lower costs for investors.
6. LIQUIDITY
In open-end schemes, the investor gets the money back promptly at net asset
value related prices from the Mutual Fund. In closed-end schemes, the units
can be sold on a stock exchange at the prevailing market price or the
investor can avail of the facility of direct repurchase at NAV related prices
by the Mutual Fund. Since there is no penalty on pre-mature withdrawal, as
in the cases of fixed deposits, debt funds provide enough liquidity.
Moreover, mutual funds are better placed to absorb the fluctuations in the
prices of the securities as a result of interest rate variation and one can
benefits from any such price movement.
7. TRANSPARENCY
Investors get regular information on the value of your investment in addition
to disclosure on the specific investments made by your scheme, the
proportion invested in each class of assets and the fund manager's
investment strategy and outlook.
8. FLEXIBILITY
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84. MUTUAL FUNDS
Through features such as regular investment plans, regular withdrawal plans
and dividend reinvestment plans; you can systematically invest or withdraw
funds according to your needs and convenience.
9. AFFORDABILITY
A single person cannot invest in multiple high-priced stocks for the sole
reason that his pockets are not likely to be deep enough. This limits him
from diversifying his portfolio as well as benefiting from multiple
investments. Here again, investing through MF route enables an investor to
invest in many good stocks and reap benefits even through a small
investment. Investors individually may lack sufficient funds to invest in
high-grade stocks. A mutual fund because of its large corpus allows even a
small investor to take the benefit of its investment strategy.
10.CHOICE OF SCHEMES
Mutual Funds offer a family of schemes to suit your varying needs over a
lifetime.
11.WELL REGULATED
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85. MUTUAL FUNDS
All Mutual Funds are registered with SEBI and they function within the
provisions of strict regulations designed to protect the interests of investors.
The operations of Mutual Funds are regularly monitored by SEBI.
12.TAX BENEFITS
Last but not the least, mutual funds offer significant tax advantages.
Dividends distributed by them are tax-free in the hands of the investor. They
also give you the advantages of capital gains taxation. If you hold units
beyond one year, you get the benefits of indexation. Simply put, indexation
benefits increase your purchase cost by a certain portion, depending upon
the yearly cost-inflation index (which is calculated to account for rising
inflation), thereby reducing the gap between your actual purchase costs and
selling price. This reduces your tax liability. What’s more, tax-saving
schemes and pension schemes give you the added advantage of benefits
under Section 88. You can avail of a 20 per cent tax exemption on an
investment of up to Rs 10,000 in the scheme in a year
DISADVANTAGES OF MUTUAL FUNDS
85

86. MUTUAL FUNDS
Mutual funds are good investment vehicles to navigate the complex and
unpredictable world of investments. However, even mutual funds have some
inherent drawbacks. Understand these before you commit your money to a
mutual fund.
1. NO ASSURED RETURNS AND NO PROTECTION OF CAPITAL
If you are planning to go with a mutual fund, this must be your mantra:
mutual funds do not offer assured returns and carry risk. For instance, unlike
bank deposits, your investment in a mutual fund can fall in value. In
addition, mutual funds are not insured or guaranteed by any government
body (unlike a bank deposit, where up to Rs 1 lakh per bank is insured by
the Deposit and Credit Insurance Corporation, a subsidiary of the Reserve
Bank of India). There are strict norms for any fund that assures returns and it
is now compulsory for funds to establish that they have resources to back
such assurances. This is because most closed-end funds that assured returns
in the early-nineties failed to stick to their assurances made at the time of
launch, resulting in losses to investors. A scheme cannot make any
guarantee of return, without stating the name of the guarantor, and disclosing
the net worth of the guarantor. The past performance of the assured return
schemes should also be given.
2. RESTRICTIVE GAINS
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87. MUTUAL FUNDS
Diversification helps, if risk minimisation is your objective. However, the
lack of investment focus also means you gain less than if you had invested
directly in a single security.
Assume, Reliance appreciated 50 per cent. A direct investment in the stock
would appreciate by 50 per cent. But your investment in the mutual fund,
which had invested 10 per cent of its corpus in Reliance, will see only a 5
per cent appreciation.
3. 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 fund makes
a profit on its sales, you will pay taxes on the income you receive, even if
you reinvest the money you made.
4. 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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88. MUTUAL FUNDS
FRANKLIN INDIA BLUECHIP FUND (FIBCF)
FRANKLIN INDIA PRIMA FUND (FIPF)
FRANKLIN INDIA FLEXI CAP FUND (FIFCF)
TEMPLETON INDIA EQUITY INCOME FUND
(TIEIF)
FRANKLIN INDIA PRIMA PLUS (FIPP)
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89. MUTUAL FUNDS
CASE STUDY: INDIA -- FRANKLIN TEMPLETON
April 08, 2008
Franklin Templeton had an early presence in India's investment market and
was one of the first international firms to set up a local asset management
business in 1995.
Its initial focus was on fixed income, as Indian equity markets were then
undeveloped. Many of the early difficulties of setting up a fund were
smoothed by its local partner, Hathway Investments, an asset manager
whose stake it bought last year. Franklin Templeton also bolstered its
presence in India in 2002 through the acquisition of Pioneer ITI, formerly
part of Pioneer Group.
As well as providing local expertise, Pioneer ITI brought a strong equity
team to Franklin Templeton and helped boost the asset manager's retail
distribution activity and rapidly develop the mutual funds business.
Being among the first has also given it an edge, says Stephen Dover,
international chief investment officer at Franklin Templeton Investments.
Many of the senior managers on the ground have been together for 12 years
and know the companies and the economy, he says. He sees Franklin
Templeton as a long-term player in India.
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90. MUTUAL FUNDS
It manages $7.4bn (�3.7bn, Euro4.7bn) of assets, has offices in 33 locations
in India and a range of open-ended equity funds, such as the Franklin India
Bluechip Fund, the Templeton India Growth Fund, launched in 1996, and
the Franklin India High Growth Companies Fund, as well as debt funds.
It was also the first to set up a private pension fund in India, the Templeton
India Pension Plan, in 1997, and launched a fund of funds, the FT India Life
Stage Fund of Funds, in 2003.
Sukumar Rajah, chief investment officer of equity at Franklin Templeton
Investments, India, has seen a shift from traditional investments such as
bank deposits, property and gold, to mutual funds.
"With post-tax returns from traditional savings avenues becoming less
attractive and growing investor comfort with market-linked investment
products, investors are looking to professional fund managers to help them
achieve their financial goals."
Early on, the asset manager set up a distributor training programme, with
workshops to help financial advisers.
Mr Rajah also sees changes in the distribution landscape. "Government-
owned banks with theirwide branch network are also now beginning to
distribute mutual fund products," he says.
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91. MUTUAL FUNDS
FRANKLIN INDIA BLUECHIP FUND (FIBCF)
Key Facts
Fund Type Steady Growth, Open end, Entry Load 2.25%
Inception Date December 1, 1993
Fund Manager Anand Radhakrishnan
Options Growth and Dividend
Investment Focus
FIBCF is a steady growth scheme that invests mainly in large cap bluechip
shares.
Launched in October 1993 as a 3-year closed end fund, FIBCF was
converted into an open end fund from January 1997. Ever since its inception,
FIBCF has been ranked consistently among India’s top performing funds.
Performance Snapshot
Last 6
Months
Last 1
Year
Last 3
Years*
Last 5
Years*
Last 7
Years*
Last 10
Years*
Since
Inception*
FIBCF (G) -20.11% -11.88% 22.06% 34.31% 32.12% 30.89% 26.62%
FIBCF (D) -20.11% -11.88% 22.06% 34.30% 32.11% 30.90% 26.63%
BSE Sensex -18.66% -7.69% 23.35% 30.53% 23.20% 16.14% 10.56%
Past performance may or may not be sustained in the future.
* Compounded and annualised. As on July 31, 2008.
Highlights
Daily NAV
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92. MUTUAL FUNDS
Choice: Growth Plan and Dividend Plan (Reinvestment & Payout
options)
Low entry amount of Rs.5000
Easy liquidity: transactions are processed within 4 working
days normally
Convenience of Systematic Investment Plan: the ideal way to accumulate
wealth over the long term
NRIs can invest on a fully repatriable basis
Fund Information
Net Asset Value: Calculated and disclosed on all business days
Minimum Investments:
New Investments Rs. 5,000
Additional Investments Rs. 1,000
Load
Amount (Rs.) Entry Load Exit Load
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93. MUTUAL FUNDS
< Rs. 5 Crs 2.25%
- 1% if the Units are
redeemed/switched-out within
6 months of allotment
- 0.5% if the Units are
redeemed/ switched-out after 6
months, but within 1 year of
allotment
=> Rs. 5 Crs< Rs. 25 Crs Nil 1% if the Units are redeemed/
switched-out within 6 months
of allotment
=> Rs. 25 Crs Nil Nil
Systematic Investment Plan
Minimum Amount Rs. 500 per month for 12months, Rs. 1000 per month for
6 months
Systematic Withdrawal Plan
Minimum withdrawal of Rs.1000 or fixed number of units (Minimum
investment/account balance for availing this facility is Rs.25, 000)
Tax Benefits
Indexation benefits
Units are not liable to Wealth Tax and Gift Tax.
No TDS on redemptions for resident investors
FRANKLIN INDIA PRIMA FUND (FIPF)
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94. MUTUAL FUNDS
Key Facts
Fund Type Aggressive Growth, Open end fund.
Inception Date December 1, 1993
Fund Manager K N Siva Subramaniam / Janakiraman
Options Growth and Dividend
Investment Focus
Providing you exclusive access to the finest of India's smaller companies is
FIPF, India's only fund with a clear focus on this dynamic segment of the
stock market.
Research has shown that dynamic and well-managed, small and
medium sized enterprises experience higher growth rates than their well
established, larger counterparts. If identified early, investments in such
companies could give substantial capital appreciation over time.
While there are thousands of listed smaller companies, not all of them
can experience the same level of growth and success. Identifying the
winners amongst them requires time, effort and research, which is something
that the professional fund managers at Franklin Templeton are experts at.
Performance Snapshot
Last 6
Months
Last 1
Year
Last 3
Years*
Last 5
Years*
Last 7
Years*
Last 10
Years*
Since Inception*
FIPF (G) -30.53% -23.57% 9.03% 31.41% 41.01% 32.74% 21.63%
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95. MUTUAL FUNDS
FIPF (D) -30.53% -23.57% 9.04% 31.41% 41.01% 32.74% 21.62%
S&P CNX
500
-20.52% -8.65% 19.41% 29.75% 25.68% 18.70% 10.08%
CNX
Midcap
-24.23% -10.37% 17.50% 31.63% N.A N.A N.A
Past performance may or may not be sustained in the future.
* Compounded and annualised. As on July 31, 2008.
Highlights
Daily NAV
Choice: Growth Plan and Dividend Plan (Reinvestment & Payout
options)
Low entry amount of Rs.5000
Easy liquidity: transactions are processed within 4 working
days normally
Convenience of Systematic Investment Plan : the ideal way to
accumulate wealth over the long term
NRIs can invest on a fully repatriable basis
Fund Information
Net Asset Value: Calculated and disclosed on all business days
Minimum Investments:
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96. MUTUAL FUNDS
New Investment Rs. 5,000
Additional Investments Rs. 1,000
Load
Amount (Rs.) Entry Load Exit Load
< Rs. 5 Crs 2.25%
1% if redeemed/switched-out within 6 months
of allotment; 0.5% if redeemed/switched out
after 6 months, but within 1 year of allotment
=> Rs. 5 Crs Nil 1% (if redeemed/switched-out within 6
months of allotment)
Systematic Investment Plan
Minimum Amount Rs. 500 per month for 12months, Rs. 1000 per month for
6 months
Systematic Withdrawal Plan
Minimum withdrawal of Rs.500 or fixed number of units (Minimum
investment/account balance for availing this facility is Rs.25,000)
Tax Benefits
Indexation Benefits
Units are not liable to wealth tax and gift tax.
No TDS on Redemptions for resident investors
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97. MUTUAL FUNDS
# Applicable only for fresh investment accounts of Rs. 25 crores and above
made on or after April 1, 2005. In such accounts, every additional purchase
of Rs. 2 crores and above will also attract the same load structure provided
that a minimum balance of Rs. 25 crores is maintained throughout, other
than fluctuations in such value as a result of change in the Net Asset due to
market conditions. In case the balance falls below Rs. 25 crores (due to
redemption), an additional purchase (subject to a minimum of Rs. 2 crores)
will also attract the same load structure if such purchase makes up the short
fall to maintain the minimum balance at Rs. 25 crores.
FRANKLIN INDIA FLEXI CAP FUND (FIFCF)
Key Facts
Fund Type Open end diversified equity fund
Inception Date March 2, 2005
Fund Manager K N Siva Subramaniam & R Sukumar Rajah
Options Growth and Dividend
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98. MUTUAL FUNDS
Investment Focus
Stocks of companies are usually categorised as large-cap, midcap, and
small-cap depending on their market capitalisation. History has
demonstrated that these categories tend to perform differently through
economic and market cycles. For example, mid or small cap stocks could
move up sharply during a certain time period while large cap stocks remain
range bound and vice versa. On the other hand, large-cap stocks tend to be
less volatile than mid & small-cap stocks on account of factors such as size,
market leadership..etc. Moreover, such periods of outperformance are
typically followed by a consolidation phase and a possible reversal of the
situation. In order to derive optimal returns from the stock markets,
investments need to be diversified and have flexibility to shift allocations
across market caps.
Designed to help you achieve this with a single investment is Franklin India
Flexi Cap Fund (FIFCF). An open-end diversified equity fund, FIFCF seeks
to provide medium to long-term capital appreciation by investing in stocks
across the entire market capitalization range.
Performance Snapshot
Last 3
Months
Last 6
Months
Last 1
Year
Last 3
Years*
Since
Inception*
FIFCF (G) -18.09% -25.13% -17.00% 20.13% 22.46%
FIFCF (D) -18.09% -25.13% -17.00% 20.13% 22.46%
S&P CNX
500
-18.13% -20.52% -8.65% 19.41% 20.55%
Past performance may or may not be sustained in the future.
* Compounded and annualised. As on July 31, 2008.
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99. MUTUAL FUNDS
Highlights
Daily NAV
Choice: Growth Plan and Dividend Plan (Reinvestment & Payout
options)
Low entry amount of Rs.5000
Easy liquidity: transactions are processed within 4 working
days normally
Convenience of Systematic Investment Plan: the ideal way to
accumulate wealth over the long term
NRIs can invest on a fully repatriable basis
Fund Information
Net Asset Value: Calculated and disclosed on all business days
Minimum Investments:
New Investments Rs. 5,000
Additional Investments Rs. 1,000
Load
Amount (Rs.) Entry Load Exit Load
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100. MUTUAL FUNDS
< Rs. 5 Crs 2.25%
1% if redeemed/switched-out within 6 months
of allotment; 0.5% if redeemed/switched out
after 6 months, but within 1 year of allotment
=> Rs. 5 Crs Nil 1% (if redeemed/switched-out within 6
months of allotment)
Systematic Investment Plan
Minimum Amount Rs. 500 per month for 12months, Rs. 1000 per month for
6 months
Tax Benefits
Indexation benefits
Units are not liable to Wealth Tax and Gift Tax.
No TDS on redemptions for resident investors
TEMPLETON INDIA EQUITY INCOME FUND (TIEIF)
Key Facts
Fund Type Open end diversified equity fund
Inception Date May 18, 2006
Fund Manager
Dr. J. Mark Mobius (Assisted by Chetan Sehgal, Vikas
Chiranwal)
Options Growth and Dividend
Investment Focus
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101. MUTUAL FUNDS
The 'India Growth' story has attracted both global and domestic investors to
the Indian stock markets, which have been scaling fresh highs. At the same
time, volatility has also been on the rise. In such a situation, many investors
are looking for an investment avenue that can help them participate in the
long term equity story and also provide a smoother ride through the ups &
downs of the markets.
Designed to help you achieve this is the new equity fund from Franklin
Templeton - Templeton India Equity Income Fund (TIEIF). It is an open end
equity fund that seeks to provide a combination of long-term capital
appreciation and regular income by investing in stocks that have a current or
potentially attractive dividend yield, both in India and overseas.
Performance Snapshot
Last 1
Month
Last 3
Months
Last 6
Months
Last 1 Year
Since
Inception*
TIEIF (G) 2.27% -9.97% -5.90% 0.41% 17.86%
TIEIF (D) 2.27% -9.89% -5.82% 0.49% 17.90%
BSE 200 6.38% -18.93% -21.58% -7.66% 10.35%
Past performance may or may not be sustained in the future.
* Compounded and annualised. As on July 31, 2008.
Highlights
Daily NAV
Choice: Growth Plan and Dividend Plan (Reinvestment & Payout
options)
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102. MUTUAL FUNDS
Low entry amount of Rs.5000
Easy liquidity: transactions are processed within 4 working
days normally
Convenience of Systematic Investment Plan: the ideal way to accumulate
wealth over the long term
NRIs can invest on a fully repatriable basis
Fund Information
Net Asset Value: Calculated and disclosed on all business days
Minimum Investments
New Investments Rs. 5,000
Additional Investments Rs. 1,000
Load
Amount (Rs.) Entry Load Exit Load
< Rs. 5 Crs 2.25%
1% if redeemed/switched-out within 6 months
of allotment; 0.5% if redeemed/switched out
after 6 months, but within 1 year of allotment
=> Rs. 5 Crs Nil 1% (if redeemed/switched-out within 6
months of allotment)
Systematic Investment Plan
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103. MUTUAL FUNDS
Minimum Amount Rs. 500 per month for 12months, Rs. 1000 per month for
6 months
Tax Benefits
Indexation benefits
Units are not liable to Wealth Tax and Gift Tax.
No TDS on redemptions for resident investors
FRANKLIN INDIA PRIMA PLUS (FIPP)
Key Facts
Fund Type Growth, Open end fund,
Inception Date September 29, 1994
Fund Manager R.Sukumar / Anand Radhakrishnan
Options Growth and Dividend
Investment Focus
The lifeblood of any successful business is wealth creation - simply
speaking, to generate returns in excess of its cost of capital. Time and again,
wealth creating companies have rewarded investors as the stock market
sooner or later acknowledges their unique contribution.
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104. MUTUAL FUNDS
Giving you an easy and convenient access to such companies is FIPP. The
scheme looks to identify such companies by thorough research by giving
due focus to the qualitative aspects such as management capabilities,
business strengths and unique business models which given them a
sustainable competitive advantage.
Performance Snapshot
Last 6
Months
Last 1
Year
Last 3
Years*
Last 5
Years*
Last 7
Years*
Last 10
Years*
Since
Inception*
FIPP (G) -22.08% -11.50% 24.87% 35.53% 33.34% 31.58% 21.23%
FIPP (D) -22.08% -11.50% 24.82% 35.50% 33.31% 31.57% 21.22%
S&P CNX
500
-20.52% -8.65% 19.41% 29.75% 25.68% 18.70% 8.71%
Past performance may or may not be sustained in the future.
* Compounded and annualised. As on July 31, 2008.
Highlights
Daily NAV
Choice: Growth Plan and Dividend Plan (Reinvestment & Payout
options)
Low entry amount of Rs.5000
Easy liquidity: transactions are processed within 4 working
days normally
Convenience of Systematic Investment Plan : the ideal way to
accumulate wealth over the long term
NRIs can invest on a fully repatriable basis
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