Project report On Comparison of Mutual funds with other Investment options

Submitted By Punita Rani

IMPORTANCE OF THE TOPIC SELECTED

The money we earn is partly spent and the rest is saved for meeting future expenses. Instead of keeping the saving idle we may like to earn some returns on it. So, we try to invest the money to earn good returns along with to generate a specified some of money for a specific goal in life and also make a provision for uncertain future. Their a number of options for investing ones saving which can give better returns for their investments made in physical assets or financial assets which may be further divided into short or long term options. Investing money where the risk is less has always been risky to decide. The first factor, which an investor would like to see before investing, is risk factor, which can be reduced through diversification of the risk. Diversification of risk gave birth to the phenomenon called Mutual Fund. Mutual fund is a vehicle for investing in stocks and bonds. It is not an alternative investment option to stocks and bonds, rather it pools the money of several investors and invest their savings in stocks, bonds, money market instruments and other type of securities.

Need For The study:The main purpose of doing the project is to know about mutual funds and its functioning. This helps to know detail about mutual fund industry. It also helps in understanding different schemes of mutual funds.

Objectives
To provide basic about investments. To know the information about various investment options. To study the nature of investment. To study about Mutual funds. To study how Mutual funds can be a better option. To study how diversification can help in risk reduction.

Limitations for the study:Lack of information sources for analysis part Time is critical factor limiting this study The data provided by prospect may not be 100% correct as they too have their limitations.

CHAPTER -1

INTRODUCTION
The Reliance group one of Indias largest business houses with revenues of Rs. 990 billion ($22.6 billion) that is equal to 3.5 percent of the countrys gross domestic product was split into two. The group which claims to contribute nearly 10 per cent of the countrys indirect tax revenues and over six percent of Indias exports was divided between Mukesh Ambani and his younger brother Anil on June 18, 2005. The groups activities span exploration, production, refining and marketing of oil and natural gas, petrochemicals, textiles, financial services, insurance, power and telecom. The family also has interests in advertising agency and life sciences. Reliance Mutual Fund (RMF) is one of Indias leading Mutual Funds, with Average Assets Under Management (AAUM) of Rs. 90,938 Crores (AAUM for Mar 08 ) and an investor base of over 66.87Lakhs. Reliance Mutual Fund, a part of the Reliance Anil Dhirubhai Ambani Group, is one of the fastest growing mutual funds in the country. RMF offers investors a well-rounded portfolio of products to meet varying investor requirements and has presence in 115 cities across the country. Reliance Mutual Fund constantly endeavors to launch innovative products and customer service initiatives to increase value to investors. Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management Limited., a subsidiary of Reliance Capital Limited, which holds 93.37% of the paidup capital of RCAM, the balance paid up capital being held byminority shareholders.

INVESTMENTS
What is an Investment? In Finance, the purchase of a financial product, or other item of value with an expectation of favorable future returns is termed as investment. In general terms investment means the use of money to gain higher rate of returns against savings or the investments. In business, the purchase made by a producer of a physical goods, such as durable equipment or inventory, in the hope of generating a back up for future business or maintaining a balance position for future business is termed as Investment.

An investment is the use of capital to create more money through the acquisition of a security that promises the safety of the principal and generates a reasonable return.

Various Investment options:Saving plays an important role in every nations economy. The money which is collected through savings acts as a driver for growth of the country. The saving can be invested into two ways that is short term or long term investment options.

Short term

Long term

1. Short term investment option:Short term financial option is where the holding of the asset is for a shorter period of time or where an asset is expected to be converted into cash in the next year. Broadly speaking, savings bank account, money market and fixed deposits can be considered as short term financial investments options.

Savings bank account

Company's Fixed deposit

Money market

1.1 Savings Bank account:It is often the first option or the banking product which is preferred, which offers low interest (4%- 5% p.a.), making them only marginally better than fixed deposits. 1.2. Money market or Liquid funds:They are specialized form of mutual funds that invest in extremely short term fixed income instruments and thereby provide easy liquidity. Unlike most mutual funds, money market funds are primarily oriented towards protecting the capital and then, aim to maximize returns. Money market funds usually yield better returns than savings accounts, but lower than bank fixed deposits. 1.3 Fixed deposits with banks:They are also referred to as term deposits and minimum investment period for bank FDs is 30 days. Fixed be considered for 6 12 months investments period as normally interest on less than 6 months bank FDs is likely to be lower than money market fund returns.

2. Long term investment option:Long term investment can be referred as the holding an asset for an extended period of time, depending upon the type of security. A long term asset can be held for one year minimum or as long as for 30 years or more. Post office savings schemes, Public provident fund, Company fixed deposits, bonds and debentures, Mutual funds etc. 2.1 Post office savings;It is a monthly income scheme which is low risk saving instrument, which can be availed through any post office. It provides an investment rate of 8% per annum, which is paid monthly. Minimum amount which can be invested is Rs. 1,000 and additional investments in multiples of 1,000. Maximum amount is Rs. 3,00,000/- ( if single)or Rs. 6,00,000 (if held jointly ) during a year. It has a maturity period of 6 years. Premature withdrawal is permitted if deposit is more than one year old. A deduction of 5% is levied from the principal amount if withdrawal prematurely. 2.2 Public Provident fund:A long term savings instrument with a maturity of 15 years and interest payable at 8% per annum compounded annually. A PPF account can be opened through a nationalized bank at anytime during the year and is open all through the year for depositing money. Tax benefits can be availed for the amount invested and interest accrued is tax free. A withdrawal is permissible every year from the seventh financial year of the date of to 50% of the balance at credit at the end of the 4th year immediately preceding year whichever is lower the amount of loan if any. 2.3 Company fixed deposit:These are short term to medium term borrowings by companies at a fixed rate of interest which is payable monthly, quarterly, semi-annually, annually. They can also be cumulative fixed deposits where the entire principal along with the interest is paid at the end of

the loan period. The rate of interest varies between 6-9% per annum for company FDs. The interest received is after deduction of taxes. 2.4 Bonds:It is a fixed income instrument issued for a period of more than one year with the purpose of raising capital. The central or state government, corporations and similar institutions sell bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest on a specified date, called the Maturity date.

2.5 Mutual funds:These are funds operated by an investment company which raises money from the public and invests in a group of assets (shares, debentures etc). In accordance with a stated set of objectives. It is a substitute for those who are unable to invest directly in equities or debt because of resource, time or knowledge constraints.

ABOUT MUTUAL FUNDS

What is a Mutual fund?

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 investorsa n d i n v e s t i n g f u n d s i n s e c u r i t i e s i n a c c o r d a n c e w i t h o b j e c t i v e s a s d i s c l o s e d i n o f f e r d o c u m e n t . Investments in securities are spread across a wide crosssection of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of Mutual funds are known as unit holders. The profits or losses are shared by the investors in proportion to their investments. The Mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. In India, A Mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from t he 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, debentur es, 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.