UNIVERSITY OF MUMBAI

PROJECT ON: INVESTMENT AS A MUTUAL FUND

IN THE PARTIAL FULFILLMENT OF THE DEGREE OF MASTER IN

MANAGEMENT STUDIES
ACADEMIC YEAR: 2014-15

SUBMITTED BY

ANKIT .M. TRIPATHI

ROLL NO: 45
SPECIALISATION: FINANCE
UNDER THE GUIDANCE OF PROF. HITESH PANJABI

GNVS INSTITUTE OF MANAGEMENT

GTB NAGAR, SION- (EAST), MUMBAI 400 037.
(AFFILIATED TO UNIVERSITY OF MUMBAI)
MASTERS IN MANAGEMENT STUDIES

Summer Internship Report

Name of Company: Birla Sun Life Insurance Co. Ltd.

Address of Company: Trimurti Arcade, L.B.S. Marg,

Ghatkopar West, Mumbai- 400086

Phone No. 9820809429

Email id. iqbalsingh.bansal@birlasunlife.com

Submitted by:
ANKIT MITRASEN TRIPATHI

(Roll No 45)

Name of Project Guide: PROF. HITESH PANJABI

GNVS Institute of Management Studies and Research

(Approved by AICTE & Affiliated to University of Mumbai)

DECLARATION

I hereby declare that the Summer Internship Report submitted for the MMS
Degree, GNVS Institute of Management Studies (Affiliated to University of
Mumbai) is my original work and conducted in Birla Sun Life Insurance Co. Ltd.

Place: Mumbai
Date:

Signature of the Student

CERTIFICATE

This is to certify that the Summer Internship Report is the bona fide internship
work carried out by Mr. ANKIT TRIPATHI
Student of MMS, at GNVS Institute of Management Studies (Affiliated to
University of Mumbai) during the May to July 2014, in partial fulfilment of the
requirements for the award of the Degree of Master in Management Studies.

Place: Mumbai
Date:

Signature of the Director

Signature of the Project guide

ACKNOWLEDGEMENT
I wish to express my gratitude to Mr. SUBHAJIT SENGUPTA from the Birla Sun Life Insurance Co. Ltd.
for providing me valuable information.

I am grateful to GNVS Institute of Management Studies for giving me an opportunity to pursue MMS. I
wish to thank Dr. R. K. Singh, Director, GNVS Institute of Management Studies and Research who has
been a perpetual source of inspiration and offered valuable suggestions to improve my practical
Knowledge.

I am indebted to my Coordinator HITESH PANJABI Professor, GNVS Institute of Management Studies,

for abundant guidance, support, and encouragement throughout my internship Study.

I would like to express my thanks to various people from the Birla Sun Life Insurance Co. Ltd. for their
support and direction.

Place: Mumbai
Date:

, July, 2014

Signature of the student

(ANKIT TRIPATHI)

TABLE OF CONTENTS
Serial
Chapter
COMPANY PROFILE
1
9
Schemes Offered by Birla Sun
2
life Mutual Fund
11
3

Investment Plans Offered

12

Objectives of the Study

5
6
7
8
9
10

Introduction
History of the Indian Mutual Fund
Industry
Global Scenario of Mutual Funds
Sponsor
Asset Management Company
Association of Mutual Funds in India

11
12
13
14

(AMFI)
ROLE OF MUTUAL FUNDS
Types of Mutual Fund Schemes
Advantages of Mutual Fund
Disadvantages of Mutual

15
16
17
18

Investment
Portfolio management
Limitation
Suggestions
Bibliography

14
16
18
21
24
26
28
29
30
33
Fund

36
38
40
41
42

Page No

CHAPTER - 1
7

COMPANY PROFILE
BIRLA SUNLIFE MUTUAL FUND

Birla Sunlife Mutual Fund is a joint venture between Sun Life Assurance
Company, the Canada-based financial service organization and the Indian
industrial house of Aditya Birla, this AMC was launched in the mid-90s. Both
the partners are well known in all areas that they operate in. While Aditya
Birla is a household name in India and has renowned brands in businesses
spread across industries as wide ranging as Aluminium(Hindalco), Textiles
(Grasim), Fertilizers (Indo-Gulf), Finance (Birla Global Finance Ltd.) and Rayon
(India Rayon), Sun Life is a leading financial service organization in North
America. Sun Life provides services related to risk management, money
management and wealth management across globe. Having established
itself at Toronto in 1871, it has now spread its wings across Asia Pacific,
U.S.A. and U.K. It also has a significant presence through MFS Investment
Management in U.S. and Spectrum United Mutual Funds in Canada.
The major strengths of the group are its expertise drawn from managing
assets over the globe, a big agent network and an ability to cater to the need
of people. Drawing on the expertise of a worldwide staff of over 10,000
people and a network of more than 65,000 agents and distributors, Sun Life
is committed to providing not just products and services, but solutions for
clients financial and risk management needs. Birla Sun Life Mutual Fund
follows a conservative long-term approach to investment, which is based on
identifying

companies

that

have

good

credit-worthiness

and

are

fundamentally strong. It places a lot of emphasis on quality of management

and risk control. This is done through extensive analysis that includes factory
visits and field research. It has one of the largest team of research analysts
in the industry. The company is one of India's leading private mutual funds
with a large customer base.
8

Birla Mutual Fund has been constituted as a trust under the provisions of the
Indian Trusts Act, 1882 and registered with SEBI. The objective of Mutual
Fund is to offer to thepublic and other eligible investors units in one or more
schemes in the Mutual Fund for making group or collective investments
primary in Indian Securities in accordance with and as permitted under the
directions and guidelines issued from time to time by SEBI. The Sponsors of
Birla Mutual Fund are Birla Global Finance Ltd. and Sun Life (India) AMC
Investments Inc., which is wholly owned subsidiary of Sun Life Financial
Services Company of Canada. Birla Sun Life Trustee Company Private Ltd.
(BSLTC) is a company incorporated with limited liability under the Companies
Act, 1956. Birla Sun Life Asset Management Company Ltd. (BSLAMC) is the
investment manager of Birla Mutual Fund

Vision

To be the most trusted name in investment and wealth management, to be

the
preferred employer in the industry and to be a catalyst for growth and
excellence of the asset management business in India.

Mission

To consistently pursue investor's wealth optimization by achieving superior

and consistent investment results.
Creating a conductive environment to hone and retain talent.
Providing customer delight.
Institutionalizing system-approach in all aspects of functioning
Upholding highest standards of ethical values at all times
9

Schemes Offered by Birla Sunlife Mutual Fund

Equity Schemes
Investments in equities are made with a long-term objective in mind.
Empirical
studies have indicated that despite the short-term volatility that is
characteristic of equities,
over the longer term, equities have generated superior returns. This makes
equities the best
instruments for long-term growth of capital. Investing in a diversified equity
portfolio can
help minimize risk as the portfolio gets exposure across various sectors,
while enabling
investors to capitalize on the fundamental upsides presented by these
sectors. The various
Equity schemes are
Birla Advantage Fund
Birla Dividend Yield Plus
Birla Midcap Fund
Birla India Opportunities Fund
Birla MNC Fund
Birla Equity Fund
Birla Index Fund
Debt Schemes
10

 Birla Income Plus

Birla Gilt Plus
Birla Bond Plus
Birla Cash Plus
Birla MIP
Birla MIP-II
Birla Floating Rate Fund
Birla Bond Index Fund

Investment Plans Offered

GROW (Gain Regularly On Withdrawals)
Formerly known as Regular Withdrawal Plan (RWP) - is the best alternative
for investors who need regular income. GROW is available in two options:
Fixed Withdrawal: Where investors specify amounts they wish to
withdraw from their investment on a monthly/quarterly basis.
Appreciation Withdrawal: Where they can withdraw 90% of their
appreciated amount on a monthly/quarterly basis.
REAP (Regular Extra Advantage Plan)
The REAP formerly known as Systematic Investment Plan (SIP) - lets
investors invest small amounts of money on a monthly basis and gives them
the option of increasing these amounts as their investment capacity
increases.
STEER (Systematic Transfer to Earn Equity Returns)
While investing in a debt, fund normally assures of fairly consistent returns,
equities have the potential to create wealth. But the unpredictability in
equity funds can be quite a deterrent when Investors make a choice. To
combine the best of both worlds Birla presents STEER formerly known as
Systematic Transfer Plan (STP).

Unique Features of Birla

Birla Bond Exchange
Birla Bond Exchange is a unique facility introduced by Birla Sun Life AMC Ltd.
to
help retail investors replace their existing portfolio of debt securities with a
diversified debt
fund in order to optimize returns and improve liquidity.
11

12

Birla Gift Certificates

Birla Gift Certificates brought to investors is a novel idea for presenting a gift
for special occasions, festivals or simply to say you care. Investors can
present these Gift Certificates to their loved ones or their valued business
associates on special occasions. Birla Gift Certificates can be used for
acquiring units of five funds - Birla Income Plus(BIP), Birla Monthly Income
Plan (MIP), Birla Midcap, Birla Dividend Yield Plus (BDYP) and Birla Advantage
Fund (BAF). These Gift Certificates can be bought from any of BSLAMC brand

13

CHAPTER 2
Objectives of the Study

To study various investment alternatives and in particular investors

preference
towards mutual funds.

To study the preference of investors in todays scenario (less risk and

more return).

To assess the risk of investors with reference to diversifiable risk &

nondiversifiablerisk.

To study market potentiality of mutual fund among investors.

To study whether the investors are considering Birla Sun Life a better
option or not.

14

Scope of study
A small investor is the one who is able to correctly plan & decide in which
profitable & safe instrument to invest. To lock up ones hard earned money in
a savings banks account is not enough to counter the monster of inflation.
Using simple concepts of diversification, power of compound interest, stable
returns & limited exposure to equity investment, one can maximize his
returns on investments & multiply ones savings. Investment is a serious
proposition one has to look into various factors before deciding on the
instruments in which to invest. To save is not enough. One must invest wisely
& get maximum returns. One must plan investment in such a way that his
investment objectives are satisfied. A sound investment is one which gives
the investor reasonable returns with a proper profitable management. This
report gives the details about various investment objectives desired by an
investor, details about the concept & working of mutual fund. This report also
covers the different players in Mutual Funds and different avenues of
investment & in detail about BIRLA SUN LIFE MUTUAL FUNDS.

15

CHAPTER - 3
Introduction
MUTUAL FUNDS
The mutual fund is structured around a fairly simple concept, the mitigation
of risk through the spreading of investments across multiple entities, which is
achieved by the pooling of a number of small investments into a large
bucket. Yet, it has been the subject of perhaps the most elaborate and
prolonged regulatory effort in the history of the country. The mutual fund
industry has grown to gigantic proportions in countries like the USA, in India
it is still in the phase of infancy. The origin of the Indian mutual fund industry
can be traced back to 1964 when the Indian Government, with a view to
augment small savings within the country and to
channelise these savings to the capital markets, set up the Unit Trust of India
(UTI). The UTI was setup under a specific statute, the Unit Trust of India Act,
1963. The Unit Trust of India launched its first open-ended equity scheme
called Unit 64 in the year 1964, which turned out to be one of the most
popular mutual fund schemes in the country. In 1987, the government
permitted other public sector banks and insurance companies to promote
mutual fund schemes. Pursuant to this relaxation, six public sector banks and
two insurance companiesviz. Life Insurance Corporation of India and General
Insurance Corporation of India launched mutual fund schemes in the country.
Securities Exchange Board of India, better known as SEBI, formulated the
Mutual
Fund (Regulation) 1993, which for the first time established a comprehensive
regulatory framework for the mutual fund industry. This proved to be a boon
for the mutual fund industry and since then several mutual funds have been
set up by the private sector as well as the joint sector. Kothari Pioneer Mutual
16

fund became the first from the private sector to establish a mutual fund in
association with a foreign fund. Since then several private sector companies
have established their own funds in the country, making mutual fund
industry one of the most followed sector by critics and investors alike. The
share of private sector mutual funds too has gone up rapidly.

In the period between 1963 and 1988, when the UTI was the sole player in
the industry, the assets under management grew to about Rs.67 billion. In
the second phase between 1988-1994, when public sector banks and
insurance companies were allowed to launch mutual fund schemes, the total
assets in the mutual fund industry grew to about Rs. 610 billion with the total
number of schemes increasing to 167 by the end of 1994. The third phase of
the mutual fund industry, which commenced in 1994, witnessed exponential
growth of the industry, with the advent of private players therein. As on May
31, 2004, the total assets under management stood at Rs. 1540 billion and
the total number of schemes stood at 399. During the last three and a half
decades, UTI has been a dominant player in the mutual fund industry. The
total assets under the management of the UTI as on September 30, 2002
were to the tune of Rs. 442 billion, which amount to almost 41% of the total
assets under management in the domestic mutual fund industry. UTI has
witnessed some erosion of assets pursuant to the last years crisis arising on
account of its Unit 64 scheme, the scheme with largest amount of assets
under management. This was the first scheme launched by the UTI with a
significant equity exposure and the returns of which was not linked to the
market. This resulted in a payment crisis when the stock markets crashed
during the last two years, which resulted in some degree of loss of investors
confidence in UTI leading to erosion of its assets under management. This
period also gave opportunity to the private players to demonstrate better
returns thereby capturing a significant market share. Whatever may have
happened to mutual funds in the past and whatever one is seeing now,
17

mutual funds are here to stay as long as they can deliver the aspirations of
their investors. One must not forget that India is a large nation with a
population of more than 1 billion people and the potential continues to be
huge. However, to be fair mutual fund managers should also strive to
improve their performance and not blame the vagaries of the market all the
times.

18

History of the Indian Mutual Fund Industry

The mutual fund industry in India started in 1963 with the formation of Unit
Trust of India, at the initiative of the Government of India and Reserve Bank
the. The history of mutual funds in India can be broadly divided into four
distinct phases
First Phase 1964-87
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 delinked from the RBI and the Industrial Development Bank of India (IDBI) took
over the regulatory and administrative control in place of RBI. The first
scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had
Rs.6,700 crores of assets under management.
Second Phase 1987-1993 (Entry of Public Sector Funds)
In the year 1987 marked the entry of non- UTI, public sector mutual funds set
up by public
sector banks and Life Insurance Corporation of India (LIC) and General
Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI
Mutual Fund established in June 1987 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
established its mutual fund in June 1989 while GIC had set up its mutual fund
in December 1990. At the end of 1993, the mutual fund industry had assets
under management of
Rs.47,004 crores.
19

20

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

With the entry of private sector funds in 1993, a new era started in the
Indian mutual fund industry, giving the Indian investors a wider choice of
fund families. Also, 1993 was the year in which the first Mutual Fund
Regulations came into being, under which all mutual funds, except UTI were
to be registered and 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
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI
was bifurcated into two separate entities. One is the Specified Undertaking of
the Unit Trust of India with assets under management of Rs.29,835 crores as
at the end of January 2003, representing broadly, the assets of US 64
scheme,

assured

return

and

certain

other

schemes.

The

Specified

Undertaking of Unit Trust of India, functioning under an administrator and

under the rules framed by Government of India and does not come under the
purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund
Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and
functions under the Mutual Fund Regulations. With the bifurcation of the
erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets
21

under management 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 consolidationand growth. As at the end of October 31,
2003, there were 31 funds, which manage assets of Rs.126726 crores under
386 schemes.

GROWTH IN ASSETS UNDER MANAGEMENT

22

CHAPTER 4
Global Scenario of Mutual Funds
The money market mutual Fund segment has a total corpus of $1.48 million
in the U.S. against a corpus of $100 million in India. Out of the top 10 Mutual
Funds world wide, 8 are bank sponsored. Only Fidelity & capital are non-bank
Mutual Funds in this group. In U.S. the total number of schemes is higher
than that of the listed companies while in India we have just 277 Schemes.
Internationally, Mutual Funds are allowed to go short. In India fund managers
do not have such leeway. In about 9.7 million households will manage their
assets online. By the year 2004, such a facility is not available in India.
Online trading is a great idea to reduce management expenses from the
current 2% of total assets to about 0.75% of the total assets. Around 72% of
the core customer base of Mutual Funds in the top 50 broking firms in the
U.S. is expected to trade online. The Indian Mutual Fund Industry is
dominated by the UTI, which has a total corpus of Rs.700 billion, collected
from over 200 million investors. The 2 nd largest category of Mutual Funds is
the ones floated by the nationalized banks. Can bank asset management
floated by Canara Bank & S.B.I. Fund Management floated by S.B.I. are the
largest of these. The aggregate corpus of the funds managed by this
category of Asset Management Companies is around Rs.150 billion among
the private players the largest are BirlaCapital Asset Management
Company & Prudential ICICI Asset Management Company. The aggregate
corpus of the asset managed by this category of Asset Management
companies is about Rs.60billion.

23

FUND BASICS
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 invested by the
fund manager in different types of securities depending upon the objective of
the scheme. These could range from shares to debentures to money market
instruments. The income earned through these investments and the capital
appreciation realized by the scheme is shared by its unit holders in
proportion to the number of units owned by them. Thus a Mutual Fund is the
most suitable investment for the common man as it offers an opportunity to
invest in a diversified, professionally managed portfolio at a relatively low
cost. The small savings of all the investors are put together to increase the
buying power and hire a professional manager to invest and monitor the
money. Anybody with an investible surplus of as little as a few thousand
rupees can invest in Mutual Funds. Each Mutual Fund scheme has adefined
investment objective and strategy.

24

Structure of a Mutual Fund

A mutual fund is set up in the form of a trust, which has Sponsor, Trustees,
Asset Management Company (AMC) and a Custodian. The trust is
established by a sponsor or more than one sponsor who is like a promoter of
a company. The trustees of the mutual fund hold its property for the benefit
of the unit-holders. The AMC, approved by SEBI, manages the funds by
making investments in various types of securities. The custodian, who is
registered with SEBI, holds the securities of various schemes of the fund in
its

custody.

The

trustees

are

vested

with

the

general

power

of

superintendence and direction over AMC. They monitor the performance and
compliance of SEBI Regulations by the mutual fund.

A typical mutual fund structure in India can be graphically represented as

follows

25

CHAPTER 5
Sponsor
The sponsor is required, under the provisions of the Mutual Fund Regulations,
to have a sound track record, a reputation of fairness and integrity in all his
business transactions. Additionally, the sponsor should contribute at least
40% to the net worth of the AMC. However, if any person holds 40% or more
of the net worth of an AMC shall be deemed to be a sponsor and will be
required to fulfill the eligibility criteria specified in the Mutual Fund
Regulations. The sponsor or any of its directors or the principal officer
employed by the mutual fund should not be guilty of fraud, not be convicted
of an offence involving moral turpitude or should have not been found guilty
of any economic offence.

26

Trustees
The mutual fund is required to have an independent Board of Trustees, i.e.
two thirds of the trustees should be independent persons who are not
associated with the sponsors in any manner whatsoever. An AMC or any of its
officers or employees are not eligible to act as a trustee of any mutual fund.
In case a company is appointed as a trustee, then its directors can act as
trustees of any other trust provided that the object of such other trust is not
in conflict with the object of the mutual fund. Additionally, no person who is
appointed as a trustee of a mutual fund can be appointed as a trustee of any
other mutual fund unless he is an independent trustee and prior approval of
the mutual fund of which he is a trustee has been obtained for such an
appointment. The trustees are responsible for inter alia -ensuring that the
AMC has all its systems in place, all key personnel, auditors, registrars etc.
have been appointed prior to the launch of any scheme. It is also the
responsibility of the trustees to ensure that the AMC does not act in a
manner that is favorable to its associates such that it has a detrimental
impact on the unit holders, or that the management of one scheme by the
AMC does not compromise the management of another scheme. The
trustees are also required to ensure that an AMC has been diligent in
empanelling and monitoring any securities transactions
with brokers, so as to avoid any undue concentration of business with any
broker. The Mutual Fund Regulations further mandates that the trustees
should prevent any conflicts of interest between the AMC and the unit
holders in terms of deployment of net worth.

27

CHAPTER 6
Asset Management Company

The sponsor or the trustees are required to appoint an AMC to manage the
assets of the mutual fund. Under the Mutual Fund Regulations, the applicant
must satisfy certain eligibility criteria in order to qualify to register with SEBI
as an AMC. The sponsor must have at least 40% stake in the AMC. The
directors of the AMC should be persons having adequate professional
experience in finance and financial services related field and not found guilty
of moral turpitude or convicted of any economic offence or violation of any
securities laws. The AMC should have and must at all times maintain, a
minimum net worth of Rs.10 Crores. The board of directors of such AMC has
at least 50% directors, who are not associates of or associated in any
manner with, the sponsor or any of its subsidiaries or the trustees. The
Chairman of the AMC is not a trustee of any mutual fund. In addition to the
above eligibility criteria and other on going compliance requirements laid
down in the Mutual Fund Regulations, the AMC is required to observe the
following restrictions in its normal course of business. Any director of the
AMC cannot hold office of a director in another AMC unless such person is an
independent director and the approval of the board of the AMC of which such
person is a director, has been obtained; the AMC shall not act as a trustee of
any mutual fund; the AMC cannot undertake any other business activities
except

activities

in

the

nature

of

portfolio

management

services,

management and advisory services to offshore funds, pension funds,

provident funds, venture capital funds, management of insurance funds,
financial consultancy and exchange of research on commercial basis if any of
such activities are not in conflict with the activities of the mutual fund.

28

Custodian
The mutual fund is required, under the Mutual Fund Regulations, to appoint a
custodian to carry out the custodial services for the schemes of the fund.
Only institutions with substantial organizational strength, service capability
in terms of computerization, and other infrastructure facilities are approved
to act as custodians. The custodian must be totally de-linked from the AMC
and must be registered with SEBI. Under the Securities and Exchange Board
of India (Custodian of Securities) Guidelines, 1996, any person proposing to
carry on the business as a custodian of securities must register with the SEBI
and is required to fulfill specified eligibility criteria. Additionally, a custodian
in which the sponsor or its associates holds 50% or more of the voting rights
of the share capital of the custodian or where 50% or more of the directors of
the custodian represent the interest of the sponsor or its associates cannot
act as custodian for a mutual fund constituted by the same sponsor or any of
its associate or subsidiary company.

29

CHAPTER 7
Association of Mutual Funds in India (AMFI)
Association of Mutual Funds in India (AMFI) is an apex body of asset
management companies of the Mutual Fund registered in India. It was
incorporated on the August 22 1995 as a non-profit making organization. It is
nd

dedicated to developing the Indian Mutual Fund industry on professional,

healthy & ethical lines & to enhance and maintain standards in all areas with
a view to protecting & promoting the interests of Mutual Funds & their unit
holders.

OBJECTIVES

To recommend & implement healthy business practices, ethical code of

conduct,
standard principles & practices to be followed by the members of the

company &
others engaged in the activities of Mutual Funds & Asset Management
including
agencies connected or involved in the field of capital Markets &
financial Services.

To promote high standards of commercial honor & encourage &

promote among
members & others the observance of securities laws including
regulations &
directives issued by Securities & Exchange Board of India (SEBI) &
function in
the best of interest of the investing public.

To help in setting up professional standards for providing efficient

services &
30

establishing standard practices for Mutual Fund & Asset Management

activities.

To bring about better co-ordination in the field of Mutual Funds & Asset
Management Industry.

To promote & develop sound, progressive & dynamic principles,

practices &
conventions in the activities of Mutual Fund & Asset Management.

To render assistance & provide common services & utilities to the

persons engaged
in the field of Mutual Funds & Asset Management.

31

ROLE OF MUTUAL FUNDS

Mutual Funds & Financial Market
In the process of development Indian mutual funds have emerged as strong
financial intermediaries & are playing a very important role in bringing
stability to the financial system & efficiency to resource allocation. Mutual
Funds have opened new vistas to investors & imparted a much-needed
liquidity to the system. In the process they have challenged the hitherto role
of commercial banks in the financial market & national economy.
Mutual Fund & Capital Market
The active involvement of Mutual Funds in promoting economic development
can be seen not only in terms of their participation in the savings market but
also in their dominant presence in the money & capital market. A developed
financial market is critical to overall economic development, & Mutual Funds
play an active role in promoting a healthy capital market. The asset holding
pattern of mutual funds in the USA indicates the dominant role of Mutual
Funds in the capital market& money market. More overtheyhave also
rendered critical support to securities mortgage loans & municipal bond
market in the USA. In the USA, Mutual Funds provide very active support to
the secondary market in terms of purchase of securities. Investors
preferences pattern in India has undergone a tremendous change during
recent times, along with the changes in the share of financial assets in the
total annual savings. Indian investors have moved towards more liquid &
growth oriented trade able instruments likes shares/debentures & units of
Mutual Funds. The shift is asset holding pattern of investors has been
significantly influenced by the equity & unit culture while the holders of
company shares & debentures are concentrated in the urban areas,
small/medium investors in the semi-urban & rural areas are tending towards
32

Mutual Funds. Mutual Funds in India have certainly created awareness

among investors about equity oriented investments & its benefits.

33

Types of Mutual Fund Schemes

There are a wide variety of Mutual Fund schemes that cater to investors
need, whatever your age, financial position, risk tolerance and return
expectations. Whether as the foundation of your investment program or as a
supplement, Mutual Fund schemes can help you meet your financial goals.

By Structure Schemes can be classified into 3

types
Open-Ended Schemes
These do not have a fixed maturity. Investors deal directly with the Mutual
Fund for their investments and redemptions. The key feature is liquidity. They
can conveniently buy and sell their units at Net Asset Value ("NAV") related
prices.
Close-Ended Schemes
Schemes that have a stipulated maturity period (ranging from 2 to 15 years)
are called close-ended schemes. Investors can invest directly in the scheme
at the time of the initial issue and thereafter they can buy or sell the units of
the scheme on the stock exchanges where they are listed. The market price
at the stock exchange could vary from the scheme's NAV on account of
demand and supply situation, unit holders' expectations and other market
factors. One of the characteristics of the close-ended schemes is that they
are generally traded at a discount to NAV; but closer to maturity, the
discount narrows. Some close-ended schemes give them an additional option
of selling their units directly to the Mutual Fund through periodic repurchase

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at NAV related prices. SEBI Regulations ensure that at least one of the two
exit routes is provided to the investor.

Intervall Schemes
These combine the features of open-ended and close- ended schemes. They
may be traded on the stock exchange or may be open for sale or redemption
during pre-determined intervals at NAV related prices.

By Investment Objective
Growth/Equity Schemes
Aim to provide capital appreciation over the medium to long term. These
schemes normally invest a majority of their funds in equities and are willing
to bear short- term decline in value for possible future appreciation. These
schemes are not for investors seeking regular income or needing their
money back in the short-term.
Income Schemes
Aim to provide regular and steady income to investors. These schemes
generally invest in fixed income securities such as bonds and corporate
debentures. Capital appreciation in such schemes may be limited.
Balanced Schemes
Aim to provide both growth and income by periodically distributing a part of
the income and capital gains they earn. They invest in both shares and fixed
income securities in the proportion indicated in their offer documents. In a
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rising stock market, the NAV of these schemes may not normally keep pace,
or fall equally when the market falls.

Money Market Schemes

Aim to provide easy liquidity, preservation of capital and moderate income.
These schemes generally invest in safer, short-term instruments, such as
treasury bills, certificates of deposit, commercial paper and inter- bank call
money. Returns on these schemes may fluctuate, depending upon the
interest rates prevailing in the market.
Tax Saving Schemes
These schemes offer tax rebates to the investors under tax laws as
prescribed from time to time. This is made possible because the Government
offers tax incentives for investment in specified avenues. For example,
Equity Linked Savings Schemes (ELSS) and Pension Schemes. Recent
amendments to the Income Tax Act provide further opportunities to investors
to save capital gains by investing in Mutual Funds. The details of such tax
savings are provided in the relevant offer documents.
Special Schemes
This category includes index schemes that attempt to replicate the
performance of a particular index, such as the BSE Sensex or the NSE 50, or
industry specific schemes (which invest in specific industries) or Sectoral
schemes (which invest exclusively in segments such as 'A' Group shares or
initial public offerings). Index fund schemes are ideal for investors who are
satisfied with a return approximately equal to that of an index. Sectoral fund
schemes are ideal for investors who have already decided to invest in a
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particular sector or segment. Keeping in mind that any one scheme may not
meet all the investors requirements for all time.

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CHAPTER 8
Advantages of Mutual Fund
Professional Management
Investors avail the services of experienced and skilled professionals who are
backed by a dedicated investment research team, which analyses the
performance and prospects of companies and selects suitable investments to
achieve the objectives of the scheme.
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 declare at the same time and in the same proportion.
Investors achieve this diversification through a Mutual Fund with far less
money than they can do on their own.
Convenient Administration
Investing in a Mutual Fund reduces paperwork and helps to avoid many
problems such as bad deliveries, delayed payments and unnecessary follow
up with brokers and companies. Mutual Funds saves time and make investing
easy and convenient.
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.

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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 and other fees translate into lower costs for investors.
Liquidity
In open-ended schemes, Investors can get their money back promptly at net
asset value related prices from the Mutual Fund itself. With close-ended
schemes, they can sell their units on a stock exchange at the prevailing
market price or avail of the facility of direct repurchase at NAV related prices
which some close-ended and interval schemes offer periodically.
Transparency
Investors get regular information on the value of their investment in addition
to disclosure on the specific investments made by the scheme, the
proportion invested in each class of assets and the fund manager's
investment strategy and outlook.
Flexibility
Through features such as regular investment plans, regular withdrawal plans
and dividend reinvestment plans, Investors can systematically invest or
withdraw funds according to their needs and convenience.

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Choice of Schemes
Mutual Funds offer a family of schemes to suit the varying needs over a
lifetime of their Investors.
Well Regulated
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.

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Disadvantages of Mutual Fund Investment

No Control over costs

An investor in a mutual fund has no control over the overall cost of investing.
He pays investment management fees as long as he remains with the fund,
albeit in return for the professional management and research. Fees are
usually payable as a percentage of the value of his investments, whether the
fund value is rising or declining.
No Tailor-made Portfolios
Investors who invest on their own can build their own portfolios of shares,
bonds and other securities. Investing through funds means he delegates this
decision to the fund managers. The very high net worth individuals or large
corporate investors may find this to be a constraint in achieving their
objectives.
Managing a portfolio of funds
Availability of a large number of funds can actually mean too much choice for
the investor. He may again need advice on how to select a fund to achieve
his objective, quite similar to the situation when has to select individual
shares or bonds to invest in.
RISKS OF INVESTING IN MUTUAL FUNDS
Market / Interest Risk

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Volatility of prices leading to floating returns Largely mitigated with a

holding period of over 6 months
Credit Risk
Potential default of bonds on the portfolio
Equity Risk
Possibility of the fund manager not able to meet redemptions

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CHAPTER 9

Portfolio management

Portfolio management is a process encompassing many activities of

investment in assets and securities. It is a dynamic and flexible concept and
involves continuous and systematic analysis, judgment and operations. The
objective of this service is to help to novices and uninitiated investors with
the expertise of professionals in portfolio management. Firstly, it involves
construction of a portfolio based upon the fact sheet of the investor giving
out his objectives, constraints, preferences for risk and return and his tax
liability. This stage is known as portfolio strategy. Secondly, the portfolio is
reviewed and adjusted from time - to time in tune with the market
conditions. The adjustment is done through changes in the weighting pattern
of the securities will take advantage of changes in market conditions and in
the securities and assets in the portfolio. This stage is referred as portfolio
monitoring and revision. Thirdly, the evaluation of portfolio performance is to
be done by the manager in terms of targets set for risk and return and
changes in the portfolios are to be affected to meet the changing conditions.
This stage is known and portfolio evaluation.
Elements of Portfolio Management
Portfolio management is an on-going process involving the following basic
tasks Identification of the investors objectives, constraints and preference,
which will help formulate the investment policy. Strategies are to be
developed and implemented in tune with the investment policy formulated.
This will help the selection of asset classes and securities in each class
depending upon their risk return attributes. Review and monitoring of the

43

performance of the portfolio by continuous overview of the market

conditions, companies performance and investors circumstances.
Finally, the evaluation of the portfolio for the results to compare with the
targets and needed adjustments have to be made in the portfolio to the
emerging conditions and to make up any shortfalls in achievement vis--vis
targets.
Thus portfolio management is a continuous process which starts with
security analysis, proceeds to portfolio strategy (i.e. construction and
selection),

continues

with

monitoring,

revision

and

evaluation.

The

evaluation process provides the necessary feedback for better designing of

portfolio the next time around.

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Chapter 10

Limitation
Much interaction has not been possible with the customer due to
1. Indifference or uninterested of the customers to interact with me
2. Different perceptions about the investment options
3. The non-availability of time to them
Many investors think mutual funds and shares are the one and same

45

Suggestions
Birla Sun Life has to review their portfolio frequently to maximize the
wealth of the investors. (Data support)
Birla Sun Life has to invest in firms, which are having good offers & high
growth opportunities such as shares listed in GroupA.
The awareness of mutual fund & its various schemes should be increased
among the people by proper advertising, promotion and conducting
investors meets..

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BIBLIOGRAPHY

Mutual Funds in India - H. Sadhak,

Security Analysis & Portfolio Management Preethi singh

Company Fact Sheet

Websites Visited:

www.mutual funds india.com

www.birla sun life.com

www.moneycontrol.com

www.icicidirect.com

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