MUTUAL FUND

INTRODUCTION
”Mutual Fund are a pool of savings collected from a number of small
investors, sharing a common financial goal. The money thus collected
is invested by experienced professionals called fund managers,
according to the pre-decided objectives in diverse types of securities
like Government sponsored Debentures and Bonds, shares of public
and private sector companies, bank guaranteed instruments.

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. Anybody with an investible surplus of as little as a few thousand
rupees can invest in Mutual Funds. Each Mutual Fund scheme has a
defined investment objective and strategy.

A Mutual Fund is the ideal investment vehicle

for today’s complex and modern financial scenario. Markets for
equity shares, bonds and other fixed income instruments, real
estate, derivatives and other assets have become mature and
information driven. Price changes in these assets are driven by global
events occurring in faraway places. A typical individual is unlikely to
have the knowledge, skills, inclination and time to keep track of
events, understand their implication and speedily. An individual also
finds it difficult to keep track of ownership of his assets, investment,
brokerage dues and bank transaction etc.

A mutual fund is the answer to all these

situations.It appoints professionally qualified experience staff that
manages each of these functions on a full time basis. The large pool
of money collected in the fund allows it to hire such staff at a very
low cost to each investor.
HISTORY OF INDIAN MUTUAL FUND

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 player entered the industry. In the past decade, Indian mutual
fund industry had seen dramatic improvements, both quality wise as
well as quantity wise. Before, the monopoly of the market had seen
an ending phase; the Assets under Management (AUM) were Rs.
67bn

FUNDS INDUSTRY:

The private sector entry to the fund family raised 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 .
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 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.
CONSTITUENTS OF THE MUTUAL FUND

An attempt was made for first time in SEBI GUIDELINES, 1992 to spell
out for managing the affairs of mutual funds ensuring arm’s length
distance between the sponsor and the fund. The four constituents
are the sponsoring company, the fund, the custodians and the asset
management company. Moreover in reality, pooled funds of small
investors were being put to use for the advantage of the sponsors.
Four constituents for the management of mutual funds are shown in
below chart:

Sponsors: It refers to anybody corporate which initiates the

launching of a mutual fund. It is this agency which of its own or in
collaboration with other body corporate comply the formalities of
establishing a mutual fund. The sponsor should have a sound track
record and expertise in the relevant field of financial services for a
minimum period of say five years. SEBI ensure that sponsors should
have professional competence, financial soundness and general;
reputation of fairness and integrity in the business transactions.
Sponsors is normally not responsible for any loss or shortfall resulting
from the operations of any scheme of the fund beyond it’s initial
contribution towards the constitution of the trust fund.

TRUSTEES: A trustee is a person who holds the property of the

mutual fund in trust for the benefits of the units holders. A company
is appointed as a trustee to manage the mutual. To ensure fair
dealings, mutual fund regulation require that one cannot be a trustee
or a director of a trustee company in more than one mutual fund.

Working Of An Asset Management Company: It is not required that AMC

performs all its functions of its own. It can hire services of outside
agencies as per its requirement or perform all function of its own.
The main agencies, services of which an AMC may require are
depicted in the chart.

Registrar and Transfer agents are assigned the jobs of

receiving processing the application forms of investors, issuing units
certificates, sending refund orders, according all transfers of units,
redemption of units, issuing dividend or income warrants.

FUNCTIONS OF AMC:-

The major strength of any AMC lies in its investment function. Investment
function is specialized function which, depending on operational strategies of
AMCs, can further be divided into specialized categories. The investment
department may be classified in four segments. These can be

1. Fund manager
2. Research and Planning cell
3. Dealer
4. Underwriter

FUND MANAGER:-

Asset Management Company manages the investment of fund

through a fund manager. AMC may evolve its own criterion for
number off fund managers. His basic function is to decide about
which, when, how much and at what rate securities are to be sold or
bought. To a great extent the success of any scheme depends on the
caliber of the fund manager.
Many mutual funds especially in bank sponsored funds; the entire
investment exercise is not left to one individual. They have created
committees to handle their investments. One such mutual fund has
created two committees. First is ‘investment committee’ which is
broad based committee having even nominees of the sponsor? It
collectively decides about the primary market investment.
RESEARCH AND PLANNING CELL:-

This department plays a crucial role. It performs a very sensitive and

technical assignment. Depending again on the operational policies,
such unit can be borrowed. The research can be with respect of
securities as well as perspective investors. The fund manager can
co0ntribute to the bottom line of mutual fund by spotting significant
changes insecurities ahead of the crowd. Mutual funds may not
appreciate the presumptions made by outside research agency while
analysis data, selecting securities to be bought or sold, this section
also assists planning new schemes and designing innovations in
schemes.

DEALER :-

To execute the sale and purchase transaction in capital or money

market, a separate section may be created under the charge of a
person called dealer having deep understanding of stock market
operations. Sometimes, this division is under the charge of marketing
division of AMC. Dealer is to comply with all formalities of sale and
purchase through brokers. Such brokers are to be approved by board
of directors of AMC.

UNDERWRITER:-
Recently mutual funds have been permitted by SEBI to go in for
understanding of public issues to generate

additional income for their schemes. Activity will be subject to the

following understanding restrictions:

 For the purpose of the SEBI underwriter’s regulations, the

capital adequacy of the mutual fund shall be the original corpus
of any of the schemes and the undistributed gains lying to the
credit of the schemes.
 The total underwriting obligations of the scheme shall not
exceed the total value of the corpus of any scheme together
with undistributed profits lying to the credit of the scheme.
 No understanding commitment may be undertaken in respect
of the scheme during the period of six months prior to the date
of redemption of any scheme.

Underwriter studies the potentials of the issue vis-à-vis preference

of public. Decreased limit of minimum offer to public at large to 25
percent of the issue has made underwriting a comparatively
comfortable assignment. But on the other hand to get
underwriting business is going tough since almost every public
issue is being oversubscribed these days.

UNIT LINKED INSURANCE PLAN

 (ULIP)
INTRODUCTION

What is ULIP?

Unit linked life insurance plan provides you the opportunity to

participate in market linked returns while enjoying the valuable
benefits of life insurance.This plan enables you to protect your loved
ones, while making your money grow. Your premiums are invested in
units of the investment fund (equity, debt, money market, security
bonds etc.)of your choice, based on the prevailing unit price.On
maturity you receive the value of your units.On death you receive the
greater of the value of your units and your selected basic sum
assured.A policy,which provides for life insurance where the policy
value at any time varies according to the
value of the underlying assets at the time.

Funds of ULIP

 Equity based funds

 Money Market based funds
 Debt Funds
 Balanced Fund

What are unit-linked life insurance products?

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

How do unit-linked products work?

The unit-linked plans work as under:

The premium paid by the client, less any charges to be deducted, is

used to buy units in the fund selected by the client at that day's
unit price. So more units are added to the client's account each
time he pays a premium. If the unit price on that day is relatively
high the client gets less number of units and if the unit price is
relatively low then he gets more number of units.
In order to pay the regular monthly costs an equivalent numbers of
units are cancelled and are computed as cost to be deducted
divided by unit price on that day.
The value of the fund depends on the unit price, which in turn is
determined from the market value of the underlying assets as seen
earlier. Thus, Fund Value = Unit Price x Number of Units

MF Vs ULIP

Mutual funds are essentially short to medium term products. The

liquidity that these products offer is valuable for investors. ULIPs, in
contrast, are now positioned as long-term products and going ahead,
there will be separate playing fields for ULIPS and MFs, with the
product differentiation between them becoming more pronounced.
ULIPs do not seek to replace mutual funds, they offer protection
against the risk of dying too early, and also help people save for
retirement. Insurance has to be an integral part of one's wealth
management portfolio. Further, exposure of Indian households to
capital markets is limited. ULIPs and mutual funds are, therefore, not
likely to cannibalise each other in the long run. While ULIPs as an
investment avenue is closest to mutual funds in terms of their
functioning and structure, the first and foremost purpose of
insurance is and will always be 'protection'. The value that it provides
cannot be downplayed or underestimated

Are ULIPs similar to MUTUAL FUND?

In structure, yes; in objective, no. Because of the high first-year

charges, mutual funds are a better option if you have a five-year
horizon.
Main differences between ULIP and ordinary mutual funds is
variation in expenses — administrative charges, mortality charges
and, of course, fund management fees. We are going to compare the
two products to suggest that, over a longish period, ULIP's expenses
work out to be lower than that of an equity mutual fund, and so you
end up getting more of your money to work for you.

When to choose investing in MF?

 If you don't need insurance, ULIP is not the best bet.

 ULIPs are hybrid products. that means, they have insurance and
investment component.

 You have to invest for atleast 3 years in ULIP, but MFs are not
like that

 ULIPs have lock-in period of 3 years where as MFs are not

(except tax saving MFs)
  ULIPs may or may not disclose the holding portfolio but mutual
funds have to disclose where they are investing.

 MFs generally have low expense ratio than ULIPs.

 ULIPs have additional charges called "Allocation charges". And

other charges like Administrative charges, Mortality charges,
Fund Management Charge.

Structure of the Indian mutual fund industry:-

FIRST CATEGORY

The Indian mutual fund industry is dominated by the UNIT TRUSTOF

INDIA which has a total corpus of is 700 bn collected from more than
20 million investors. The UTI has many funds/ scheme in all
categories i.e. equity, balanced, income etc. with some being open-
ended and some being close-ended. UTI was floated by financial
institutions and is governed by a special act of parliament. Most of its
investors believe that the UTI is government owned and controlled,
which, while legally incorrect, is true for all practical purposes.

SECOND CATEGORY

The second categories of mutual funds are the ones floated by

nationalized banks. Can bank assets management floated by Canara
bank and SBI funds management floated by the state bank of India
are the largest of these. GIC AMC floated by general insurance
corporation and Jeeven Bima Sahayog AMC floated by the LIC are
some of the other prominent ones. The aggregate corpus of funds
managed by this category of AMC’s is about Rs 150 bn.

THIRD CATEGORY

The third largest categories of mutual funds are the ones floated by
the private sector and by foreign asset management companies. The
largest of these are Prudential ICICI AMC’s, UTI AMC’s etc. The
aggregate corpus of assets managed by this category of AMC’s is in
excess of Rs.250 bn.

Future Scenario of Mutual Fund Industry:-

The asset base will continue to grow at an annual rate of about 30 to

35 % over the next few years as investor’s shift their assets from
banks and other traditional avenues. Some of the older public and
private sector players will either close shop or be taken over.

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

But this does not mean there is no room for other players. The market
will witness a flurry of new players entering the arena. There will be a
large number of offers from various asset management companies in
the time to come. Some big names like Fidelity, Principal, and Old
Mutual etc. are looking at Indian market seriously. One important
reason for it is that most major players already have presence here and
hence these big names would hardly like to get left behind.
The mutual fund industry is awaiting the introduction of derivatives in
India as this would enable it to hedge its risk and this in turn would be
reflected in it’s Net Asset Value (NAV).
Investment Managers:

SBI FUNDS MANAGEMENT PRIVATE LIMITED

Name of Trustees Company:

SBI MUTUAL FUND TRUSTE COMPANY PVT. LTD.

Name and Address of registrar:

COMPUTER AGE MANAGEMENNT SERVICES PVT. LTD.

(SEBI REGISTRATION NO. INR000002813)

178/10, KODAMBAKKAM HIGH ROAD,OPP. HOTEL

PALMGROVE,

CHENNAI-600034.

DIFFERENT SCHEME OF SBI MF:

OPEN-ENDED EQUITY SCHEME:

1. Magnum Multicap fund

 2. Magnum Equity Fund
3. Magnum Index Fund
4. Magnum Multiplier Plus
5. Magnum SBI Blue-Chip Fund
6. Magnum Tax gain scheme
7. Magnum Comma Fund
8. Magnum Global Fund
9. Magnum MidCap Fund
10. Magnum Balanced Fund
11. Arbitrage fund
CLOSE-ENDED EQUITY SCHEME:

1. One India
2. Infrastructure
MAGNUM SECTOR FUNDS UMBRELLA

1. Contra Fund
2. Emerging Business Fund
3. FMCG Fund
4. IT Fund
5. Pharma Fund
6.
OPEN-ENDED DEBT SCHEME:

1. Magnum Children Benefit Plan

2. Magnum Monthly Income Plan
3. Magnum Income Plus Fund (Investment)
4. Magnum Income Plus Fund (Saving)
5. Magnum Income Fund
6. Magnum NRI Investment Fund

OPEN-ENDED LIQUID FUND

1. Magnum Institutional Income Fund

2. Magnum InstaCash Fund
3. Magnum InstaCash Fund (Liquid floater)

LIMITATIONS:

 Uncertainty of market:- Mutual Funds are securities

investments are subject to market risks and there is no
assurance or guarantee that the objectives of the Scheme will
be achieved. As with any investment in securities, the NAV of
the units issued under the Scheme can go up or down
depending on the factors and forces affecting the capital
markets.
 Lack of awareness:- In Jaipur Mutual Fund Industry is in
infantry stage so people are unaware of it. So people are afraid
to invest & they only trust of some Government funds like UTI,
SBI. They preferably like to invest in Insurance specially in LIC.
They generally ask that Who will give them assured returns?

 CONCLUSION:
 From the analysis of the compare of Mutual Fund and Unit
Linked Insurance Plan found thatUnit-linked life insurance
products are those where the benefits are expressed in terms
of number of units and unit price. They can be viewed as a
combination of insurance customer and mutual funds. Main
differences between ULIP and ordinary mutual funds is
variation in expenses — administrative charges, mortality
charges and, of course, fund management fees.