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1. Chapter 1
1.1 Introduction
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 appreciations realized by the scheme are shared
by its unit holders in proportion to the number of units held by them. Thus a mutual
fund is most suitable for a common man as it offers an opportunity to invest in a
diversified, professionally managed portfolio at a relatively low cost. Anybody with an
investable 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 equities, bonds and other fixed income instruments, real estate, derivatives and other
assets are driven by global events occurring in faraway places.
A typical individual is unlikely to have the knowledge, skills, inclination and the time to
keep track of events, understand their implications and act speedily. An Individual also
finds it difficult to keep track of ownership of his assets, brokerage, dues and bank
transactions etc. A Mutual Fund is the answer to all these situations. It appoints
professionally qualified and experienced staff that manages each of these functions on
full time basis. The large pool of money collected in the fund allows it to hire such a staff
at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies
of scale in all the three areas- research, investments and transaction processing. While the
concept of coming together to invest money collectively is not new, the mutual funds in
their present form are a 20th century. In fact, mutual funds gained popularity only after
the Second World War. Globally there are thousands of mutual funds with different
investment objectives.
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2. Today, mutual funds, collectively manage almost as much as or more money as
compared to banks. A draft offer document is to be prepared at the time of launching the
fund. Typically, it pre-specifies the investment objectives of the fund, the risk associated,
the costs involved in the process and the broad rules for entry into and exit from the fund
and other areas of operation. In India, as in most of the countries, these sponsors need
approval from the regulator, SEBI. SEBI looks at he records of the sponsor and its
financial strength in granting approval to the fund for commencing operations.
A sponsor then hires an asset management company to invest the funds according to the
investment objective. It also hires equity to the custodian of the assets of the fund and
perhaps a third one to handle registry work for the unit holders of the fund. In the Indian
concept, the sponsors promote the AMC also, in which it holds a majority stake. In many
cases a Sponsor can hold a 100% stake in the AMC e.g. IL&FS is the sponsor of IL&FS
AMC, which has floated different Mutual fund schemes and also acts as an asset manager
or the funds collected under the schemes.
1.2 The Concept of Mutual Fund
Mutual Funds are financial intermediaries. They are companies set up to receive your
money from individuals and then having received it, make investments with the money
via an AMC. It is an ideal tool for people who want to invest but don't want to be
bothered with deciphering the numbers and deciding whether the stock is a good buy or
not. A mutual fund manager proceeds to buy a number of stocks from various markets
and industries. Depending on the amount you invest, you own part of the overall fund.
The beauty of mutual funds is that anyone with an investable surplus of a few hundred
rupees can invest and reap returns as high as those provided by the equity markets or
have a steady and comparatively secure investment as offered by debt instruments. A
Mutual Fund is an investment tool that allows small investors access to a well diversified
portfolio of equities, bonds and other securities. Each shareholder participates in the gain
or loss of the fund.
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3. Units are issued and can be redeemed as needed. The fund's Net Asset Value (NAV) is
determined each day. In simple words, a mutual fund is a trust, which collects the savings
from small investors, invest them in government securities and earn through interest,
dividends and capital gains.
The SEBI (1993) defines a Mutual Fund as a fund established in the form of a trust by a
sponsor, to raise money by the trustees through the sale of units to the public, under one
or more schemes, for investing in securities in accordance with these regulations.
According to Weston J. Fred and Brigham, Eugene, unit trusts are. “Corporations which
accept dollars from savers and then use these dollars to buy stocks, long term bonds and
short term debt instruments issued by business or government units; these corporations
pool funds and thus reduce the risk of diversification”.
1.3 Operation of a Fund
A mutual fund invites the prospective investors to join the fund by offering various
schemes so as to suit to the requirements diverse of investors. The resources of individual
investors are pooled together and the investors are issued units/shares for the money
invested. The amount so collected is invested in capital market instruments like treasury
bills, commercial papers, etc.
For managing the fund, a mutual fund gets an annual fee of 1.25% of funds managed that
is the maximum fee fixed by SEBI (MF) Regulations, 1993 and if the funds exceed Rs.
100 cores, the fee is only 1%. The fee cannot exceed 1%. Of course, regular expenses like
custodial fee, cost of dividend warrants, fee for registration, the asset management fee etc
are debited to the respective schemes. These expenses cannot exceed 3% of the assets in
the respective schemes. These expenses cannot exceed 3% of the assets in the respective
schemes each year. The remaining amount is given back to the investors in full.
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4. 1.4 Organization of a Mutual Fund
The formation and operations of Mutual Funds in India is solely guided by SEBI (Mutual
Funds) Regulations, 1993, which came into force on January 20, 1996, through a
notification on December 9, 1996. These regulations make it mandatory for mutual funds
to have a three-tier structure as shown below.
Sponsoring Institution: The Company, which sets up the mutual fund, is called the
Sponsor. SEBI has laid down certain criteria to be met by the sponsor. The criterion
mainly deals with adequate experience, good past track record, net worth etc.
 Sponsor appoints the Trustees, Custodian and the AMC with the prior approval of
SEBI, and in accordance with SEBI Regulations.
 Sponsor must have at least 5-year track record of business interest in the Financial
Markets.
Trustees: Trustees are the people with long experience and good integrity in the
respective fields carry the crucial responsibility in safeguarding the interests of the
investors. For this purpose, they monitor the operations of the different schemes. They
have wide ranging powers and they can even dismiss AMC with the approval of SEBI.
The Indian Trust Act governs them.
Rules regarding appointment of the Trustees as under:
 Appointment of Trustees has to be done with the prior approval of SEBI.
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5.  There must be at least 4 members in the Board of Trustees and at least
2/3rd of the members of the Board of Trustees must be independent.
 Trustees of one Mutual Fund cannot be a Trustee of another Mutual Fund, unless
he is an independent trustee in both cases, and has the approval of both the
Boards.
Rights of Trustees are as under:
• Trustees appoint the AMC, in consultation with the sponsor and according
to SEBI Regulations.
• All mutual Fund Schemes floated by the AMC have to be approved by the
Trustees.
• Trustees can seek information from the AMC on the operations and
compliance of the Mutual Fund, with the provisions of the trust Deed,
investment management agreement and the SEBI Regulations.
• Trustees can review and ensure that Net worth of the AMC is according to
stipulated norms and regulations.
Asset Management Company: The AMC actually manages the funds of the various
schemes. The AMC employs a large number of professionals to make investments, carry
out research &to do agent and investor servicing. Infact, the success of any Mutual Fund
depends upon the efficiency of this AMC. The AMC submits a quarterly report on the
functioning of the mutual fund to the trustees who will guide and control the AMC.
The AMC is usually a private limited company, in which the sponsors and their
associations or joint venture partners are shareholders. The AMC has to be registered by
SEBI and should have a minimum Net worth of Rs.10 cores all times. The role of the
AMC is to act as the Investment Manager of the Trust along with the following functions:
It manages the funds by making investments in accordance with the provision of the
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6. Trust Deed and Regulations
 The AMC shall disclose the basis of calculation of NAV and Repurchase price of
the schemes and disclose the same to the investors.
 Funds shall be invested as per Trust Deed and Regulations.
Following are the Restrictions on the AMC’s
 AMC’s cannot launch a fund scheme without the prior approval of Trustees.
 AMC’s have to provide full details of Employees and Board Members, in all
cases where such investments exceed Rs. 1 lakh.
 AMC’s cannot take up any activity that is in conflict with the activities of the
mutual funds.
Registrars and Transfer Agents
The Registrars and Transfer Agents are responsible for the investor servicing functions,
as they maintain the records of investors in the mutual funds. They process investor
applications , record details provided by the investors on application forms, send out
periodical information on the performance of the mutual fund; process dividend pay-out
to the investors; incorporate changes in information as communicated by investors; and
keep the investor record up to date, by recording new investors and removing investors
who have withdrawn their funds.
Custodian: Custodians are responsible for the securities held in the mutual fund’s
portfolio. They discharge an important back-office function, by ensuring that securities
that are bought are delivered and transferred to the books of mutual funds, and that funds
are paid-out when mutual fund buys securities. They keep the investment account of the
mutual fund, and also collect the dividends and interest payments due on the mutual fund
investments. Custodians also track corporate actions like bonus, issues, right offers, offer
for sale, buy back and open offers for acquisition.
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7. 1.5 The objectives of Association of Mutual Funds in India
The Association of Mutual Funds of India works with 30 registered AMCs of the
country. It has certain defined objectives which juxtaposes the guidelines of its Board of
Directors. The objectives are as follows:
 This Mutual Fund Association of India maintains high professional and ethical
standards in all areas of operation of the industry.
 It also recommends and promotes the top class business practices and code of
conduct which is followed by members and related people engaged in the
activities of Mutual Fund and Asset Management. The agencies who are by any
means connected or involved in the field of capital markets and financial services
also involved in this code of conduct of the association.
 AMFI interacts with SEBI and works according to SEBIs guidelines in the Mutual
Fund industry.
Associations of Mutual Fund of India do represent the Government of India, the Reserve
Bank of India and other related bodies on matters relating to the Mutual Fund Industry.
1.6 Types of Mutual Funds
Broadly Mutual Funds are classified into open ended and close ended schemes.
Open-ended schemes:
The open-ended schemes do not have a fixed maturity and are open for subscription the
whole year. One can buy and sell units at the NAV related prices to the Mutual funds.
These schemes are normally not listed on the stock exchanges and can be redeemed
directly to the Mutual Fund.
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8. Close-ended Schemes:
The closed ended schemes can be bought and sold on the stock exchange subsequent to
the initial subscription through the public offer. One can stay invested in the scheme for a
stipulated period ranging from 2 to 15 years. Generally, the close-ended schemes are
traded at a discount to their NAV in the stock exchange.
On the basis of investments objective, there are five different types of schemes
Growth/Equity Scheme: Majority of the corpus of such a scheme is invested in equities
and equity related instruments. This kind of scheme is for those investors who are not risk
averse and are willing to hold on to their investment for a long period of time, caring little
for volatility. In such schemes, dividend may or may not be declared.
Income /Debt Scheme: The Fund Manager of such schemes invests a substantial portion
of their fund in fixed income securities like debentures, bonds and money market
instruments. This kind of scheme is ideal for risk averse investors who are interested in
steady income.
Balanced Schemes: Fund Manager of such funds invests in both equity as well as debt
markets in the proportion as that highlighted in the prospectus. The objective of such a
scheme is to provide both growth and income by distributing a part of the income and
capital gains they earn. Such a scheme is suitable for investors who want long-term
returns without taking the entire risk of the equity market.
Money Market/Liquid Schemes: These are schemes with very low risks. They invest in
Zero risk or safer, short term instruments like treasury bills, certificates of deposit,
Commercial Paper and inter-bank call money. The objective of these schemes is to
provide liquidity and moderate income and also preserve the capital.
Tax Saving Schemes: The objective of such a scheme is to provide tax benefits to the
investors. Two types of schemes fall under this head.
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9. 1. ELSS (Equity Linked Savings Schemes): A Fund Manager of such a scheme invests
primarily in stocks. An important feature of this scheme is that there is a lock-in period of
three years from the date of investment. During this period unit holders are prohibited
from trading, pledging and transferring the units. Repurchase is permitted only after three
years.
2. Pension Schemes: A unit holder in a Pension Scheme can avail of a tax rebate of 20
per cent for investments up to Rs 60,000 (tax saving of Rs 12,000).
1.7 Benefits of Investing in Mutual Funds
 Small investments: Mutual funds help you to reap the benefit of returns by a
portfolio spread across a wide spectrum of companies with small investments.
Such a spread would not have been possible without their assistance.
 Professional Fund Management: Professionals having considerable expertise,
experience and resources manage the pool of money collected by a mutual fund.
They thoroughly analyze the markets and economy to pick good investment
opportunities.
 Spreading Risk: An investor with a limited amount of fund might be able to
invest in only one or two stocks / bonds, thus increasing his or her risk. However,
a mutual fund will spread its risk by investing a number of sound stocks or bonds.
A fund normally invests in companies across a wide range of industries, so the
risk is diversified at the same time taking advantage of the position it holds. Also
in cases of liquidity crisis where stocks are sold at a distress, mutual funds have
the advantage of the redemption option at the NAVs.
 Transparency and interactivity: Mutual Funds regularly provide investors with
information on the value of their investments. Mutual Funds also provide
complete portfolio disclosure of the investments made by various schemes and
also the proportion invested in each asset type. Mutual Funds clearly layout their
investment strategy to the investor.
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10. Liquidity: Closed ended funds have their units listed at the stock exchange, thus they can
be bought and sold at their market value. Over and above this the units can be directly
redeemed to the Mutual Fund as and when they announce the repurchase.
 Choice: The large amounts of Mutual Funds offer the investor a wide variety to
choose from. An investor can pick up a scheme depending upon his risk / return
profile.
 Regulations: All the mutual funds are registered with SEBI and they function
within the provisions of strict regulation designed to protect the interests of the
investor.
 Flexibility: Investors can exchange their units from one scheme to another, which
cannot be done in other kinds of investments. Income units can be exchanged for
growth units depending upon the performance of the funds.
 Potential yields: The pooling of funds from a large number of customers enables
the fund to have large funds at its disposal. Due to these large funds, mutual funds
are able to buy cheaper and sell dearer than the small & medium investors. Thus,
they are able to get better market rates and lower rates of brokerage. So, they
provide better yields to their customers. They also enjoy the economies of scale
and reduce the cost of capital market participation. The transaction costs of large
investments are quite lower than that of small investments. All the profits are
passed on to the investor in the form of dividends and capital appreciation. Mutual
funds have a return ranging from 12-17% p.a.
 Renders expertise service at lower costs: The management of the fund is
generally assigned to professionals who are well trained and have adequate
experience in the field of investment. The investment decisions of these
professionals are backed by informed judgment and experience. Thus, investors
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11. are assured of quality services in their best interest. The fee charged by the mutual
funds is 1%.
1.8 Risks of Investment in Mutual Funds
Mutual funds are not free from risks as the funds so collected are invested in stock
markets, which are volatile in nature and are not risk free. The following risks are
generally involved in mutual funds-
Market risks
In general, there are many kinds of risks associated with every kind of investment on
shares. They are called market risks. These market risks can be reduced, but not
completely eliminated even by a good investment management. The prices of shares are
subject to wide price fluctuations depending upon market conditions over which nobody
has control. The various phases of business cycle such as Boom, Recession, Slump and
Recovery affects the market conditions to a larger extent.
Scheme risks
There are certain risks inherent in the scheme itself. For instance, in a pure growth
scheme, risks are greater. It is obvious because if one expects more returns as in the case
of a growth scheme, one has to take more risks.
Investment risk
Whether the mutual fund makes money in shares or loses depends upon the investment
expertise of the Asset Management Company (AMC). If the investment advice goes
wrong, the fund has to suffer a lot. The investment expertise’s of various funds are
different and it is reflected on the returns, which they offer to the investors.
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12. Business Risk
The corpus of a mutual fund might have been invested in a company.s shares. If the
business of that company suffers any set back, it cannot declare any dividend. It may
even go to the extent of winding up its business. Though the mutual funds can withstand
such a risk, its income paying capacity is affected.
1.9 Advantages and Disadvantages of Mutual Fund
Advantages of Mutual Fund
1. Professional Investment Management: By pooling the funds of thousands of
investors, mutual funds provide full-time, high-level professional management that few
individual investors can afford to obtain independently. Such management is vital to
achieving results in today's complex markets. Your fund managers' interests are tied to
yours, because their compensation is based not on sales commissions, but on how well
the fund performs.
2. Diversification: Mutual funds invest in a broad range of securities. This limits
investment risk by reducing the effect of a possible decline in the value of any one
security. Mutual fund shareowners can benefit from diversification techniques usually
available only to investors wealthy enough to buy significant positions in a wide variety
of securities.
3. Low Cost: If you tried to create your own diversified portfolio of 50 stocks, you'd
need at least Rs.1,00,000 and you'd pay thousands of rupees in commissions to assemble
your portfolio. A mutual fund lets you participate in a diversified portfolio for as little as
Rs.10,000, and sometimes less. And if you buy a no-load fund, you pay or no sale
charges to own them.
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13. 4. Convenience and Flexibility: You own just one security rather than many, yet enjoy
the benefits of a diversified portfolio and a wide range of services. Fund managers decide
what securities to trade, clip the bond coupons, collect the interest payments and see that
your dividends on portfolio securities are received and your rights exercised.
5. Quick, Personalized Service: Most funds now offer extensive websites with a host of
shareholder services for immediate access to information about your fund account. Or a
phone call puts you in touch with a trained investment specialist at a mutual fund
company who can provide information you can use to make your own investment
choices, assist you with buying and selling your fund shares.
6. Ease of Investing: You may open or add to your account and conduct transactions or
business with the fund by mail, telephone or bank wire. You can even arrange for
automatic monthly investments by authorizing electronic fund transfers from your
checking account in any amount and on a date you choose.
7. Total Liquidity, Easy Withdrawal: You can easily redeem your shares anytime you
need cash by letter, telephone, bank wire or check, depending on the fund. Your proceeds
are usually available within a day or two.
8. Life Cycle Planning: With no-load mutual funds, you can link your investment plans
to future individual and family needs -- and make changes as your life cycles change.
You can invest in growth funds for future college tuition needs, then move to income
funds for retirement, and adjust your investments as your needs change throughout your
life.
9. Market Cycle Planning: For investors who understand how to actively manage their
portfolio, mutual fund investments can be moved as market conditions change. You can
place your funds in equities when the market is on the upswing and move into money
market funds on the downswing or take any number of steps to ensure that your
investments are meeting your needs in changing market climates.
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14. 10. Investor Information: Shareholders receive regular reports from the funds, including
details of transactions on a year-to-date basis. The current net asset value of your shares
(the price at which you may purchase or redeem them) appears in the mutual fund price
listings of daily newspapers. You can also obtain pricing and performance results for the
all mutual funds at this site, or it can be obtained by phone from the fund.
11. Periodic Withdrawals: If you want steady monthly income, many funds allow you
to arrange for monthly fixed checks to be sent to you, first by distributing some or all of
the income and then, if necessary, by dipping into your principal.
12. Dividend Options: You can receive all dividend payments in cash. Or you can have
them reinvested in the fund free of charge, in which case the dividends are automatically
compounded. This can make a significant contribution to your long-term investment
results.
13. Automatic Direct Deposit: You can usually arrange to have regular, third-party
payments -- such as Social Security or pension checks -- deposited directly into your fund
account. This puts your money to work immediately, without waiting to clear your
checking account, and it saves you from worrying about checks being lost in the mail.
14. Recordkeeping Service: With your own portfolio of stocks and bonds, you would
have to do your own recordkeeping of purchases, sales, dividends, interest, short-term
and long-term gains and losses. Mutual funds provide confirmation of your transactions
and necessary tax forms to help you keep track of your investments and tax reporting.
15. Safekeeping: When you own shares in a mutual fund, you own securities in many
companies without having to worry about keeping stock certificates in safe deposit boxes
or sending them by registered mail. You don't even have to worry about handling the
mutual fund stock certificates; the fund maintains your account on its books and sends
you periodic statements keeping track of all your transactions.
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15. 16. Retirement and College Plans: Mutual funds are well suited to Individual
Retirement Accounts and most funds offer IRA-approved prototype and master plans for
individual retirement accounts (IRAs) and Keogh, 403(b), SEP-IRA and 401(k)
retirement plans.
17. Online Services: The internet provides a fast, convenient way for investors to access
financial information. A host of services are available to the online investor including
direct access to no-load companies. Visit Company Links to access these Companies.
18. Sweep Accounts: With many funds, if you choose not to reinvest your stock or bond
fund dividends, you can arrange to have them swept into your money market fund
automatically. You get all the advantages of both accounts with no extra effort.
19. Asset Management Accounts: These master accounts, available from many of the
larger fund groups, enable you to manage all your financial service needs under a single
umbrella from unlimited check writing and automatic bill paying to discount brokerage
and credit card accounts.
Disadvantages of Mutual Fund
There are certainly some benefits to mutual fund investing, but you should also be
aware of the drawbacks associated with mutual funds.
1. No Insurance: Mutual funds, although regulated by the government, are not insured
against losses. The Federal Deposit Insurance Corporation (FDIC) only insures against
certain losses at banks, credit unions, and savings and loans, not mutual funds. That
means that despite the risk-reducing diversification benefits provided by mutual funds,
losses can occur, and it is possible (although extremely unlikely) that you could even lose
your entire investment.
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16. 2. Dilution: Although diversification reduces the amount of risk involved in investing in
mutual funds, it can also be a disadvantage due to dilution. For example, if a single
security held by a mutual fund doubles in value, the mutual fund itself would not double
in value because that security is only one small part of the fund's holdings. By holding a
large number of different investments, mutual funds tend to do neither exceptionally well
nor exceptionally poorly.
3. Fees and Expenses: Most mutual funds charge management and operating fees that
pay for the fund's management expenses (usually around 1.0% to 1.5% per year). In
addition, some mutual funds charge high sales commissions, 12b-1 fees, and redemption
fees. And some funds buy and trade shares so often that the transaction costs add up
significantly. Some of these expenses are charged on an ongoing basis, unlike stock
investments, for which a commission is paid only when you buy and sell (see Investor
Guide University: Fees and Expenses).
4. Poor Performance: Returns on a mutual fund are by no means guaranteed. In fact, on
average, around 75% of all mutual funds fail to beat the major market indexes, like the
S&P 500, and a growing number of critics now question whether or not professional
money managers have better stock-picking capabilities than the average investor.
5. Loss of Control: The managers of mutual funds make all of the decisions about which
securities to buy and sell and when to do so. This can make it difficult for you when
trying to manage your portfolio. For example, the tax consequences of a decision by the
manager to buy or sell an asset at a certain time might not be optimal for you. You also
should remember that you trust someone else with your money when you invest in a
mutual fund.
6. Trading Limitations: Although mutual funds are highly liquid in general, most
mutual funds (called open-ended funds) cannot be bought or sold in the middle of the
trading day. You can only buy and sell them at the end of the day, after they've calculated
the current value of their holdings.
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17. 7. Size: Some mutual funds are too big to find enough good investments. This is
especially true of funds that focus on small companies, given that there are strict rules
about how much of a single company a fund may own. If a mutual fund has $5 billion to
invest and is only able to invest an average of $50 million in each, then it needs to find at
least 100 such companies to invest in; as a result, the fund might be forced to lower its
standards when selecting companies to invest in.
8. Inefficiency of Cash Reserves: Mutual funds usually maintain large cash reserves as
protection against a large number of simultaneous withdrawals. Although this provides
investors with liquidity, it means that some of the fund's money is invested in cash
instead of assets, which tends to lower the investor's potential return.
9. Different Types: The advantages and disadvantages listed above apply to mutual
funds in general. However, there are over 10,000 mutual funds in operation, and these
funds vary greatly according to investment objective, size, strategy, and style. Mutual
funds are available for virtually every investment strategy (e.g. value, growth), every
sector (e.g. biotech, internet), and every country or region of the world. So even the
process of selecting a fund can be tedious.
.
1.10 Definition of customer profiling
Customer profiling is the process of using relevant and available information to describe
the characteristics of a group of customers and to identify their discriminators from other
customers or ordinary consumers and drivers for their purchasing decisions.
Customer profiling is about collecting relevant and available customer details such as
address, age, gender, education, housing, lifestyle behaviors, purchase preferences, travel
preferences, buying patterns and so on and so forth. In short a complete address
investigation and financial health-check is performed.
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18. These factors or characteristics help discriminate and categorize customers into groups
and enable analysis of their paying capacity of services or products or future purchasing
decisions.
Customer profiles are of two types- demographical and behavioral. A demographically
based profile is organized on a set of characteristics, such as his marital status, whether or
not he has children, the neighborhood he resides etc.. On the other hand a behavior-based
profile is one that is prepared after scrutinizing the behavioral pattern of a customer such
as, his/her payment patterns of products or services, how often he/she visits a website etc.
While a demographic profile helps define the market for sales, the second profile is about
action, and helps determine whether a customer will make payments of bought products
and services, regularly or not.
The Customer profiling services at Almondz global securities extensive customer
profiling experience behind us, the information you get is comprehensive, accurate,
reliable and up-to-date.
1.11Advantages of customer profiling
 Accurate customer profiles, including major demographic attributes of your
customers
 Ability to handle all customer surveys
 Cost effectiveness
 Helps find out why customers purchase your goods and services
 Helps differentiate the needs and values of your customers
 Enables you to define a better targeting strategy
 Discover new business prospects and grow the base of your valuable customers
by extracting people and businesses that match the profile of your current
customers
 Multi-lingual survey & reporting capabilities
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19. Chapter 2
2.1 Introduction to Research
A mutual fund is a professionally-managed firm of collective investments that pools
money from many investors and invests it in stocks, bonds, short-term money market
instruments, and other securities. In a mutual fund, the fund manager, who is also known
as the portfolio manager, trades the fund's underlying securities, realizing capital gains or
losses, and collects the dividend or interest income. The investment proceeds are then
passed along to the individual investors. The value of a share of the mutual fund, known
as the net asset value per share (NAV), is calculated daily based on the total value of the
fund divided by the number of shares currently issued and outstanding.
Almondz Global Securities Limited is one of the leading Investment Banks in India. The
company was incorporated in 1994 and is listed on the Bombay Stock Exchange. It has
three main divisions: Corporate Finance, Debt Portfolio Management, Distribution of
Financial Products and Portfolio Management Services.
Almondz Global Securities' client base in the Corporate Finance segment covers all
leading Public Sector Undertakings ( PSUs), large Corporate and the vast and
increasingly important segment of SMEs. In the Debt markets, the company has
relationships with over 3500 leading Provident Funds. In the Distribution of third party
financial products, it has built a large base of retail customers along with an franchisee
network of 1500 across the country. The Company has also set up a Private Clients
business to advise and manage Strategic and Private clients.
The company has a strong presence across 17 major cities and is manned by teams of
qualified and seasoned professionals.
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20. Almondz Group is one of India’s leading Financial Services providers with interest
across Merchant Banking, Infrastructure Advisory, Debt Portfolio Management, Retail &
Distribution, Insurance, Equity and Commodity Broking.
Almondz Group is one of the fastest growing Integrated Financial Service Providers with
a nationwide presence and a committed team of skilled professionals. The Group
provides customized services to a diversified client base and its activities include
Distribution, Advisory Services, Debt Market, and Corporate Finance & Investment
Banking. Under its business expansion plans, the Group invites business associates with
good entrepreneurial skills to partner us on the best revenue sharing terms in the industry.
Customer profiling is the process of using relevant and available information to describe
the characteristics of a group of customers and to identify their discriminators from other
customers or ordinary consumers and drivers for their purchasing decisions.
2.2 Objectives of Study
 To study the demographic segmentation of customers
 To study the customer behavior according to market fluctuations
 To analyze the customer preferences on investments.
2.3 Research Design
Research design is plan of what data to gather, from whom, how and when to collect the
data, and how to analyze the data obtained. The researcher has choose the descriptive
research for the study.
Sample size
Sample size of 100 was chosen for the present study.
20

21. Sampling technique
Simple random sampling technique was chosen for the study.
Data collection
The data was collected using the primary and secondary sources
Primary data
Primary data was collected by administration of Questionnaires.
Secondary source
Journals , magazine , internet sources were studied for secondary data collection.
2.4 Tools of analysis
The data was collected from employees by administration of Questionnaire. Questionnaire
was framed by taking the parameters like sebi regulations, Amfi, market timing, policies and
procedures, types of schemes and so on. The respondents were selected by simple random
sampling process who invested in different types of schemes.. Once the data was collected
the analysis of study was taken care by using SPSS.
2.5 Limitations of study
 The study is limited to Almondz global securities.
 The study is limited to the customer’s opinion on industry.
 There may be the difference on the data accuracy.
21

22. 2.6 Review of Literature
Two important research streams in the finance literature focus on predicting fund
performance and understanding investor behavior. The academic literature on mutual
funds has mostly focused on fund performance and management style (e.g., Grinblatt and
Titman, 1992; Brown and Goetzman, 1997; Lunde et al., 1999; Chevalier and Ellison,
1999; Kothari and Warner, 2001), although others have focused on the risk-return
characteristics of bond mutual funds (Philpot et al., 2000; Blake et al., 1993). Some
studies (Indro et al., 1999; Morey and Morey, 1999; Sirri and Tufano, 1998) have also
investigated the different methods of predicting fund performance by using tools, such as
neural networks or benchmarking. Recent literature, however, proposes the use of
integrated or hybrid models for predicting fund performance. Tsaih et al. (1998), for
example, develop a hybrid artificial intelligence technique to implement trading strategies
in the S & P 500 stock index futures market. Their empirical results show that their
system outperformed the passive buy-and-hold investment strategy during the six-year
testing period. The authors suggest that the hybrid approach facilitates the development
of more reliable intelligent systems than standalone expert systems models.
Some recent studies have begun to address the issue of understanding investor behavior
(e.g., Zheng, 1999; Harliss and Peterson, 1998; Goetzmann and Peles, 1997; Alexander et
al. 1997, 1998; Bogle, 1992). These studies have aroused scholarly interest in
understanding how investors make investment decisions. A study by Alexander et al.
(1998) examines responses of randomly selected mutual fund investors. Their findings
show that employees investing in mutual funds through their employer-sponsored
pension plans [e.g., 401(k)] are generally younger, more likely to own stock funds, and
less likely to own certificate of deposits and money market accounts. In addition,
individuals investing in mutual funds via non employer channels are significantly more
experienced than individuals investing in employer-sponsored pension plans. Both types
of mutual fund holders (those investing through employers and those investing in non
employer plans) are well educated, with 55% having at least a college degree, and do not
consider the operating expenses of the mutual fund to be an important factor in their
purchasing decision.
22

23. Chapter 3
3.1 Industry Profile
Mutual funds can give investors access to emerging markets. A mutual fund is a
professionally-managed firm of collective investments that collects money from many
investors and puts it in stocks, bonds, short-term money market instruments, and/or other
securities. Usually the fund manager trades the fund's underlying securities, realizing
capital gains or losses, the investment proceeds are then passed along to the individual
investors. In recent decades, mutual funds have become increasingly popular, the
worldwide value is more than $26 trillion in assets.
Since 1940, a mutual fund is one of three basic types of investment companies available
in the United States. Similar funds also operate in Canada. However, in the rest of the
world, mutual fund is used as a generic term for various types of collective investment
vehicles, such as unit trusts, open-ended investment companies (OEICs), and unitized
insurance funds.
Massachusetts Investors Trust (now MFS Investment Management) was founded on
March 21, 1924, and, after one year, it had 200 shareholders and $392,000 in assets. The
entire industry, which included a few closed-end funds, represented less than $10 million
in 1924.
The stock market crash of 1929 hindered the growth of mutual funds. In response to the
stock market crash, Congress passed the Securities Act of 1933 and the Securities
Exchange Act of 1934. These laws require that a fund be registered with the Securities
and Exchange Commission (SEC) and provide prospective investors with a prospectus
that contains required disclosures about the fund, the securities themselves, and fund
manager. The SEC helped draft the Investment Company Act of 1940, which sets forth
the guidelines with which all SEC-registered funds today must comply.
23

24. With renewed confidence in the stock market, mutual funds began to blossom. By the end
of the 1960s, there were approximately 270 funds with $48 billion in assets. The first
retail index fund, the First Index Investment Trust, was formed in 1976 and headed by
John Bogle, who conceptualized many of the key tenets of the industry in his 1951 senior
thesis at Princeton University. It is now called the Vanguard 500 Index Fund and is one
of the largest mutual funds ever with over $100 billion in assets.
One of the largest contributors of mutual fund growth was individual retirement account
(IRA) provisions added to the Internal Revenue Code in 1975, allowing individuals
(including those already in corporate pension plans) to contribute $2,000 a year. Mutual
funds are now popular in employer-sponsored defined contribution retirement plans
(401(k)s), IRAs and Roth IRAs.
As of October 2007, there are 8,015 mutual funds that belong to the Investment Company
Institute (ICI), the national association of investment companies in the United States,
with combined assets of $12.356 trillion.
Mutual funds provide an economical way by which an investor of modest means can
obtain the same professional advice and diversification of investments as a wealthy
individual or institution. A wealthy person can retain an investment adviser to select and
manage his or her investments and, by investing in a number of different securities, can
achieve diversification of risk. Mutual funds are designed to permit thousands of
investors to pool their resources as shareholders in a fund that, in turn, invests in a large
number of securities selected by a professional investment adviser. The shareholders of a
mutual fund are its owners and are entitled to all of the fund's income and gain from its
investments, net of fees and other operating expenses.
There are mutual funds designed for many different investment objectives, ranging from
maximizing total return to providing the highest level of income consistent with the
preservation of investors' principal.
24

25. To achieve their objectives, funds invest in a wide variety of securities, some funds invest
primarily in common stocks, some invest primarily in bonds issued by corporations or the
federal government; some invest mainly in obligations of state and local governments;
and some, known as money market funds, invest in short-term money market instruments
like certificates of deposit, commercial paper and United States Treasury bills.
Mutual funds are organized under state laws as corporations or business trusts. However,
mutual funds differ from other companies in a number of important respects. First, almost
all mutual funds are externally managed; they do not have employees of their own, and
all their operations are carried out by third parties such as investment managers, broker-
dealers, and banks. Second, virtually all mutual funds continuously offer new shares to
the public. Third, mutual funds are required by law to redeem (buy back) their
outstanding shares at any time upon a shareholder's request, at a price based on the
current value of the fund's assets. Fourth, federal laws impose detailed requirements on
the structure and operations of mutual funds and impose special responsibilities on their
independent directors or trustees.
Role of Mutual Funds in the Financial Markets
Indian financial institutions have played a dominant role in assets formation and
intermediation, and contributed substantially in macroeconomic development. In this
process of development Indian mutual funds have emerged as strong financial
intermediaries and are playing a very important role in bringing stability to the financial
system and efficiency to resource allocation. Mutual funds play a crucial role in an
economy by mobilizing savings and investing them in the capital market, thus
establishing a link between savings and the capital market.
The activities of mutual funds have both short-and long-term impact on the savings and
capital markets and the national economy. Mutual funds, assist the process of financial
deepening and intermediation.
25

26. They mobilize funds in the savings market and act as complementary to banking, at the
same time they also compete with banks and other financial institutions. In the process
stock market activities are also significantly influenced by mutual funds.
Almost all the segment of the financial market, influenced by the existence and operation
of mutual funds. However, the scope and efficiency of mutual funds are influenced by
overall economic fundamentals: the interrelationship between the financial and real
sector, the nature of development of the savings and capital markets, market structure,
institutional arrangements and overall policy regime.
Regulations for Mutual Funds
Schemes of mutual fund
 The Asset Management Company shall launch no scheme unless the trustees
approve such scheme and a copy of the offer document has been filed with the
Board.
 Every mutual fund shall along with the offer document of each scheme pay
filing fees.
 The offer document shall contain disclosures which are adequate in order to
enable the investors to make informed investment decision including the
disclosure on maximum investments proposed to be made by the scheme in
the listed securities of the group companies of the sponsor.
 No one shall issue any form of application for units of a mutual fund unless
the form is accompanied by the memorandum containing such information as
may be specified by the Board.
 Every close ended scheme shall be listed in a recognized stock exchange
within six months from the closure of the subscription.
 The asset management company may at its option repurchase or reissue the
repurchased units of a close-ended scheme.
26

27.  A close-ended scheme shall be fully redeemed at the end of the maturity
period. "Unless a majority of the unit holders otherwise decide for its rollover
by passing a resolution".
 The mutual fund and asset management company shall be liable to refund the
application money to the applicants-
• (i)If the mutual fund fails to receive the minimum subscription amount
referred to of sub-regulation
• (ii) If the moneys received from the applicants for units are in excess
of subscription as referred to in clause (b) of sub-regulation.
 The asset management company shall issue to the applicant whose application
has been accepted, unit certificates or a statement of accounts specifying the
number of units allotted to the applicant as soon as possible but not later than
six weeks from the date of closure of the initial subscription list and or from
the date of receipt of the request from the unit holders in any open ended
scheme.
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 – 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.
1964-87.
27

28. Second Phase – 1987-1993 (Entry of Public Sector Funds)
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.
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.
28

29. 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
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 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
consolidation and growth. As at the end of September, 2004, there were 29 funds, which
manage assets of Rs.153108 crores under 421 schemes.
29

30. 3.2 Company Profile
Almondz Global Securities Limited (AGSL) is one of the leading Investment Banks in
India. The company was incorporated in 1994 and is listed on the Bombay Stock
Exchange. Its main business lines are: Corporate Finance, Distribution of Financial
Products, Private Clients, Portfolio Management Services, and Equity Broking.
AGSL’s client base in the Corporate Finance segment covers all leading Public Sector
Undertakings (PSUs), large Corporates and the vast and increasingly important segment
of SMEs. In the Debt markets, the company has relationships with over 4000 leading
Provident Funds. In the Distribution of Third-party financial products, AGSL has built a
large base of retail customers as well as country-wide network of 1500 franchisees. In
Equity Broking, AGSL is serving both the Retail and the Institutional Investors.
30

31. Corporate Finance
 Investment Banking
 IPOs, FPOs & Rights Issues
 Private Placement of Equity
 Substantial Acquisitions & Takeovers
 Delisting, ESOPs
 Debt Issuances
 Debt Restructuring
 Financial Advisors to infrastucture projects
 Ongoing projects in SEZ, Road and Power sectors.
 Infrastructure Advisory
Debt Portfolio Management
 Debt PMS
 Fixed Income portfolio advisory
 Provident fund advisory
Retail and Distribution
 Mutual Funds
 Tax Saving Instruments
 Fixed Deposits and other Fixed Income Products
 Equity IPOs
 Debt IPOs
 Insurance Products
31

32. Almondz Private Clients
• Holistic model based around the uniqueness of a client’s situation and aspiration
• Multi manager approach to generate optimal returns and manage risk
• Structured investment advisory across asset classes
• ‘Platinum’ services to our Private Clients
• Focused approach of a ‘family office’ for Private Clients
Almondz Private Clients business offers advisory services to select clients who seek
specific and targeted strategy for investing across asset classes. The company believes
that investment strategies are not about simulating data but interpreting it, based on the
detailed discussions that we have with clients at the start of our engagement. Then use
this interpretation, and our expertise in investments, to develop a strategy that is far
superior, both in the medium and long term, than mere ad-hoc investment decisions. The
company review this strategy from time to time to adapt it to an ever changing and
dynamic investment world that we live in.
The company also believe that no single manager has the expertise to provide
outstanding investment performance across all asset classes and markets, which is why
we create a multi-manager approach for our clients. These managers are then monitored
continuously for performance, and replaced if they do not meet performance standards.
Blending these managers and their different investment styles helps us to obtain the best
returns for our clients, at acceptable levels of risk. Risk is actively managed by
diversifying across different investment classes and markets.
32

33. Clients seek not only sophisticated products but also targeted and appropriate client
service. This is why they offer truly differentiated services. The company also ensure
that extend an “enhancing” experience in our interaction with clients in order to uphold
our claim of providing ‘platinum’ services to our Private Clients.
Company believe that every client and his situation and aspiration is unique, and cannot
be ‘proto typed’. Hence, internal processes capture this uniqueness and build an optimal
solution around it.
Investment decisions are seldom limited only to the individual’s interest – they invariably
cover his / her concerns for immediate family also. Which is why when they advise
clients, they do it from the perspective of their family and bring together individual and
family goals? The experience tells that for most of clients it become a family office
since they advise on investments, preliminary taxation and estate planning. The
company perspective is to always ensure that to safeguard client and his family’s
interests.
Client relationships are managed at four levels in the organization; which implies that
client interest will never be compromised, even when there is absence of individual(s) at
one, or the other level of client management and support.
company clearly recognize that confidentiality is paramount in our business, and our
Practice maintains the utmost confidentiality of our client affairs.
Key features of Compounding Growth Portfolio:
 Portfolio of Large cap, Blue chip liquid stocks only.
 Unique style of compounding the portfolio by increasing the number of shares
over a period of time.
 A fund that is designed to cope with bear market cycles and capture the volatility
to its advantage over a period of time.
33

34.  A disciplined approach towards portfolio management with strong risk
management rules and processes.
 An approach understand by the investor.
Vision of the company
To provide a comprehensive range of financial services for the business and individual
investors, so as to demonstrably create value for them as also for our employees and
shareholders, simultaneously evolve as a stringently compliant organization.
Recognitions
• All India 6th rank in Domestic Bond Placement for FY 2005
• All India 11th rank in Domestic Bond Placement FY 2006.
Services
34

35. Almondz Almondz Almondz
Almondz
Products Global Insurance Reinsurance
Commodities
Securities Brokers Brokers
Equity IPOs
Private Equity
Equity Broking – Retail
Equity Broking –
Institutional
Equity Research
Portfolio Management
Services
Private Placement of
Debt
Debt
Debt Market
Portfolio Management
(PMS)
Project Finance
Advisory Infrastucture Advisory
Private Clients
Distibution Mutual Fund
Equity
Tax Saving Instruments
Fixed Deposits
Insurance Products
Commodities Brokerage
Insurance Life Insurance Products
General Insurance
Products
Almondz Group
 Incorporated in 1991
 LISTED
35

36.  Holding Company of Almondz Group
 Incorporated in 1994
 LISTED
 Investment Banking, Corporate Finance and Distribution
 Trading & Clearing Member for Equities on the National Stock Exchange (NSE)
& Bombay Stock Exchange (BSE)
 Trading & Clearing Member for both Cash & Derivative Segment
 Depository participant with central depository services Ltd(CDSL).
 Incorporated in 2006
 UNLISTED
 Subsidiary of Almondz Capital Markets Pvt. Ltd.
 Memberships of the Multi Commodity Exchange of India Ltd. (MCX) and the
National Commodity & Derivatives Exchange (NCDEX)
 Incorporated in 2003
 UNLISTED
 Registered with IRDA as Insurance Broker
 Risk Management
 Insurance Broking
36

37.  Employee Benefits Consulting
 Claims Management
 Incorporated in 2006
 UNLISTED
 Subsidiary of Almondz Insurance Brokers Pvt. Ltd.
Corporate Finance
Investment Banking
 IPOs, FPOs & Rights Issues
 Private Placement of Equity
 Delisting, Takeover, Substantial Acquisitions & ESOPs
 Private Placement of Debt
 Project Finance
Infrastructure Advisory
 Road
 Power
37

38. Debt Portfolio Management
 Secondary Debt Trading
 Debt Portfolio Advisory
Retail & Distribution
 Equity IPOs
 Public Issue of Debt
 Mutual Funds
 Tax Saving Instruments
 Fixed Deposits & Other Fixed Income Products
 Portfolio Management Services
 Insurance Products
Equity Broking
 Retail Equity Broking
 Institutional Equity Broking
 DP services
Partner With Almondz
Almondz Group is one of the fastest growing Integrated Financial Service Providers with
a nationwide presence and a committed team of skilled professionals. The Group
provides customized services to a diversified client base and its activities include
Distribution, Advisory Services, Debt Market, and Corporate Finance & Investment
Banking.
Under its business expansion plans, the Group invites business associates with good
38

39. entrepreneurial skills to partner us on the best revenue sharing terms in the industry. We
value the synergy that would emanate when your expertise combines with our experience
to result in win win situation.
Almondz has launched first of its kind Compounding Growth Portfolio which offers a
diversified, risk managed equity portfolio of Indian Companies. The portfolio consists of
large cap, liquid stocks which have been chosen based on their market cap and the free
float available in the market. The strong selection criteria enable the portfolio to
overcome illiquidity during volatile times. The portfolio through its risk management
process makes the volatility work in its favor over a period of time. Through the model it
increases the number of shares in the portfolio during volatile times and thus increases
the scope of compounding growth. The portfolio has been launched with Commander
Asset Management Limited as its Portfolio advisors. Commander is incorporated in the
UK and is authorized and regulated by Financial Services Authority.
Our value added services besides managing the portfolio will include Weekly portfolio
update, Market commentary, Annual audited financials of your PMS account, Short term
and long term gains report interaction with investment team at periodic intervals.
Organization Structure
Virtually all mutual funds are externally managed. They do not have employees of their
own; instead, their operations are conducted by various affiliated organizations and by
independent contractors. The following diagram depicts a typical mutual fund complex
and its principal service providers.
39

40. Directors/Trustees
The directors or trustees of a mutual fund, as in the case of other types of companies,
have oversight responsibility for the management of the fund's business affairs. When
established as a corporation, a mutual fund is governed by a board of directors, while a
mutual fund established as a business trust is governed by a board of trustees. The duties
of directors and trustees are essentially identical. Under state law, directors generally
must perform their responsibilities with the care expected of a "prudent person" - i.e.,
they must exercise the care that a reasonably prudent person would take with his or her
own business. They are expected to exercise sound business judgment, establish
procedures and perform oversight and review functions, including evaluating the
performance of the investment adviser, principal underwriter, and other parties that
perform services for the fund. Directors also owe a duty of undivided loyalty to the fund.
Overlaying state law duties is the fundamental concept of the 1940 Act that independent
fund directors serve as watchdogs for the shareholders' interests and provide a check on
the adviser and other persons closely affiliated with the fund. The 1940 Act requires that
40

41. a specified percentage of the fund's board of directors be persons who are entirely
independent of the fund's investment adviser or principal underwriter. The 1940 Act
rigorously defines independence through the concepts of "affiliated person" and
"interested person" so as to ensure that the fund's affairs are supervised by independent
directors who have no other business or family relationships with the fund's investment
adviser, principal underwriter, officers or employees.
The 1940 Act and SEC rules give independent directors of a mutual fund special
responsibilities with respect to a large number of matters, including initial approval and
periodic renewal of investment advisory and distribution contracts. Specifically, the 1940
Act requires that these contracts be renewed annually after the first two years following
initial approval. Both initially and when renewed, the contracts must be approved by a
majority of a fund's independent directors.
During the annual renewal process, directors typically request and review detailed
information about the advisory and underwriting organizations and the quality of service
they provide to the fund.
Shareholders
Like shareholders of other companies, mutual fund shareholders have certain voting
rights. These voting rights are defined by the laws of the state in which the fund was
formed, by the fund's own charter and by-laws, and by the 1940 Act. While most mutual
funds no longer have annual shareholder meetings, there are situations in which state law
or the 1940 Act requires funds to call special meetings. For example, the 1940 Act
requires that directors be elected by shareholders at a meeting called for that purpose
(with a limited exception for filling vacancies); changes in the terms of a fund's
investment advisory contract must be approved by a shareholder vote; and funds that
wish to change investment objectives or policies deemed "fundamental" must also obtain
shareholder approval.
41

42. Under the 1940 Act, all shares issued by a mutual fund must be voting stock and have
equal voting rights. The solicitation of proxies, the form and content of proxy statements
and the treatment of shareholder proposals are governed by proxy rules adopted under the
1934 Act and the 1940 Act. Proxy materials are subject to prior review by the SEC unless
they are limited to certain routine matters. The fund must take steps to insure that banks,
brokers, and nominees having shares registered in their names forward copies of the
proxy materials to the beneficial owners.
Investment Adviser
The investment adviser is responsible for selecting portfolio investments in accordance
with the objectives and policies set forth in the fund's prospectus and statement of
additional information. Investment advisers also place portfolio orders with broker-
dealers and are responsible for obtaining the best overall execution of those orders.
The investment adviser performs these services pursuant to a written contract with the
fund. Most advisory contracts provide for the adviser to receive an annual fee based on a
percentage of the fund's average net assets during the year. A few contracts provide for
performance-based fees, subject to fairness requirements specified by the Advisers Act.
The adviser is subject to many legal restrictions, especially regarding transactions
between itself and the fund it advises and joint transactions with that fund. Under Section
36(a) of the 1940 Act, a legal action may be brought against a mutual fund adviser based
on an alleged "breach of fiduciary duty involving personal misconduct." Section 36(b) of
the 1940 Act provides that the investment adviser has a specific fiduciary duty with
42

43. respect to compensation paid by the fund. The adviser also owes the fund a general
fiduciary duty under the Advisers Act.
The 1940 Act provides for automatic termination of any advisory contract that is
assigned, and deems transfer of control of the adviser to be an assignment of the contract.
Reapproval of the contract requires a vote of fund shareholders.
Administrator
Administrative services may be provided to a fund by an affiliate of the fund, typically
the investment adviser, or by an unaffiliated third party. Administrative services include
overseeing the performance of other companies that provide services to the fund, as well
as assuring that the fund's operations comply with applicable federal requirements. Fund
administrators typically pay for office space, equipment, personnel, and facilities; provide
general accounting services; and help establish and maintain compliance procedures and
internal controls. Often, they also assume responsibility for preparing and filing SEC, tax,
shareholder and other reports.
Principal Underwriter
Most mutual funds continuously offer new shares to the public at a price based on the
current value of fund assets (plus, if applicable, a sales charge). Mutual funds typically
distribute their shares through separate organizations, designated as the funds' principal
underwriters.
Principal underwriters are regulated as broker-dealers by the SEC under the 1934 Act.
Most are also members of the National Association of Securities Dealers, Inc. (NASD),
and are subject to NASD rules governing mutual fund sales practices.
Custodian
The 1940 Act requires mutual funds to keep their portfolio securities in the custody of a
qualified bank or otherwise protect them pursuant to SEC rules. Nearly all funds use bank
43

44. custodians. The standard mutual fund bank custody agreement is far more elaborate and
specific than the typical bank custody agreement for other clients. The SEC requires
mutual fund custodians to protect the funds by segregating their portfolio securities from
the rest of the bank's assets. Fund custodians must refuse to deliver cash or securities
except for specified types of transactions or upon receipt of proper instructions from
officers of the fund. The selection of custodians for foreign securities involves
consideration of foreign laws governing access by accountants to the custodian's records,
treatment of lost securities, and insolvency by the custodian, among other factors.
Transfer Agent
Fund transfer agents maintain records of shareholder accounts, which reflect daily
investor purchases, redemptions, and account balances. Transfer agents typically serve as
dividend disbursing agents, and their duties as such involve calculating dividends,
authorizing payment by the custodian, and maintaining dividend payment records. They
prepare and mail to shareholders periodic account statements, federal income tax
information, and other shareholder notices. In many cases, transfer agents also prepare
and mail on behalf of the fund and its principal underwriter statements confirming
transactions and reflecting share balances. In addition, transfer agents maintain customer
service departments that respond to telephone and mail inquiries concerning the status of
shareholder accounts.
Distribution
Investors may purchase mutual fund shares from a variety of sources, including full-
service brokers, discount brokers, banks, insurance companies, or the mutual fund
companies themselves.
Fund shares are distributed to investors primarily in two ways. In some cases, funds
distribute shares through a sales force, which may be employed by the fund's principal
underwriter or by independent broker-dealers. The registered representatives of these
broker-dealers actively solicit customer interest and typically provide investors with
ongoing advice and information regarding their fund investments. In other cases,
44

45. investors purchase shares directly from the fund or its underwriter, typically in response
to newspaper or magazine advertising. These investors generally receive no advice
regarding their investments.
Fund distributors incur costs related to advertising, distribution of prospectuses,
compensation of sales personnel, and general overhead. Some distributors bear these
costs out of their own assets. Others offset the costs by collecting a distribution fee from
the fund or a sales load from the fund's investors. A sales load can take several different
forms. A front-end load is one that investors pay when they purchase fund shares. A
back-end load is charged when shares are redeemed and may be reduced progressively
the longer the investor has held the shares. A fund may also expend a small portion of its
assets to pay distribution expenses (commonly called a 12b-1 fee). Funds may employ
these methods in combination, e.g., a small front-end sales load and an ongoing 12b-1
fee. NASD regulations govern the maximum amount of sales loads and 12b-1 fees.
Different groups of investors (e.g., individuals and various types of institutions) have
different service needs and, accordingly, may require different fee structures. To
accommodate these differences, mutual funds may offer different classes of shares or
offer differently structured funds through a master/feeder structure.
Funds that offer multiple classes typically offer several retail classes, with different
combinations of front- and back-end sales charges and 12b-1 fees. Other classes may be
available to institutional investors, such as banks and trust companies, designed
specifically to accommodate the needs of their individual beneficiaries. The different
classes of shares represent ownership in the same portfolio of securities. IRS positions
limit the size of the differences between the expenses paid by the different classes.
Under a master/feeder structure, several different funds are offered, each of which has a
fee structure and other attributes appropriate to its particular market. Each of these
"feeder" funds invests its assets in another mutual fund, termed the "master" fund. The
master fund, in turn, invests those assets in the securities markets.
45

46. Mutual funds are subject to special advertising rules adopted by the SEC. Funds can run
only two types of advertisements - "tombstone advertisements," which are permitted to
contain limited information about the fund, and "omitting prospectuses," which may
contain more information, including fund performance information. An advertisement
cannot include an investment application or invite prospective investors to send money; it
can only attract investor interest in requesting the full statutory prospectus, which may be
accompanied by the application. Funds also are permitted to distribute more extensive
sales literature, so long as it is accompanied or preceded by the full prospectus.
NASD rules require mutual fund distributors and dealers to file all advertising and sales
literature for staff review. Through this process, a principal underwriter can get NASD
assistance in assuring that sales literature complies with federal requirements and NASD
guidelines. Moreover, the SEC does not require the filing of sales literature that has been
cleared by the NASD.
Chapter 4
Analysis and Interpretation
Table 1:
qualification
Cumulative
Frequency Percent Valid Percent Percent
Valid Under Graduate 21 20.4 21.0 21.0
Graduate 37 35.9 37.0 58.0
PG 22 21.4 22.0 80.0
Proff Degree 20 19.4 20.0 100.0
Total 100 97.1 100.0
Missing System 3 2.9
Total 103 100.0
Table 2:
46

47. Occupation
Cumulative
Frequency Percent Valid Percent Percent
Valid Service 23 22.3 23.0 23.0
Business 43 41.7 43.0 66.0
Proffession 34 33.0 34.0 100.0
Total 100 97.1 100.0
Missing System 3 2.9
Total 103 100.0
Occupation
50
40
30
20
Frequency
10
0
Service Business Proffession
Occupation
Table 3:
Income
Cumulative
Frequency Percent Valid Percent Percent
Valid below 3.5 lakhs 4 3.9 4.0 4.0
3.5 to 6 27 26.2 27.0 31.0
6.5 to 10 lakhs 30 29.1 30.0 61.0
10 to 15 lakhs 23 22.3 23.0 84.0
above 15 lakhs 16 15.5 16.0 100.0
Total 100 97.1 100.0
Missing System 3 2.9
Total 103 100.0
47

48. Income
40
30
20
10
Frequency
0
below 3.5 lakhs 6.5 to 10 lakhs above 15 lakhs
3.5 to 6 10 to 15 lakhs
Income
Inference:
It is evident from table 1,table 2 and table 3 that there are respondents from different
qualifications with different occupations and earning different income. Most of the
respondents are with graduation and business profession and earning an income in
between 6.5 lakhs to 10 lakhs.
Table 4:
48

49. qualification * rating of MF by rating agencies Crosstabulation
rating of MF by rating agencies
extremely highly
important important neutral unimportant unimportant Total
Under Graduate Count 0 3 3 12 3 21
Expected Count .8 3.6 7.1 7.1 2.3 21.0
% of Total .0% 3.0% 3.0% 12.0% 3.0% 21.0%
Graduate Count 2 8 13 13 1 37
Expected Count 1.5 6.3 12.6 12.6 4.1 37.0
% of Total 2.0% 8.0% 13.0% 13.0% 1.0% 37.0%
PG Count 2 5 11 4 0 22
Expected Count .9 3.7 7.5 7.5 2.4 22.0
% of Total 2.0% 5.0% 11.0% 4.0% .0% 22.0%
Proff Degree Count 0 1 7 5 7 20
Expected Count .8 3.4 6.8 6.8 2.2 20.0
% of Total .0% 1.0% 7.0% 5.0% 7.0% 20.0%
Total Count 4 17 34 34 11 100
Expected Count 4.0 17.0 34.0 34.0 11.0 100.0
% of Total 4.0% 17.0% 34.0% 34.0% 11.0% 100.0%
Chi-Square Tests
Asymp. Sig.
Value df (2-sided)
Pearson Chi-Square 30.832a 12 .002
Likelihood Ratio 32.487 12 .001
Linear-by-Linear
.100 1 .752
Association
N of Valid Cases 100
a. 11 cells (55.0%) have expected count less than 5. The
minimum expected count is .80.
Inference:
It is evident from table 4 that majority of the people are not preferring the rating of
mutual funds based on their qualification level. Majority of the respondents don’t know
much idea on the rating of mutual funds before the investment.
H0: There is no significant association between the qualification and rating of mutual
funds.
H1: There is significant association between the qualification and rating of mutual funds.
Further, as the P value (0.002) is less than the critical value 0.05, then the Null hypothesis
can be rejected and hence it can be said that there is significant association between the
qualification and rating of mutual funds.
49

50. rating of MF by rating agencies
40
30
20
10
Frequency
0
extremely important neutral highly unimportant
important unimportant
rating of MF by rating agencies
Table 5:
Occupation * tax benefit Crosstabulation
tax benefit
extermely
relevant relevant neutral irrelavant Total
Occupation Service Count 4 8 11 0 23
Expected Count 3.5 9.4 8.3 1.8 23.0
% of Total 4.0% 8.0% 11.0% .0% 23.0%
Business Count 6 15 15 7 43
Expected Count 6.5 17.6 15.5 3.4 43.0
% of Total 6.0% 15.0% 15.0% 7.0% 43.0%
Proffession Count 5 18 10 1 34
Expected Count 5.1 13.9 12.2 2.7 34.0
% of Total 5.0% 18.0% 10.0% 1.0% 34.0%
Total Count 15 41 36 8 100
Expected Count 15.0 41.0 36.0 8.0 100.0
% of Total 15.0% 41.0% 36.0% 8.0% 100.0%
50

51. tax benefit
50
40
30
20
Frequency
10
0
extermely relevant relevant neutral irrelavant
tax benefit
Inference:
It is evident from table5 that the respondents working in professional occupation
responded that the tax benefit is related to the occupation of the work and the investment
in mutual funds mainly leads to the benefit in the tax.
Table 6:
qualification * Amfi Crosstabulation
Amfi
moderately somewhat
highly aware aware aware unaware
qualification Under Graduate Count 5 10 5 1
Expected Count 3.8 9.9 5.9 1.5
% of Total 5.0% 10.0% 5.0% 1.0%
Graduate Count 6 10 17 4
Expected Count 6.7 17.4 10.4 2.6
% of Total 6.0% 10.0% 17.0% 4.0%
PG Count 5 15 1 1
Expected Count 4.0 10.3 6.2 1.5
% of Total 5.0% 15.0% 1.0% 1.0%
Proff Degree Count 2 12 5 1
Expected Count 3.6 9.4 5.6 1.4
% of Total 2.0% 12.0% 5.0% 1.0%
Total Count 18 47 28 7
Expected Count 18.0 47.0 28.0 7.0
% of Total 18.0% 47.0% 28.0% 7.0%
51

52. Chi-Square Tests
Asymp. Sig.
Value df (2-sided)
Pearson Chi-Square 17.400a 9 .043
Likelihood Ratio 19.361 9 .022
Linear-by-Linear
.201 1 .654
Association
N of Valid Cases 100
a. 7 cells (43.8%) have expected count less than 5. The
minimum expected count is 1.40.
Amfi
50
40
30
20
Frequency
10
0
highly aware somewhat aware
moderately aware unaware
Amfi
Inference:
It is evident from table 6 that majority of the respondents are moderately aware of the
amfi regulations of the mutual fund investments.
H0: There is no significant association between the qualification of respondents and amfi.
H1: There is significant association between the qualification and amfi.
Further, as the P value (0.043) is less than the critical value 0.05, then the Null hypothesis
can be rejected and hence it can be said that there is significant association between the
qualification of respondents and amfi rules and regulations.
52

53. Table 7:
Income * dividend yield Crosstabulation
dividend yield
moderately somewhat
highly aware aware aware unaware
Income below 3.5 lakhs Count 0 4 0 0
Expected Count .2 1.1 1.4 1.3
% of Total .0% 4.0% .0% .0%
3.5 to 6 Count 0 5 12 10
Expected Count 1.1 7.6 9.7 8.6
% of Total .0% 5.0% 12.0% 10.0%
6.5 to 10 lakhs Count 3 5 12 10
Expected Count 1.2 8.4 10.8 9.6
% of Total 3.0% 5.0% 12.0% 10.0%
10 to 15 lakhs Count 1 8 5 9
Expected Count .9 6.4 8.3 7.4
% of Total 1.0% 8.0% 5.0% 9.0%
above 15 lakhs Count 0 6 7 3
Expected Count .6 4.5 5.8 5.1
% of Total .0% 6.0% 7.0% 3.0%
Total Count 4 28 36 32
Expected Count 4.0 28.0 36.0 32.0
% of Total 4.0% 28.0% 36.0% 32.0%
dividend yield
40
30
20
Frequency
10
0
highly aware somewhat aware
moderately aware unaware
dividend yield
Inference:
53

54. It is evident from table that based on the income level the respondents are not completely
aware of the different dividend yields pertaining to the investments in mutual funds. So
the respondents before investing need to have certain knowledge on the dividend yield
process available in the company.
Table 8:
Income * types of schemes Crosstabulation
types of schemes
moderately somewhat
highly aware aware aware unaware Total
Income below 3.5 lakhs Count 1 3 0 0 4
Expected Count .8 2.2 .9 .1 4.0
% of Total 1.0% 3.0% .0% .0% 4.0%
3.5 to 6 Count 7 10 10 0 27
Expected Count 5.4 15.1 5.9 .5 27.0
% of Total 7.0% 10.0% 10.0% .0% 27.0%
6.5 to 10 lakhs Count 5 17 8 0 30
Expected Count 6.0 16.8 6.6 .6 30.0
% of Total 5.0% 17.0% 8.0% .0% 30.0%
10 to 15 lakhs Count 4 16 1 2 23
Expected Count 4.6 12.9 5.1 .5 23.0
% of Total 4.0% 16.0% 1.0% 2.0% 23.0%
above 15 lakhs Count 3 10 3 0 16
Expected Count 3.2 9.0 3.5 .3 16.0
% of Total 3.0% 10.0% 3.0% .0% 16.0%
Total Count 20 56 22 2 100
Expected Count 20.0 56.0 22.0 2.0 100.0
% of Total 20.0% 56.0% 22.0% 2.0% 100.0%
Inference:
It is evident from above table that the majority of respondents having different income
levels are moderately aware to the different types of schemes available in the company
for investing in mutual funds.
54