INSTITUTE OF MANAGEMENT TECHNOLOGY, NAGPUR A REPORT ON

Comparison of Various Avenues Available in Market (Saving & Investment Avenues) with Emphasis On Mutual Fund

SUBMITTED BY: Nitin Vijay PGDM - FIN IMT - Nagpur

INSTITUTE OF MANAGEMENT TECHNOLOGY, NAGPUR

A REPORT ON Comparison of Various Avenues Available in Market (Saving & Investment Avenues) with Emphasis On Mutual Fund

SUBMITTED TO:

MR. Rishi Khandal SALES MANAGER ICICI PRU AMC. (CompanyGuide)

Prof. I.Sridhar I MT- Nagpur ( Faculty Guide)

SUBMITTED BY: Nitin Vijay PGDM FIN

IMT- Nagpur
A report submitted in partial fulfillment of The requirements of PGDM program of Institute of Management Technology, Nagpur

ABSTACT

Managing investments is both an opportunity and a challenge. Successful investors try to maximize their returns and wealth for a desired level of risk by carefully financial planning. Successful investing involves designing portfolio, which produces the highest possible returns, based on ability and willingness to take risk. Individuals and families today bear an ever-growing responsibility for achieving and sustaining financial and economic stability across the life span. Never has there been a greater need for well-trained professionals who can help individuals and families make informed and effective financial and economic decisions and who can evaluate and recommend the public policies that influence the economic opportunity and future of individuals and families. The project has attempted to study the various aspects of personal financial planning of investors. During The internship in ICICI PRU AMC the study has emphasized to aware the investors about their financial planning and point out reasons that why they are not willing for financial planning. So during the internship Project has contributed to aware the people for investments in different category like fixed deposits, insurance, bonds, securities and mutual funds (special focus on liquid funds). The Project has conducted the survey to aware the people and collected the information on personal financial planning with special emphasis on liquid fund and their perception about the liquid fund in the market. Apart from studying the above, the project has also accomplished to examine the investing behavior of investors in Indian scenario.

1.Concept and Role of Mutual Fund

A pool of money contributed by many investors and collectively managed by an asset management company Investments made in accordance with stated objectives A financial intermediary that allows small investors to participate in the securities market Ownership of the fund is mutual and beneficial An investor becomes part owner of the fund s assets when he buys into the fund The investor is allotted units for the amount subscribed.

The MF Cycle

2. Mutual Fund Structure & Constituents

MF Structure in India

A mutual fund has a 3-tier structure

MF Structure in other countries

Structure in USA Management Company Underwriter for Sales Similar to Sponsor Similar to AMC

Management Group Custodian

Structure in UK Open Ended - Unit Trusts SRO Closed Ended - Investment Trusts like a Company. regulated by Securities and Investment Board + by relevant

MF Constituents in India

Trust -Mutual funds in India constituted as a Public Trust under Indian Trust Act, 1882 -The trust is registered with the Office of Public Trustee -OPT reports to the Charity Commissioner -The trust or the fund has no independent legal capacity itself -Acts in relation to the trusts are taken on its behalf by the trustees -Treated as a separate entity and a pass through vehicle -Has its own auditors, separate from the AMC.

Sponsor -Promoter of the mutual fund -Creates a Trust under Indian Trusts Act, 1882 and registers it with Office of Public Trustee -Appoints Board of trustees/trustee company -Creates AMC under Indian Companies Act, 1956

-Fulfills necessary formalities and applies to SEBI for registration of the Trust as a Mutual Fund.

Sponsor Criteria -Min 5 years track record in financial services -Bank, corporate or an FI -Profit making in at least 3 out of past 5 years, including the previous year -Positive Net Worth in last 5 years -At least 40% of the capital of the AMC -Net worth in the immediately preceding year more than the capital contribution to the AMC.

Trustee -Appointed by sponsor with SEBI approval -Have Registered ownership of investments -Formed either as Board of Trustees or Trustee Company -Power to appoints all other constituents -Appoint AMC through the Investment Management Agreement and delegate powers.

Trustee Criteria -Minimum number of trustees is 4 2/3rd should be independent trustees i.e. no connection of profit (what so ever) with the sponsor -Meet at least 4 times in a year to review functioning of AMC -Trustees hold the unit-holders money in fiduciary capacity -All major decisions need trustee approval -Right to seek regular information and take remedial action.

AMC -Required to be registered with SEBI -Appointed as Investment Manager of the mutual fund

-Appointed by the trustees via an Investment Management Agreement -Responsible for operational aspects of the mutual fund -Net Worth of at least Rs.10 crore at all times -At least 1/2 of the board members must be independent -Mostly, structured as a private limited company where Sponsor and associates hold capital -Quarterly reporting to Trustees.

Other Constituents

Role Restrictions -Sponsor of a fund cannot be its custodian -Sponsor of a fund can be a distributor -Trustee of one mutual fund cannot be trustee of another mutual fund -Exception is Independent trustees provided they obtain approval of both the board of trustees -Trustee of one fund cannot be AMC of another -AMC of one fund cannot be Trustee of another -AMC cannot have any business interest other than fund advisory.

Mergers & Takeovers

Scheme Merger Scheme merged with another scheme of the same AMC

AMC Takeover AMC is taken over by another set of sponsors

AMC Merger One AMC may merge with another AMC

Change of AMC/Trust Trustees decide to change the AMC and handover the scheme to a new AMC

Scheme Takeover Just the schemes taken over by another set of trustees.

Scheme takeover (HDFC Zurich, Birla-Apple) -One AMC buys schemes of another AMC -Organic growth in assets -No change in AMC stakes

AMC merger (HB-Taurus) -Two AMCs merge -Similar to merger of companies -Sponsor stakes change

AMC take-over (Zurich-ITC Threadneedle, Birla-Alliance) -Stake of one sponsor in a AMC bought out by another -Change in AMC and sponsor.

Investor rights -Right to be informed -No prior approval required -Option to exit at NAV without exit

Regulatory framework

3.Accounting, Valuation and Taxation

Accounting Policies -Investments to be marked to market according to SEBI Guidelines -Unrealised appreciation cannot be distributed -Profit or loss on average cost basis -Dividend on ex-dividend date -Sale and purchase accounted on trade date -Brokerage and stamp duties are capitalized and added to cost of acquisition or sale proceeds.

Reporting Requirements -Audited accounts within 6 months of closure of accounts -Publish unaudited abridged accounts within 30 days of the closure of the halfyear -Summary of the accounts to be mailed to all unit holders -File with SEBI Copy of the annual report Six monthly unaudited reports Quarterly movement in net assets of the fund Quarterly portfolio statements.

Specific Disclosure -Complete portfolio to be disclosed every six months Industry practice is monthly disclosure -Any item of expenditure which is more than 10% of total expenses -NPAs, provisioning and NPAs as percent of total assets -Number of unit holders holding more than 25% of unit capital.

Net Asset Value -Frequency of NAV -Calculated and published at least every Wed for CEFs -Calculated and published daily for OEFs -Updated on AMFI website by 8:00 pm (as per text book) every business day NAVs are rounded off up to four decimal places for liquid/money market schemes and upto two decimal places for all other schemes. -NAV = Net Assets of the Scheme/No. of Units Outstanding -Net Assets of the Scheme + Market Value of investments + Receivables + Other accrued income + Other assets - Accrued Expenses - Other payables - Other liabilities. Fees & Expenses -Initial Issues Expenses -Recurring Expenses -Investment Management Fee -Entry & Exit Load.

Initial Issue Expenses -Expenses incurred in floating a new scheme -Max 6% of funds mobilized charged to scheme; excess borne by AMC/sponsor -Only CEFs are permitted to charge IIE to the fund Amortize on weekly basis until maturity E.g. 6 crores amortized over a 5-year (260 weeks) tenor would mean Rs. 230,769 charged every week as expense

-No-load fund i.e. funds which do not charge initial issue expenses can charge additional investment management fees of 1% w.e.f. Apr 2006 OEFs cannot charge initial issue expenses to the scheme

Recurring Expenses -Investment management fees -Custodian s fees -Trustee Fees -Registrar and transfer agent fees -Marketing and distribution expenses -Audit fees -Legal expenses -Costs of mandatory advertisements and communications to investors. -Overall ceiling on expenses, including Investment management and advisory fees -Based on Weekly Average Net Assets (WANA) -Equity Funds First 100 Crores 100 - 400 Crores 400 700 Crores 2.50% 2.25% 2.00% 1.75%

Above 700 Crores

-For Bond funds, above figures are lower by 0.25% -Limit for FOFs is 0.75% of the Weekly Average Net Assets.

Expenses that cannot be charged -Penalties and fines for infraction of laws -Interest on delayed payments to unit holders -Legal, marketing and publication expenses not attributable to any scheme -Expenses on investment and general management -Expenses on general administration, corporate advertising and infrastructure costs

-Expenses on fixed assets and software development expenses -Such other costs as may be prohibited by SEBI.

Investment Management Fee -SEBI Limits Investment Management Fee

For the first Rs. 100 crore of net assets: 1.25% For net assets exceeding Rs. 100 crore: 1.00% -IMA can be 1% more for no load funds

Loads -Charged to recover sales and distribution expenses -Entry Load At the time of sale of units i.e. subscription by investor Charged on NAV and increases the sale price -Exit Load At the time of repurchase of units i.e. redemption by investor Charged on NAV and reduces the repurchase price -Load is a charge on the NAV Load is defined as a percentage -CDSC is variable exit load, lower for longer duration of holding Loads are subject to SEBI Regulations*

* Change expected in Jan 2008 - In case of Direct investment, no entry load to be charged to investor.

SEBI Regulations - Loads -OEFs Maximum Exit load or Entry load : 7% of NAV Repurchase price more than or equal to 93% of the Sale price

-CEFs Max Entry or Exit Load: 5% of NAV Repurchase price more than or equal to 95% of the Sale Price (NAV in this case) w.e.f. Apr 2006, CEFs cannot charge entry load.

Pricing of Units Sale and repurchase price are NAV-based

SALE PRICE = NAV + Entry Load

REPURCHASE PRICE = NAV

Exit Load

Non Performing Assets -An asset classified as non-performing if interest or principal amount not been received or remained outstanding for one quarter from the due date -Deep Discount Bonds (DDBs) are classified as NPAs if, -the grade falls to BB or below, OR -it is defaulting on other commitments, OR -in case of full Net worth erosion of the borrower

Treatment of NPAs -Accrual to be stopped -Income accrued until date of classification to be provided for -Provisioning for principal due In graded manner after 3 months of classification. Complete write off in 15 months from classification.

Provision for NPAs 10% of BV - after 6 months past due date of interest 20% of BV after 9 months past due date of interest

20% of BV 25% of BV 25% of BV

after 12 months past due date of interest after 15 months past due date of interest after 18 months past due date of interest.

Valuation of Securities Equity -Traded Securities Mark to Market i.e., last quoted closing price on

the stock exchange where it is principally traded -Thinly Traded Securities Those securities which are traded for less Complex valuation method is

than 5 lacs AND less than 50,000 shares

used if the security is not traded for more than 30 days otherwise last traded price.

Debt -Traded Securities as quoted in market upto last 15 days those securities (except GoI securities) where there

-Thinly Traded Securities

is no trade in marketable lot of Rs 5 Cr on valuation date -Securities with maturity upto 182 days are valued on the basis of amortization cost + accrued interest.

Taxation -Mutual Fund is a pass through vehicle hence not taxed -Mutual funds are exempt from tax under section 10(23D) of Income Tax Act, 1961 -Taxation for investor Dividend Capital Gain -Taxation as per Equity fund (at least 65% of assets in domestic equity) or Other than Equity fund.

Investment Management

Mutual Funds & securities Markets Equity Market and products Asset classes Investment styles Value indicators Debt Market and products Terminology Investment styles Investment restrictions

Equity Investing Equity implies ownership Equity instruments Ordinary shares Preference shares Convertible debentures Equity Warrants Classification of Equity Large Cap/ Mid Cap/ Small Cap Growth/ Value/ Cyclical Equity terminology Earnings per Share Market Capitalization Ratios P/E Ratio Dividend Yield

Equity Portfolio Management Approaches to Portfolio Management Passive Active Investment Styles Growth Value Securities Research Fundamental Analysis Quantitative Analysis Technical Analysis Portfolio Management Organization Structure Fund Managers Security Analysts & Researchers Dealers. Approaches to portfolio management Active management Aim for Out-performance Higher fees Selection and timing Passive Management Replicate a chosen Index Low fees.

Debt Investing Debt implies lending/loan Types of debt instruments Govt. Securities PSU Bonds FI Bonds Corporate Bonds

Debentures Money Market Securities Treasury Bills (T-Bills) Commercial Paper (CP) Certificate of Deposit (CD).

Debt Classification Classification of Debt Securities Tenor long or short

Credit quality Government Securities/Corporate Securities/FI Bonds Secured/Unsecured Market Traded/Non-traded Interest Periodic or Discounted Fixed or Floating (Floater) Call or Put option

Debt Terminology Par or Principal or Face Value Coupon or Interest Maturity or tenor Callable Puttable Yield.

Measures of Bond Yield Current Yield Yield to Maturity Yield Curve (TSIR

Price & Yield Increase in rates reduces value of existing bonds Decrease in rates increases value of existing bonds Price and yield are inversely related The relationship between yield and tenor can be plotted as the yield curve.

Current Yield and YTM Coupon amount as a percentage of current market price

If you bought an 8% bond at Rs. 110, the current yield is, = (8/110)*100 = 7.27%.

Interest Rate Sensitivity Measured by a number called duration If duration is 5 years, and interest changes by 1%, price of the bond will change in the opposite direction, by 5%

Example: Duration of a bond is 3 years. Yield spreads increases by 1.5%. What is the change in price? = 1.5 *3 = -4.5%.

Risk in Bond Investing Types of Risk Interest Rate Risk

Reinvestment Risk Default/Credit Risk Inflation Risk Liquidity Risk Call Risk Risk Measures Yield Spreads & Credit Ratings Duration.

Credit Risk Probability of default by the borrower Change in credit rating, downgrade increases the yield & decreases the price upgrade decreases the yield & increases the price.

Debt Portfolio Management Buy & Hold Portfolio exposed to interest rate risk Duration Management increase duration if rates are expected to fall decrease duration if rates are expected to rise Credit Selection Invest in low grade bonds that are likely to be upgraded Prepayment Prediction

Investment Policy Investment policy of each scheme dictated by the scheme s objective SEBI imposes certain restrictions on mutual funds to ensure investor protection Minimum 20 investors per scheme No one to hold more than 25% of the corpus

Record of Investment decisions to ensure transparency.

Minimum Portfolio Diversification Not more than 10% of NAV in a single company Exceptions: Index & Sectoral funds Rated Investment grade debt of a single issuer cannot be more than 15% of NAV (extendable to 20% with AMC Board and Trustees approval) Un-rated instruments 10% of Net Assets for single issuer Overall 25% cap for investment in such securities Unlisted shares Max 10% of Net Assets for CEFs Max 5% of Net Assets for OEFs.

Investment Restrictions Invest only in marketable securities Investment transactions only on delivery basis Securities have to be bought in the name of the scheme A mutual fund under all its schemes, cannot hold more than 10% of the paid-up capital of a company Equity with voting rights representing 10% of paid-up capital of one stock.

Approved & Unapproved Investments

Temporary Investment in Bank FDs ADR/GDR investment permitted

Max 15% of NAV

lower of, 10% of net assets or $200 million cap for mutual fund industry as a whole $4 billion Limited investment in Treasury Bonds and AAA rated corporate debt issued outside India No Lending.

Investment in Sponsor No investment in unlisted securities of sponsor or an associate or group company of the sponsor No investment in privately placed securities of the sponsor or an associate Investment in listed securities of the sponsor or associate company permitted Max 25% of the net assets of the scheme

Inter-scheme transfer Transfers only on a delivery basis, at market prices Such transfers should not result in significantly altering the investment objectives of the schemes involved Such transfer should not be of illiquid securities, as defined in the valuation norms One scheme can invest in another scheme, up to 5% of net assets. No fee is payable on these investments.

Other Restrictions Mutual funds can borrow up to 20% of net assets for a period not exceeding 6 months Any change in investment objectives requires information to investor, and provision of option to exit at NAV, without exit load.

Financial Planning Investment planning is an alien concept for the Indian populace. For a country which till now was worried about making ends meet this emerging trend is definitely a new experience. But, the truth is that if only they would have been introduced to the Art of Managing Money, life could have been so much easier. Most of the people spend more than half of his lives working and saving because money is important, in fact crucial. However, most of person spends almost no time planning to make that hard-earned money work more effectively for them. So, how does a person plan his financial life? The first step of creating a financial planning is to identify the personal and family financial goals of an investor. Goals are based on what is most important to an individual. Short-term goals (up to a year) are things that one desires soon (house-hold appliances, a vacation abroad), while long-term goals identify what one wants later on in life (a home, education for children, sufficient old age income). Take these short- and long-term goals and establish priorities, making sure an emergency fund for unfortunately happens. Then estimate the cost of each goal and set a target date to reach it.

DEFINITION OF FINANCIAL PLANNING: Financial planning asset means defining and client s profile and goals and

recommending

allocation

monitoring

financial

planning

recommendations . The objective of financial planning is to ensure that the right amount of money is available at the right time to the investor to be able to meet his financial goals. A good financial planning is very much essential in one s portfolio; it helps to grow the money in right proportion and at right time. The changing life cycle affects financial planning. A person's goals must be updated as his needs and circumstances change. In one's young adult years, short-term goals may include adequate insurance, establishing good credit, and just getting under way. During a person's middle years, the goals shift from immediate personal spending to education for children, their marriage and planning for retirement. In one's later years, travel may become a primary goal.

LIQUID FUND: The aim of Money Market Funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer shortterm 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. These are ideal for corporate and individual investors as a means to park their surplus funds for short periods.

FINANCIAL PLANNING OBJECTIVES:

1. Standard of Living- Maslow's basic needs satisfied such as food, water, clothing, shelter, and nice-to-have discretionary items, such as automobiles, vacations, entertainment. 2. Savings-emergency funds for sudden and unexpected events, such as extra living expenses because of a fire at one's home. 3. Protection- Disability Income Insurance; Health Insurance; Life Insurance; Property and Liability Insurance (all forms designed to offer coverage against the uncertainty of a financial loss due to the Pure Risk). 4. -Investment-Accumulation of wealth through the return on assets deployed leading to financial independence. 5. -Estate Planning-distribution of the invested assets held for the purpose of the accumulation of wealth in a tax efficient and effective manner.

THE RIGHT ASSET ALLOCATIONEvery one want to invest but problem is that how to invest, where to invest and when to invest and what should be the right asset allocation. The project found that there are three major asset classes that one can put his money into, namely equities, fixed income and money market instruments. In order to decide how much money goes into which investment class a person must first consider a

few important factors (most of these will be tackled by him during his goal definition phase): Return expected on investment Amount he will be able to save (present as well as future) Cash outflows he might have at certain points of time in the future Risk appetite Amount, a person will require for old age (Retirement) Liquidity Age

Hence due to the variable nature of the investor s finances and requirements there are no set strategies used by financial consultants. ICICI PRU provides its investors a broad strategies and planning which help in investment protection and growth opportunity. Investment protection leads to safer interest generating asset allocations where as Investment Growth leads to higher volatility assets, that may tend to grow over a period of time.

The chart below to show the category in which a person broadly fall intoINVESTMENT PROTECTION VS. INVESTMENT GROWTH Investor Characteristic Time Horizon Future Income Requirements Volatility Limit (Risk Averseness) Inflation Protection Low Protection Needed Investor take on Equity Market Source: hdfcmutualfund.com Mostly Bearish High Protection Needed Mostly Bullish Investment Growth Short-term Steady / High Low Investment Protection Long-term Variable / Low High

Example- If supposes you are a person who broadly falls into the Investment Growth category you might be interested in looking at an Aggressive portfolio. On the other hand if you are leaning towards an interest income with minimal risk investments you might look at a Conservative asset allocation. Someone who wants a bit of steady income as well as asset growth might go in for a moderate or a balanced asset allocation

AGGRESSIVE PORTFOLIO

MODERATE PORTFOLIO

CONSERVATIVE PORTFOLIO

Source: hdfcmutualfund.com Another way to ascertain the right asset allocation is by looking at your life cycle. The basis of this theory lies in the simple maxim that younger people with secure jobs will normally opt for higher returns and take higher risks compared to older retired people. One must remember that these are only indicative strategies and will probably have to be fine-tuned to meet your individual needs.

AGE 20-29

MAIN OBJECTIVES Aggressive Growth Sow the seeds,

PORTFOLIO STRATEGY 50% - Growth Funds 30% - Balanced Funds 20% - Money Markets / Cash

plan for housing and create a safety cushion 30-39 Growth Save for housing, children s

45% - Growth Funds 30% - Balanced Funds 05% - Blue Chip Stocks 20% - Money Markets / Cash

expenses (present and future education etc.) and safety cushion

40-49

Growth

Children s expenses (present education etc.) and safety

40% - Growth Funds 30% - Balanced Funds 10% - Blue Chip Stocks 20% - Money Markets / Cash

and future cushion

50-59

Retirement

Save for retirement and

30% - Growth Funds 40% - Balanced Funds 10% - Blue Chip Stocks 20% - Money Markets / Cash

build on safety cushion

60-69

Safety

Preserve investments/ savings

10% - Balanced Funds 15% - Income Funds 10% - Blue Chip Stocks 20% - Dividend Stocks 30% - Certificates of Deposits (Shorter-term) 15% - Money Markets / Cash

and opt for minimal growth

70-

Safety

Preserve investments/ savings

30% - Income Funds 25% - Dividend Stocks 35% - Certificates of Deposits (Shorter-term) Source: hdfcmutualfund.com

INVESTMENT PLANNING: The sooner the better . By investing into the market right away an investor allow investments more time to grow, whereby the concept of compounding interest swells his income by accumulating earnings and dividends. Considering the unpredictability of the markets, research and history indicates these three golden rules for all investors. 1. Invest early 2. Invest regularly 3. Invest for long term and not short term. There is always a first time for everything so also for investing. To invest it needs capital free of any obligation. If a person is in the habit of saving sufficient amount every month, then he is ready for investing. In this way he would be able to meet his financial requirements in future. PROFESSIONAL INVESTMENT MANAGEMENT:

The complexities of today s financial environment have led many individuals and corporations to conclude that full-time, professional investment management is a necessary element of a successful investment plan. Individuals and families today bear an ever-growing responsibility for achieving and sustaining financial and economic stability across the life span. Never has there been a greater need for well-trained professionals who can help individuals and families make informed and effective financial and economic decisions and who can evaluate and recommend the public policies that influence the economic opportunity and future of individuals and families. This project emphasized that it is best to partner a professional in the field of investments who would assist in planning investments. According to report professional helps to suggest best things in investment.

BENEFIT OF FINANCIAL PLANNING: One should invest so that his money grows and shields against rising inflation. If prices rise by four per cent annually it would not be sufficient if savings only give a return of three per cent. It gives a deficit of one per cent for. The idea is that rate of return on investments should be greater than the rate of inflation, leaving him with a nice surplus over a period of time. PROCESS OF PERSONAL FINANCIAL PLANNING: Today, managing one s investment has become much more challenging and complex then ever. This is especially true for an ordinary investor. This is due to the fact that stock markets across the globe are witnessing unprecedented volatility owing to the uncertain economic and political situation. Though the FEDERATION has hinted at increasing the interest rates, the pace of increasing is causing uneasiness among the investing community. Though the central banks across the world are also increasing interest rates steadily. RBI has already shown such urgency in signaling for increasing the interest rates. Domestic markets have also become more integrated with the global markets ever since the technology boom of late 1990s. This has further added to the volatility of the markets .All these are making equity investing much more challenging for individual investors. Financial Planning Process Denotes the process which typically includes the six elements of (1) Establishing and defining the client-planner relationship, (2) Gathering client data including goals, (3) Analyzing and evaluating the clients financial status, (4) Developing and presenting financial planning recommendations and/or alternatives,

(5) Implementing the financial planning recommendations and (6) Monitoring the financial planning recommendations. INSTRUMENTS OF FINANCIAL PLANNING WITH SPECIAL EMPHASIS ON MUTUAL FUNDS : Mutual funds - A mutual fund is types of investment vehicle where investors pool their money in order to allow each investor participate in a portfolio of securities. The individual investor doesn't actually own each security but instead, he owns shares of the mutual fund. The main benefit of a mutual fund is that it provides a way for the investor to achieve diversification in his investments without having to invest a lot of money. Insurance In general, life insurance is a type of coverage that pays benefits

upon a person's death or disability. In exchange for relatively small premiums paid in the present, the policy holder receives the assurance that a larger amount of money will be available in the future to help his or her beneficiaries pay debts and funeral expenses. Some forms of life insurance can also be used as a taxdeferred investment to provide funds during a person's lifetime for retirement or everyday living expenses. Equity share Equity sharing sounds simple. Investor and occupier each

contribute to the down payment; occupier lives in the home, keeps it up, and makes the monthly payments, and the parties share the home appreciation. But closer analysis reveals many complex questions. This pamphlet covers the basics: ownership and possession, financial contributions, repair and

improvement and owners' rights at the end of the equity share. Post Office Savings: Post Office Monthly Income Scheme is a low risk saving instrument, which can be availed through any post office. It provides an interest rate of 8% per annum, which is paid monthly .Minimum amount, which can be

invested, is Rs. 1,000/- and additional investment 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. A bonus of 10% is paid at the time of maturity. Premature withdrawal is permitted if deposit is more than one year old. A deduction of 5% is levied from the principal amount if withdrawn prematurely; the 10% bonus is also denied. Bonds: It is a fixed income (debt) 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 .

Company Fixed Deposits: These are short-term (six months) to medium-term (three to five years) borrowings by companies at a fixed rate of interest which is payable monthly, quarterly, semi-annually or 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.

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 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.

MUTUAL FUNDS Overview: The one investment vehicle that has truly come of age in India in the past decade is mutual funds. Today, the mutual fund industry in the country manages around Rs 329,162 crore ( As of Dec, 2006 ) of assets, a large part of which comes from retail investors. And this amount is invested not just in equities, but also in the entire gamut of debt instruments. Mutual funds have emerged as a proxy for investing in avenues that are out of reach of most retail investors, particularly government securities and money market instruments. 11.2. Definition: 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. Mutual fund is an investment vehicle that pools in the monies of several investors, and collectively invests this amount in either the equity market or the debt market, or both, depending upon the fund s objective. This means one can access either the equity or the debt market, or both, without investing directly in equity or debt. 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. 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.

GROWTH IN ASSETS UNDER MANAGEMENT-The graph indicates the growth of assets over the years.

Source: amfiindia.com

Benefits : mutual funds

Source: hdfcmutualfund.com LIQUID FUND OR MONEY MARKET

Introduction: Liquid funds are also income funds and their aim is to provide easy liquidity, Preservation of capital and moderate income. These schemes invest 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. Liquid funds are used primarily as an alternative to short-term fix deposits. Liquid funds invest with minimal risk (like money market funds). Most funds have a lock-in period of a maximum of three days to protect against procedural (primarily banking) glitches, and offer redemption proceeds within 24 hours. Liquid funds score over short term fix deposits. Banks give a fixed rate in the range 5%5.5% p.a. for a term of 15-30 days. Returns from deposits are taxable depending on the tax bracket of the investor, which considerably pulls down the actual return. Dividends from liquid funds are tax-free in the hands of investor, which is why they are more attractive than deposits. 12.1. SNAPSHOT OF LIQUID FUND: Liquid Funds delivered superior returns in the range of 0.58% to 0.75% in March 07. Liquidity in the system in the first half of March 07 remained comfortable on account of RBI s intervention in the forex market while during the second half of the month advance tax outflows of over INR 400bn sucked out liquidity from the system. The call rate rose sharply and forced banks to borrow to maintain their regulatory holdings and closed at 55% on the last day of the financial year 2006-07. Due to this liquid funds generated superior returns during

the month. Liquid funds continue to remain a good investment avenue in the current interest rate scenario due to lower interest rate risk in these funds.

Graph: 4

Source: ICICI Bank Interpretation--

During the month, DSPML Liquidity Fund moved to Low Risk Low Return quadrant from Low Risk High Return quadrant on account of huge decline in the corpus over last few months. ICICI Pru Liquid has moved to Low Risk High Return quadrant from Low Risk Low Return quadrant on the back of superior risk adjusted returns delivered by the funds. HSBC Cash Fund has moved to High Risk Low Return quadrant from Low Risk Low Return quadrant as it has adopted an aggressive credit stance but was unable to deliver returns commensurate with the risk taken. The Relative risk return positions of all other funds have remained stable in March 07.

*Aggressive investors could look at having some exposure to Gilt / Income funds as and when 10Y Gsec yield peaks out at 8.25%, coinciding with the ending of global tightening cycle. It would be prudent to maintain allocation to shorter

maturity products like Liquid Funds, Floating Rate Plans and Short Term Plans. Bank Fixed Deposits continue to remain a good investment option considering the assured returns. ( Source: ICICI Bank )

12.2. BENEFITS OF LIQUID FUND:

Liquidity - In liquid funds, you investor can redeem all or part of his units any time he wish. Even he can redeem with in 7 days of investment. Some schemes do have a lock-in period where an investor cannot return the units until the completion of such a lock-in period.

Convenience - An investor can purchase or sell fund units directly from a fund, through a broker or a financial planner. The investor may opt for a Systematic Withdrawal Advantage Plan ( SWAP ). In addition to this an investor receives account statements and portfolios of the schemes. Liquid fund provides daily dividend option to investors.

Flexibility - Mutual Funds offering multiple schemes allow investors to switch easily between various schemes. This flexibility gives the investor a convenient way to change the mix of his portfolio over time.

Transparency - Open-ended mutual funds disclose their Net Asset Value ( NAV ) daily and the entire portfolio monthly. This level of transparency, where the investor himself sees the underlying assets bought with his money, is unmatched by any other financial instrument. Thus the investor is in the know of the quality of the portfolio and can invest further or redeem depending on the kind of the portfolio that has been constructed by the investment manager.

Safety provides

Liquid fund invests in short term fixed income instrument which adequate security on investment.

Comparison of Investment Products

Physical/Real Assets vs. Financial Assets Physical Assets Gold & Real Estate

-High initial investment, liquidity concerns Financial Assets -By class: equity, debt, money market -By issuer: Govt, FIs, Corporate, Banks -Guaranteed vs. Non-guaranteed Government - G-Secs, PPF, KVPs, NSCs, RBI Relief Bonds PSUs/FIs Bonds

Banks - FDs Corporate - Shares, Debentures, Bonds, FDs Insurer - Policies (With Profit or without profit, ULIPs) Mutual Fund a combination asset.

Investment Products

Comparison of financial products

Mutual Fund vs. Direct Equity

Mutual Fund vs. Bank Deposit Mutual Funds -No contractual agreement -No guarantee -Direct holding of a portfolio -Return commensurate with risk. Bank Deposits -Contractual agreement -Guaranteed for repayment -No direct holding of a portfolio of investment

Why MF is the best option Combine the advantages of all investment products -flexibility, convenience, affordability, liquidity, potential for high returns Dispense the short comings of the other options -liquidity, low return expectation, risk diversification Returns are adjusted for market movements -Commensurate with level of risk.

Risk in Mutual Fund Investing

What is Risk? Volatility of earnings viz. deviation (+ & - ) from expected earnings Possibility of Financial loss Risk can be built into the investment planning by -Defining the risk appetite of the investor and aligning investment objectives to risk tolerance -Evaluating and measuring risks of portfolio to keep in line with the investor s risk appetite

The right level of risk tolerance of any investor depends upon age, investable funds, circumstances including income level, job security, family size etc.

Type of risk in Equity Funds Company Specific Sector Specific Market Risk Company and Sector risk can be reduced with diversification but market risk cannot be diversified Market Cycles -Portfolio performance over a market cycle -Equity more rewarding in the long-term.

Jacob s recommendation based on risk level

Risk-Return Hierarchy

Measures of Risk

Risk Standard Deviation Beta Ex-marks Alpha Risk-adjusted return Sharpe Ratio Treynor Ratio.

Standard Deviation (Volatility) Best measure of risk Measure of absolute or total risk of a portfolio Dispersion around mean Quality rating of the average Higher S.D. indicates more volatile returns -Lower deviation means less risk High S.D. need not mean poor performance -Sachin Tendulkar vs. Harbhajan Singh.

Beta (Sensitivity) Shows how sensitive a fund is to market moves -If the Sensex moves by 25%, a fund s bet number will tell you whether the fund s return will be more or less than this Beta value for an Index is taken as 1 Multiplying the beta value of a fund will expected percentage movement of an index gives the expected movement in the fund

Higher beta means higher impact of market returns Lower beta means less risk -Higher beta funds do well in a rising market, lower beta funds do better in a falling market.

Ex-Marks or R-Squared (Sympathy) Quality of Beta depends on Ex-marks -Beta depends upon the index used to calculate it -Beta calculated for large cap fund against a mid-cap index has no meaning -Higher ex-marks means more reliable beta Measures return from a fund and the market index and measures the extent of correlation in their movement Lower ex-marks mean lower correlation with market returns R-squared varies between 0 and 1 R-squared of an index fund would be 1 (or Ex-marks 100%).

Ex-marks comparison (same beta on both cases)

Alpha Measure of a fund manager's performance Tells what the fund has earned over and above (or under) what it was expected to earn This is the value added (or subtracted) by the fund manager's investment decisions Alpha tells you whether that fund has produced returns justifying the risks it is taking by comparing its actual return to the one 'predicted' by the beta -Say, a fund can be expected to earn based on its beta a return of 15 per cent

in a given year. However, it actually fetches you 18 per cent. Then the alpha of the fund is simply 18 - 15 = 3 Index funds always have or should have, if they track their index perfectly alpha of zero. an

INTERESTING FINDINGS DURING CHANNEL SALES:

1. Investors are not satisfied with after sale service. Respondents reacted that most of time they do not receive important documents and statement on time.

2. Lack of awareness- people are not aware about mutual funds, their working system and business and investment philosophy. The project found that due to unawareness people not like Mutual fund invest although they have enough fund.

3. Fear of share- Majority of people avoids investing in mutual fund due to share market. Still they think that mutual fund is also speculative in nature. So they like to invest in real estate, gold etc.

4. Conservative approaches- Respondents are not ready to bear risk on investing in MF, Share Market.

5. People still carry a traditional approach - People still have a notion in their mind that investing in fixed deposit is far better than mutual funds, because fixed deposits do not carry risk factor with them.

6. People should invest early- investment early means you are getting benefit of compounding. Respondents are not aware the concept of compounding which make

money double magically. During the survey I came across that there is still oblivion of the fact that the people who invest early always has a upper edge over the people who invest at a later stage in their life.

7. People still believe that bank is only for depositing and withdrawing money , people do not have knowledge that banks is not the place just for depositing or withdrawing money it provides with the various other alternatives through which you can raise your money .

Recommendations:

1. ICICI PRU AMC should provide after sale service. Investors expects that after investing all necessary documents like bonds, receipts, statement, any important schemes and information should reach on time. So they can get actual status of their investment. 2. AMC should provide canopy to its marketing team for general awareness and also various seminars held in the city so that people should gain idea about mutual funds. Company should organize cultural program so that people can feel it as own company. Corporate social responsibility (CSR) should adopt by company. 3. Provide customer care service Company should provide customer care service where

every one can complaint there problem and get the satisfactory solution. 4. Special Benefits and offers for regular and loyal customers. AMC should provide special benefits for its regular and loyal customer for long term relationships. 5. There has to be some corporate presentation: Every company wants to increase their client profile and business and for it they do every thing in possibly way. ICICI PRU

should hold some corporate presentation at various places where they can exchange their view & ideas and share knowledge. 6. Time to time training and meetings should be conduct so that employees motivate and update with advance knowledge and working system. 7. Banks are concentrating only on selling their products; they are not paying any attention in making the people aware of what is mutual fund all about. 8. There is half of the population which is still untapped, so in order to make them investors then firstly the people should be made aware of mutual fund

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