1. Project Report By Vikram Dhumal(523)
Topic: Mutual und Analysis & Portfolio Managemaent
Firm: Vantage Wealth Management Solutions Pvt. Ltd.
College(MMM): Sinhgad Institute of Business Administration And Computer
Application
CONTENT
CHAPTER 1:- INTRODUCTION ..4
1.1 OBJECTIVE OF THE PROJECT ...5
1.2 SELECTION OF THE TOPIC ...6
1.3 OBJECTIVE OF THE STUDY ...7
1.4 METHODOLOGY OF THE PROJECT ...8
1.5 SCOPE OF THE STUDY ...9
1.6 LIMITATIONS OF THE PROJECT ..10
CHAPTER 2:- PROFILE OF THE ORGANISATION .11
2.1 A] COMPANY PROFILE .12
B] COMPANY MISSION .14
2.2 AREA OF SERVICES .16
CHAPTER 3:- INVESTMENT MANAGEMENT .19
3.1 EQUITY PORTFOLIO MANAGEMENT .20
3.2 EQUITY FUNDS .21
3.3 TYPES OF EQUITY INSTRUMENTS .23
3.4 EQUITY CLASSES .24
3.5 DEBT PORTFOLIO MANAGEMENT .25
3.6 A REVIEW OF INDIAN DEBT MARKET .26
3.7 INVESTMENT POLICIES & RESTRICTIONS .32
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2. CHAPTER4:- INTRODUCTION OF MUTUAL FUNDS ..36
4.1 CONCEPT OF MUTUAL FUND ..37
4.2 EMERGENCE OF MUTUAL FUNDS ..38
4.3 HISTORY OF MUTUAL FUNDS ...39
4.4 PLACE OF MUTUAL FUNDS IN FINANCIAL MARKET 44
4.5 THE ADVANTEGES OF MUTUAL FUNDS ...47
4.6 THE DISADVANTAGES OF MUTUAL FUNDS ...50
4.7 CLASSIFICATION OF MUTUAL FUNDS ...53
4.8 WHO CAN INVEST? ...55
4.9 INVESTORS RIGHTS & OBLIGATION 55
4.10 OFFER(DOCUMENTS) BY MUTUAL FUNDS . ...57
4.11 ACCOUNTING OF MUTUAL FUNDS 59
CHAPTER 5:- MEASURING & EVALUATING OF MUTUAL
FUND PERFORMANCE 63
5.1 NECESSARY FOR MEASURING MUTUAL FUND ....64
PERFORMANCE
5.2 DIFFERENT MEASURES OF FUND PERFORMANCE ..65
CHAPTER 6:- MUTUAL FUND FEES & EXPENSES 72
CHAPTER 7:- ACCOUNTING & VALUATION OF MUTUAL
FUND 75
CHAPTER 8:-SECURITIES & EXCHANGE BOARD OF INDIA..79
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3. 8.1 MANAGEMENT BOARD OF INDIA ..81
8.2 FUNCTIONS OF BOARD ..82
8.3 REGISTRATION CERTIFICATE ..83
CHAPTER 9:- RULES & REGULATIONS 87
CHAPTER 10:- PENALTIES & ADJUDICATION 92
CHAPTER 11:- SUGGESTIONS .95
GLOSSERY 100
BIBLIOGRAPHY .131
3

4. CHAPTER 1:-
INTRODUCTION
4

5. 1. INTRODUCTION
1.1 OBJECTIVE OF THE PROJECT
Theoretical Knowledge without Practical Experience is like a Body without
Soul. So without Practical implementations, theory remains no use. Hence
we need to gain the Practical Experience. And what better would be, then a
Project work for the same.
Also as a part of our MBA curriculum, we need to undergo the training
programmed for minimum of 60 days, in a company.
I selected area of MUTUAL FUND INDUSTRY, which pools the funds &
reduces risk by investing in different diversified assets. I studied as to how
this industry proves to an option for the investors, by studying the
performance of mutual funds for few months considering their Net Asset
Values.
Hence this is a project work on a Mutual Fund Analysis & Portfolio
Management .
5

6. 1.2 SELECTION OF TOPIC
Generally when we decide to study the investment options available in
today s complex & risky scenario, we should thoroughly evaluate the option
upon various factors. These factors should include:
The Past Performance of the option under study
Risk adjusted returns from the invested plan
Share in the Portfolio Policy
Fund House
When observed the above parameters for the evolution of The
Financial Performance of the option under study, then immediate concept
that clicks our mind is MUTUAL FUNDS . So for this, I have selected
Mutual Funds performance to study as investment option.
Study of Mutual Fund includes
Study of Equity, Debt, Bonds, Securities, etc.
Investment Decision
Risk Measurement & risk diversifications
Portfolio Management
Analyzing the Option (a Particular Security/ Instrument).
6

7. 1.3 OBJECTIVE OF THE STUDY
Vision is a long term policy & to reach there you can t just leap &
jump. To there the stairs of objectives need to be climbed successfully an so
objectives of this project are
How to find the RIGHT SCRIPT to buy & sell at RIGHT
TIME , thereby mobilizing the saving aptly.
How to get good return on investment
How to achieve Capital appreciations
How to form a right PORTFOLIO & How to invest in
RIGHT PORTFOLIO .
To analyze the performance of Mutual Funds.
7

8. 1.4 METHODOLOGY OF THE PROJECT
Defining objective won t suffice unless & until a proper methodology
is to achieve the objectives.
1. The methodology of the project here is to analyse the investments
Opportunities available for the investors & study the returns &
risk involved in various investment opportunities.
2. Study of investment management, risk management & portfolio
Diversification.
3. The methodology of the project here is to analyze the Mutual
Fund performance based on:-
NAV (NET ASSET VALUE) :- It tracked the daily NAV s
Of the Mutual Funds to compute the performance.
Total Return Basis: By taking into account dividends
distributed by the funds between the two NAV s change
To arrive at a total return.
Portfolio turnover Ratio: This means the Amount of Buying
& selling done by a fund.
Asset Purchased/ Sold
PTR= Funds Net Assets
Study Financial & Legal obligations of Mutual Funds.
8

9. 1.5 SCOPE OF THE STUDY
The study encompasses different aspects from point of view of investors as
follows.
1. Investment portfolio selection
2. types of Mutual Funds
3. Expected returns on investment
4. Investment in Tax Saving Schemes.
Despite various problems, India Could still have a lot of profitable
opportunities to offer in this sector. And given the fact it is the major
emerging market to open up. It is equally important that, even if its various
Fund Investments can harness a small part of the total funds available
internationally, Indian Foreign Exchange reserves will shoot up.
According to World Bank Study, portfolio investment in the emerging
markets will rise above a massive $100 Billion by 2002. Actual figures are
yet not published for the same.
9

10. 1.6 LIMITATIONS OF THE STUDY
This project is not funded one, hence it gets restricted to a mere in
depth study & few guidelines for investors.
This study is carried out in pursuance of curriculum MBA, which
is mandatory for period of two months; hence exhaustive data is
not available upon which conclusion can be relied upon.
NAV are prone to environmental factors 7 which would influence
the value during trading.
Investments in Securities carry risks & Mutual Fund units are no
exception.
Risk being erosion in the Market value of the Investment of
decrease in the percentage dividends declared by the Mutual
Fund. The risk factors inherent in a Mutual Fund Schemes are
the schemes, market risk, & the investment experience of the
Asset Management Company.
Factors affecting the Market Price of Investment may be due to
Market forces, performance of the companies, Govt. Policies,
Interest rates & so on.
Study for all the existing Mutual Fund Schemes is not feasible,
Sample schemes of all Mutual Fund Types are considered for
10

11. the Study.
CHAPTER 2 :-
PROFILE OF THE ORGANIZATION
11

12. 2. PROFILE OF THE ORGANIZATION
VANTAGE INSURANCE SERVICES PVT. LTD.
VANTAGE WEALTH MANAGEMENT SOLUTIONS PVT. LTD.
2.1 A] COMPANY PROFILE:-
Vantage is Financial intermediary with diversified presence across
various Financial services encompassing a range of Risk & Wealth Mgmt.
solutions with a PAN India presence spreader across- Mumbai, Pune,
Bangalore, Chennai, Hyderabad & Gurgaon, the group has created a mark in
the Financial Services market with the unique concept of being a one stop
solution for Corporates & Individuals catering to needs in the field of
Insurance- Life & General, Investments, such as Mutual Funds, Fixed
Income Instruments, Portfolio Advisory, Life stage planning among others
& also Tax Planning.
Vantage Wealth Mgmt. is primarily focused on an end to end solutions
provider for all investment & insurance needs of an Individual. Vantage
Insurance Services, an IRDA mandated, Direct Insurance Broker, with a
License in both Life & General Insurance is focused on providing the best
12

13. Risk Mgmt. solution to a Corporate. A synergy of both the group companies
offers a wide array of services & products to suit Individual & Corporate
needs.
Later, it forayed into the Register & Share transfer activities &
subsequently into Financial Services. All along, Vantage Group is Strong
ethic & Professional background leveraged with Information Technology
enabled it to deliver quantity to the individual.
A decade of Commitment, Professional Integrity & Vision
helped Vantage to achieve a leadership position in its field when it handled
the number of issues ever handled in the history of the Indian Stock Market
in a year.
Thereafter, Vantage Group made inroads into a host of Capital
market services- Corporate & Retail which provided to be a sound Business
Synergy. Today, Vantage has assessed to millions of Indian Shareholders,
besides companies, Banks, Financial Institutes & regulatory agencies. Over
the Past one & decades, Vantage has evolved as a veritable link between
Industry, Finance & people.
13

14. 2.1 B] COMPANY MISSION
We endeavor to move beyond a Transactional Approach in Insurance
Broking & Investment Advisory to faster growth of Consultative
relationship with our Clients aimed at delivering an Integrated Solution in
the areas of Risk & Wealth Management.
To achieve & retain leadership, Vantage Group shall aim for complete
Customer Satisfactions, by combining its Human & Technology Resources,
to provide superior quality Financial Services.
QUALITY OBJECTIVES
As per the Quality Policy, Vantage Group will:-
Build in-house processes that will ensure transparent & harmonious
relationships with its Clients & Investors to provide high quality
of services.
Establish a partner relationship with its Investors Service agents &
Vendors that will help in keeping Commitments to the Customers.
Provide high quality of Work Life for all its Employees & Equip
them with adequate Knowledge & Skills so as to respond to
Customer s needs.
14

15. Continue to uphold values of Honesty & Integrity & Strive to
Establish unparalleled standards in Business ethics.
Use State-of-the art Information Technology in developing new &
Innovative Financial Products & Services to meet changing needs
Of Investors & Clients.
Strives to be a reliable source of value added Financial Products &
Services & constantly guide the Individuals& Institutions in making
A Judicious choice of same.
Strive to keep all Stale-holders (Share-holders, Clients, Employees,
Suppliers & Regulatory authorities ) proud & satisfied.
15

16. 2.2 AREA OF SERVICES/ PRODUCTS RANGE
ASSETS PRODUCTS
Mutual Fund
Tax Saving Bonds
Capital Gain Bonds
State & Central Govt. Bonds
Equity Funds
SERVICES PRODUCTS
Insurance Advisory Services
Tax Advisory Services
Stock Broking Services
Investment Consultancy Services
Project Finance & Consultancy
Portfolio Management
Sub- Broker for the New Issues
BSE Trading & settlement
16

17. NSE Trading & settlement
BUSINESS GROUPS:- Corporates Solution Groups
Personal Financial Consultancy Group
CORPORATES SOLUTION GROUPS
1. I.R.D.A recognized Direct Insurance Broker with License to
intermediate in both General Insurance & Life Insurance Business.
2. Focus on delivering Integrated Risk Mgmt. solution across diverse
areas such as:-
Employee Benefit Insurance PAN India more than 2, 50.000
Members covered through Vantage managed Health, Accident &
Life Insurance solutions.
Over 45-50 Corporates including, some of the largest
most respected corporate in the IT & ITes Industry, have entrusted
up with their Employee benefit Insurance Programme.
Property Insurance Including Extensive experience in Project &
Machinery Insurance. Business Interruption / Loss of Profit insur
-ence is another area where we have rendered our expertise to cer
-tain key corporates.
Liability Insurance Experienced in delivering solution for Comp
lex Global Liability Exposures worked with many leading IT &
ITes companies in this area.
Specialized Risk covers including Movie & Event Insurance.
1. Web enabled solution in Employee Benefit Insurance.
2. Vantage draws Technical Expertise in Risk Mgmt.with Advisory
17

18. Support from the core group consisting of experienced Experts
From Insurance Cooperation, Valuers, Loss Assessors, Property.
PERSONAL FINANCIAL CONSULTANCY GROUP:-
Vantage is an AMFI Registered Mutual Fund Distributors.
Focus on delivering customized Financial Planning Solution keeping in
a view an Individual s requirements such as:
1) Financial Goals & Investment Objective.
2) Life Insurance Coverage
3) Retirement Planning
4) Tax Planning
Online Portfolio updates.
18

19. CHAPTER 3 :-
INVESTMENT MANAGEMENT
19

20. 3. INVESTMENT MANAGEMENT
3.1 EQUITY PORTFOLIO MANAGEMENT
An equity portfolio manager s task consists of two major steps:
a) Constructing a Portfolio of Equity shares or equity linked instrument
That is consistent with the Investment objective of the fund &
b) Managing or constantly re-balancing the portfolio to produce capital
Appreciation & earning that would reward the investors with superior
Returns.
STOCK SELECTION
The equity Portfolio manager has available to him a whole universe of
equity shares & other instruments such as preference shares, warrants or
convertible debentures issued by many companies. However, more specially,
the equity portfolio manager will choose from a universe of shares in
accordance with:
A) The nature of the Equity instrument, or a particular stock s unique
characteristics, &
B) A certain investment styles or Philosophy in the process of choosing.
20

21. 3.2 EQUITY FUNDS
Form categories based on risk-return profile
- Diversified , Index , Sectorial & Specialized
Form categories based on fund manager s style
- Value and Growth
Evaluate Performance
- Peer Group and Benchmark comparison
Consider Structural Characteristics
- Size of the Fund
- Fund History
- Portfolio Manager Experience
- Cost of Investing: Expense Ratio
Consider Portfolio Characteristics
- Percentage Cash
- Portfolio Concentration
- Market Capitalization of Fund
- Portfolio Turnover: Churn
- Portfolio Risk Characteristics
R-squared
Beta
Dividend Yield
- High R Squared , Low Beta And High Dividend yield preferred
21

22. OTHER VARITIES OF EQUITY FUNDS
Specialized Funds:-
1) Sector Funds
2) Offshore Funds
3) Small Cap Equity Funds
4) Option Income funds - writes options
5) ELSS - Indian Variety
6) Equity Index Funds
7) Value Funds
8) Equity Income Funds - invest in co. with higher dividend yields
i.e. Power/utilities
Other Equity Oriented Funds:
Hybrid Funds
-Balanced Funds
-Growth & Income Funds
-Assets Allocation Funds
Commodity Funds
Real Estate Funds
Debt Funds :
Diversified Debt Funds
Focused Debt Funds
Sector / Specialized / Offshore
Municipal bonds / infrastructure cost bond funds
Mortgaged backed
22

23. High yield debt funds
Assured Return Funds - Indian variety
Liquid Funds
3.3 TYPES OF EQUITY INSTRUMENTS
Ordinary Shares:
Ordinary Shareholders are the true owners of the company, & each share
entitles the holders of ownership privileges such as dividends declared by
the company & voting right at the meetings. Losses as well as profits are
shared by the equity shareholders. Without any guaranteed income or
security, equity share are risk investment briefing with them potential for the
capital appreciation in return for the addition that the investors undertakes in
the comparison to debt instrument with guaranteed income.
PREFERENCE SHARES
Unlike equity share, preferences share entitled the holder to dividend at the
rate subject to availability of profit after tax. If preference shares are
cumulative, unpaid dividend for years of inadequate are paid in subsequently
year preference share do not entitled the holder to ownership privileges such
as voting right at the meeting. This preference shares are generally redeemed
after certain period.
EQUITY WARRANTS
These are long terms right offer holder the right to purchase equity share in a
company at a fixed price (Usually Higher than current Market Price) within
the specified period. Warrants are in the nature of option on stocks.
CONVERTIBLE DEBENTURE
As the term suggest, this are fixed rate debt instrument that are covered into
a specified number of equity share at the end of specified period for Ex.- A
23

24. company may issue 10% CD for Rs. 100 each that would be conversed into
5 equity share after 2 years. That is a holder of 1 debenture at the time issue
would become a holder of 5 equity share in the 2 years time.
3.4 EQUITY CLASSES
Equity shares generally classified on the basic of either the market
capitalization or the anticipated movement of the accompany earning. It is a
imperative for the Fund Manager to understand these elements of the stocks
before he selects form the inclusion in the portfolio.
CLASSIFICATION IN TERMS OF MARKET CAPITALIZATION
Market is the equivalent to the current value of a company i.e. current
market price per share time per the number of outstanding shares. There are
large capitalization company, Mid-cap Company & small company.
Different scheme of a fund may define there fund objective as a preference
for large or mid or small-cap companies shares. Large cap share are more
liquid & hence easily tradable. Mid or small cap share may be thought of as
having to track this different classes of share.
CLASSIFICATION IN TERMS OF ANTICIPATED EARNING
In terms of anticipated earning of the share are generally classified on the
basis of their market price in relation to one of the following measures:-
1] PRICE / EARNING RATIO (P/E Ratio)
Price/ Earning ratio is a price of share divided by the earning per share &
indicates weather the investors are willing to pay for a company earning
prudential. Young &/or fast growing companies usually high P/E ratios.
Established companies in nature industries may have P/E Ratios. The P/E
analysis is sometimes supplemented with the rate such as Market Priceto
Book Value & Market Price to cash flow per share.
2] EARNING PER SHARE (EPS)
24

25. Earning per Share is the amount of total earning received on each share. The
values of EPS are got by dividing total earning by number of shares. Thus
more the EPS more beneficial is for the Shareholder.
3.5 DEBT PORTFOLIO MANAGEMENT
Debt portfolio has to contend with the construction & management of
portfolio debt instrument, the primary objective of generating income. Just
as the inquiry fund manager has to go through a stock selection process, a
debt fund manager has to select from whole universe of debt securities he
wants to invest in.
Classification of Debt Securities
Many instruments give regular income. However, in the context of debt
mutual funds, manager invest only in market-trader instrument (not in
loans as done by the bank) debt instrument may be secured by the assets of
the borrowers as in case of corporate, or be unsecured as is the case with
Indian Financial Bond.
A Debt is issued by a borrower & is often known by the issuer category thus
giving us Government security & Corporate Securities or FI Bonds.
Debt instrument are also distinguished by their maturity profile. Thus,
instrument issued with short term maturities, typically under one year
maturities are classified as Money Market Securities instrument carrying
Long then one year maturities are generally called Debt Securities.
Most debt securities are interested bearing. However, there are securities that
are discounted securities or zero coupon bonds that are generally fixed that
pay interest on a Floating Rate basis. There are lots of new instruments
coming in the debt markets.
25

26. 3.6 A REVIEW OF THE INDIAN DEBT MARKET
Instruments in the Indian Debt Market
The objective of a debt is to provide investors with a stable income stream.
Hence, a debt fund invests mainly in instrument that yields a fixed rate of
return & where the principal is secured. The debt market in Indian offers the
following instruments for investment for by Mutual Funds.
Certificates of Deposits
Certificates of Deposit (CD) are issued by scheduled commercial banks
excluding regional rural banks. These are unsecured negotiable promissory
notes. Banks CDs have a maturity period of 91 days to one year, while those
issued by FI s have maturities between one & three years.
Commercial Paper
Commercial Paper (CP) is a short term, unsecured issued by corporate
bodies (Public & Private) to meet short-term working capital requirement.
Maturity varies between 3 months & 1 year. This instrument can be
incorporated in Indian. CP s can be issued to NRI s on non-repatriable &
non- transferable basis.
Corporate Debentures
The debentures are usually issued by manufacturing companies with
physical assets, as secured instruments; in the form of certificates they are
26

27. assigned a credit rating by rating agencies. Trading in Debentures is
generally based on the current yield & market values are based on yield of
maturity. All publicly issued Debentures is listed on exchange.
Floating Rate Bonds
These are short to medium term bearing instruments issued by the financial
intermediaries & corporate. The typical maturity of these bonds is 3 to 5
years. FRB s issued by Financial Institutions are generally unsecured while
those from private corporate are secured. The FRB s are pegged to different
reference as much as T- bill or bank deposits rates. The FRB s issued by the
Government of Indians are in the form of Stock Certified of issued by credit
to SGL accounts maintained by the RBI.
Government Security
These are medium to long term interest bearing obligations issued through
the RBI by the Government of India & State Governments. The RBI decides
The cut-off on the basis of bids received during the auctions. These are
issued where the rates are pre-specified & the investor s only bids for the
quality. In most cases, the coupon is paid semi annually with bullet
redemption features.
A large part of the trading is concentrated in those government securities
that are eligible for repost (repurchase) transition, i.e. sale of a security with
a parallel agreement to repurchase the same at a future date. The RBI acts as
the depository, its public debt office maintain an SGL account for various
banks & Financial Institution, & issues or transfers the securities in the form
of book entries made in SGL accounts. If a fund does not have an SGL
account, it may open a constitution account with any RBI- registered bank.
Treasury Bills
T- Bills are shortly obligation issued through the RBI by the Government of
India at a discount the RBI Issues T-Bills for different tenures: 14 days, 91
27

28. days & 364 days. These treasury bills are issued through an auction
procedure. The yield is determined on the basis bids tendered & accepted.
Bank/ FI Bond
Most of the institutional bonds are in the form of promissory notes
transferable by endorsement & delivery. These are negotiable, issued by the
Financial Institution such as IDB/ ICICI/ IFCI or by commercial bank.
These instruments have been issued both as regular income bonds & as
discounted long term instruments (deep discount bonds).
Public Sector Undertaking (PSU) Bonds
PSU Bonds are medium & long term obligation issued by Public sector
companies in which the government share holding is generally greater then
51% . Some PSU Bonds carry tax exemptions. The maximum maturity is 5
year for Taxable bonds & 7 years for Tax- Free Bonds. PSU bonds are
generally not guaranteed by the government & are in the form of promissory
notes transferable by endorsement & delivery. PSU bonds in Electronic form
(Demat) are eligible report transactions.
Basic Characteristics of Money Market Security
Money Market fund invest always exclusively in money market security,
which are instrument of under 1 Year Maturity many of them of discounted
or zero coupon delivery. Money market fund portfolios may include
government corporate of bank issued security. In India, certificates of
deposits, treasury bills & commercial papers from the three major types of
Instruments where MF s usually invest in.
Basic Characteristics of Bonds or Debt Security
28

29. A debt fund or a bond fund generally invest a large part of its corpus in
longer term fixed income in debit securities issued by government,
companies or Banks/ FI s. A small part is invested in money market. In
Indian context, long dated government securities, corporate debentures & FI
Bonds from the bulk of debt fund portfolios.
Bonds have the following four keys characteristics set at the time of issue:
Par Value : This is the principal amount that investors will be paid upon
Maturity of the bonds, & is also known as the face value.
Coupon : This is the annual rate of interest paid on the par value of the
Bond to the investor.
Maturity : This refers to the term of the bond that is , the date on which
the Bond that is , the date on which the issuer has to repay the principle
amount of the Bond.
Call or Provision: These are included in some bond contracts to allow
the issuer the option to redeem the bonds before Maturity thereby allow
-ing refinance of debt at lower interest rates
Measuring of Bond Yields: Returns on a fixed income security is generally
computed in the form of Current Yield or a Yield to Maturity.
Current Yield: This relates interest on a Bond to its Current Market Price
by dividing the annual coupon interest by the current market price.
1) Yield to Maturity (YTM): This is a sophisticated technique of
bond analysis. Posen defines YTM (also known as the bonds
IRR) as the annual rate of return & investors would realize if he
a bond at a particular price, & received the principal at maturity.
YTM allows investors to compare bond with different coupons,
maturities & price & is quoted for trading purposes. The
relationship between the price & YTM of a bond is expressed
by the following formula:
29

30. PRICE= Coupon / (1+ YTM) + Coupon2 / (1+ YTM) 2 .+
(Coupon Principle) / (1+ YTM) n
The inverse relation between price & YTM is important in bond
portfolio management.
Yield Curve: This is the graph showing yields for bonds
various maturities, using a benchmark group of bond, such as
the Government Securities. This is also known as the Term
Structure of Interest Rates (TRIR). This yields curve usually
upwards sloping become longer maturities generally offer
higher yields. This is because longer term debt carries higher
risk on account of inflation & other economic factors. The yield
curve is important indicators of expected trends in interest rates.
RISK IN INVESTING IN BOND:
1) Interest Rates-Risk: The price of bond will change in a direction
opposite to movement in interest rates. When interest rates rises bond
price will fall, thus an existing bond portfolio losing valve. A sound
analysis of interest rates movement is therefore essential.
2) Reinvestment Risk: A bonds yield to maturity assumes
reinvestment of interest received during the term at a constant rate.
This not may be possible if interest rate changes & risk is of
uncertain cash flow being reinvested at a lower rate.
3) Call Risk: If a bond has been issued with a call provision the issuer
may call them back & return the proceeds to the investors whenever
interest rates fall, so the borrowing can be replaced with cheaper debt.
The investor thus cannot keep a high yield bond.
30

31. 4) Default Risk: A bond is a subject to the risk that is assured may
default on its obligation to make timely principle & interest
payments. A fund needs to assess this risk based on the bonds rating
& the analysis generated by its research on issuer s cash flows.
5) Inflation Risk: When the inflation rate rises, purchasing power
decline. Therefore, the value of interest payment is reduced.
Investors will therefore expect higher yields in bonds. Higher interest
rate will make the existing bond lose value again.
6) Liquidity Risk: This refer to the ease with which investment in a
bond can be liquidated (or sold) at a price near its value. This
element is important for a fund because its investments are made on
behalf of unit-holder & market conditions may require the fund to
liquidate a part of its portfolio within a short time.
Instruments in the market
§ Equity
1) Ordinary shares
2) Pref. shares
3) Equity warrants
4) Convertible Debentures
§ P/E Ratio
§ Dividend Yield
§ Cyclical / Growth / Value Stocks
Market Capitalization =Sum total of CMP of shares * no. of shares
31

32. 3.7 INVETMENT POLICIES AND RESTRICTION
Investment Policy:
Investment Policies of each scheme are dictated by its investment
objective as stated in the offer document. In practice the board
policy guidelines are included in the offer documents while the day-
to-day policies are laid down by the AMC management for the fund
manager to conform to fund manager do have some flexibility in
alerting the strategy in the light of changing market condition & in
specific selection.
Investment strategy of an equity fund will lay down guideline on
which sectors & what ki8nd of companies to invest in, what
percentage will be held in the form of cash or money market
securities or how much in debt securities. Usually minimum &
maximum allocation of funds to each class- Equity & Cash is
specified.
Investment policies of a debt fund will also lay down guidelines on
the portfolio & their average maturity. Minimum & Maximum
percentage of Cash / money market instruments in the portfolio has
to be specified too.
Investment policy of balanced funds will specify the minimum &
maximum asset allocations to equity & debt / cash besides the
normal guidelines for the equity & debt components.
Investment policies of the money market funds will largely specify
the type of instrument preferred & their profile.
Investment Restriction by SEBI:
32

33. While the AMC management the AMC determines the investment
policies & its fund manager must also comply with the restriction
imposed by regulator-mostly SEBI & in case of money market fund
the RBI.
SEBI s main objective in laying down restriction on AMC s is to
ensure investor protection.
The objective is attained by:
1. Maintaining minimum level of diversification in Mutual Fund
Investments &
2. Ensuring that the Investor s funds are used to favour a few or
associated invested in approved securities only. To attain this
Regulatory objectives, some major restrictions imposed by
SEBI.
Minimum Portfolio Diversification Norms
Investment in equity shares or equity related instruments of a
single company are restricted to 10% of the NAV as a scheme.
However the limit of 10 % does not apply in case of sector /
industry specified schemes subject to adequate discloser in the
offer documents. The basic objective here is to ensure that a
fund a fund has an adequately diversified portfolio unless the
specified objective if the scheme is to limit the investments.
Similarly for debt schemes, SEBI restricts the investment in
rated investment grade debt instrument issued by a single issuer
is not allowed to exceed 10% of the NAV subject to approval of
board of AMC & trustee company?
These restriction do not apply to & money & government
securities. SEBI s restriction on the investment in unlisted share
to a minimum of 10 % of the NAV of a scheme for closed end
33

34. scheme. In case of open ended the limits may be made more
stringent to 5% of the NAV of the scheme as there is
continuous purchase by investors in such a scheme.
Approved and Unapproved Investment:
1. A Mutual Fund under all its scheme taken together will not own more
than 10 % of any company paid up capital voting rights. The objective
is not only to assure diversified investment but also to prevent fund
sponsor trying to acquire control of any company through fund
investment route.
2. Scheme may invest in another scheme under the same AMC or any
other Mutual Fund without charging any fees, provided that the
aggregate inter scheme investment made by all scheme under the
same management does not exceed 5% of the net asset value of the
Mutual Fund. The objective here is to prevent an artificial inflection
of fund size by inter scheme investment.
3. Debt instrument in which scheme invests must be rated as investment
Grade by at least one recognized rating agency. Unrated investment
could denote favors extended to a borrower or in any case do not
protect the investor.
4. Mutual Funds may buy & sell securities only on the basis deliveries as
Short selling or carry forward transaction is not in general consonance
with Mutual Funds as investment vehicles.
5. In case of long term investment securities should be purchased or
transferred in the name of Mutual Scheme. Securities cannot be held
in a general account & transferred later various scheme to main
certain profile or loss objective. Each investment must be done with
the objective of a scheme in mind therefore be immediately assigned
to a given scheme.
34

35. 6. Pending investment of funds pursuant to the objective the fund may
invest the same in short term deposit of scheduled commercial banks.
Case is to the scheduled banks for general investor protection.
7. Mutual Funds are not allowed to advance any loans. But lead security
in accordance with SEBI s Stock Leading Scheme. Mutual Fund must
invest in marketable securities not in unmarketable loans.
8. A Mutual Fund is prohibited from investing in any unlisted security
or a security issued through private placement by an associated or
Group Company of the sponsor. In the case of listed securities of
group companies of the sponsor or group company of the sponsor, it
is not allowed to invest an amount in exceed of 25% of the net assets
of any of its scheme of fund. The objective is to ensure that the fund
sponsor do not use investor funds to bolster their other group
companies.
9. A Mutual Fund may transfer investment from one scheme to another
Provided the transfer is at the current market rate & in conformity
with the investment objective of the scheme to which to losses form
one group of investor to another.
35

36. CHAPTER 4:-
INTRODUCTION TO MUTUAL FUNDS
36

37. 4. INTRODUCTION TO MUTUAL FUND
4.1 THE CONCEPT OF A MUTUAL FUND
A Mutual Fund is a common pool money into which investor place their
contribution that is to be investors in accordance with a stated objective.
The ownership of the joint or Mutual , the fund belongs to the
contribution make a single investor s ownership of the fund to the total
amount of the fund.
A mutual fund is a collective investment that allows many investors, with
a common objective, to pool individual investments and give to a
professional manager who in turn would invest these monies in line with
the common objective.
A Mutual Fund used the money collected from investors to buy those assets,
which are specifically permitted by its stated investment objective. Thus an
equity fund would buy equity asset- ordinary shares, preferences share,
warrants etc. a bond fund would buy debt instrument such as debentures,
bonds, or government securities. It is these assets, which are owns by the
investor in the same proportion as their contribution bears to the total
contribution of all investor put together.
Since each owner is a part owner of a Mutual Fund, it is necessary to
establish the value of his part. In other words, each share or unit that
investors hold needs to be assigned a value. Since the unit held by investors
37

38. evidence the ownership of the funds asset, the value of total asset of the fund.
When divided by the total number of units issued by the Mutual Fund gives
us the value of one unit. This is generally called the net asset value (NAV)
of the number of unit held.
4.2 EMERGENCY OF MUTUAL FUNDS
Mutual Funds now represent perhaps the most appropriate investment
opportunity for most investor, as financial markets become more
sophisticated & complex. Investors need a Financial Intermediary who
provides the required knowledge & professional expertise on successful
investing. It is no wonder then in the birthplace of Mutual Fund the
U.S.A. the fund industry has already overtaken the banking industry
more funds being under Mutual Fund Management than deposited with
the bank.
The Indian Mutual Fund Industry is a fast growing segment of the
economy. The Industry consists of 36 Mutual Funds including Unit
Trust of India. With 397 schemes spread over variety products the
industry today manages assets close to Rs. 97,000 crores.
The Indian Mutual Fund Industry has already started opening up, of
many of exciting investment opportunity to Indian investors. We have
started witnessing the phenomenon of more saving now being entrusted
to the funds than to the banks. Mutual Funds as still a new Financial
Intermediary in India. Hence it is important that the investors should
make proper analysis of the available scheme in the market. The
investment advisor & even the fund employees acquire better
knowledge of what Mutual Funds are. What, they can do for investor &
what they cannot & how they function differently from other
intermediaries such as the banks. The association of Mutual Funds in
India has commissioned a workbook, as the basic compellation of the
38

39. minimum knowledge requires by both fund distributors & the
employees. The workbook provided by AMFI can serve as a guide
distributors & employees.
4.3 HISTORY OF MUTUAL FUNDS IN INDIA
The Indian Mutual Fund Industry began with the formation of the Unit Trust
of India (UTI) in 1964 by the Government. UTI was formed as a non-profit
organization governed under a special legislation, the Unit Trust of India Act,
1963. It had a monopoly up to 1987 & during this period, UTI launched a
series of equity & debt schemes & established itself as a household name
with assets under management of Rs. 4563 crore & unit holder accounts of
slightly under 3 Million by mid 1987. UTI s growth continued up to 1996
when the strong entry of private sector players saw its share of the market
reducing sharply although UTI continues to be a dominant force in the
Indian Financial Services industry with assets of over Rs. 67,000 crore as of
December 31, 1999.
In 1987, the Industry saw the entry of Public Sector Mutual Funds, i.e. funds
promoted by public sector banks & financial institutions, such as SBI,
Canara Bank, LIC & IDBI. Predictably they were given the brand of their
promoters such as SBI Mutual Fund, Canbank Mutual Fund, and LIC
Mutual Fund & IDBI Mutual Fund. Other Public Sector Mutual Funds also
entered the market but UTI continued to remain the dominant player with a
share of 84% in 1991-92.
The Government first allowed private sector participation in 1993 & the
subsequent entry of a large number of players has made the industry very
competitive. The diagram below shows the three segments & a few of the
players in each segment.
39

40. UTI was started, at the initiative of the Reserve Bank of India & the
Government of India. The objective then was to attract the small investors &
introduce them to market investment. Since, then the History of Mutual
Funds in India can be broadly divided into three distinct phases.
Phase I: 1964 87 (Unit Trust Of India)
This phase spans from 1964 to 1988. In 1963, UTI was established by an act
of Parliament & given a monopoly. Operationally, UTI was set up by the
Reserve Bank of India, but was later de-linked from the RBI. The first &
still one of the largest schemes, launched by the UTI was Unit Scheme 1964.
Over the years, US-64 attracted & probably still has the largest number of
investors in any single investments schemes.
First Phase (1964- 1987) :-
Establishment of UTI in 1963.
In 1978, UTI was delinked from the RBI & the Industrial Development
Bank of India (IDBI) & took over the regulatory & administrative control
in place of RBI.
The first scheme launched by UTI was Unit Scheme in 1964.
At the end of 1988 UTI had Rs.6, 700 crores of assets under Mgmt.
UTI had grown large as evidence by the following statistics:
1987- 88
Amount mobilized (Cr) Asset Under Mgt (Cr) Mobilization
as % GDP
40

41. UTI 2175 670 3.1 %
Phase II: 1987-1993 (Entry of Public Sector Funds)
1987, Marked the entry of non-UTI public sector Mutual Funds, bringing in
competition. With the opening of economy, many public sector bank &
financial institution were allowed to establish Mutual Funds. The State Bank
of India established the first non-UTI Mutual Fund- SBI Mutual Fund- in
November 1987. This was followed by Can Bank Mutual Fund ( launched in
December, 1987), LIC Mutual Funds ( launched in 1989 ) & Indian Bank
Mutual Funds ( launched in 1990 ) followed by Bank Of India Mutual Fund,
GIC Mutual Fund & PNB Mutual Fund.
The private sector players, after an indifferent start in the early years, have
made a strong impression especially in the larger cities, with a high quality
of fund management, sales & customer service. This sector has dented UTI s
dominance resulting in a falling market share towards the end of the last
millennium.
Assets under Management
June 30, 2000 Sep. 30, 2001
UTI 57.09 % 53.60 %
Bank Sponsored 3.66 % 3.78 %
Institutions 4.12 % 4.46 %
Private Sector 35.13 % 38.16 %
Total 100.00 % 100.00 %
Total ( Rs. In Crore ) 97953 91811
OPEN CLOSE ASSURED TOTAL
END END RETURN
INCOME 85 28 29 142
41

42. GROWTH 96 15 - 111
BALANCED 31 4 - 35
LIQUID/ MONEY MARKET 28 - - 28
GILT 24 - - 24
ELSS 19 52 - 71
TOTAL 283 99 29 411
Second Phase (1987-1993) / Entry of Public Sector Funds:-
1987 marked the entry of Non- UTI, Public Sector Mutual Fund setup by
Public Sector Banks & LIC of India & 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.1987), Punjab
National Bank Mutual Fund (Aug.1989), Indian Bank Mutual Fund
(Nov.1989), Bank of India (Jan.1990), Bank of Baroda Mutual Fund
(Oct. 1992).
LIC established its Mutual Fund in June 1989 while GIC had setup its
Mutual Fund in Dec. 1990.
At the end of 1993, THE Mutual Fund Industry had assets under Mgmt.
Of Rs. 47,004 Crores.
Gilt Funds
1. Next only to money market fund in risk order
2. Gilts- government securities with medium to long term maturities
over one year
3. Investment in government paper called dated securities
4. Negligible risk of default
5. Risk arising out of changes in market price of debt securities
6. Debt securities prices fall when interest rate rise.
Debt Funds
1. Invest in debt securities issued not only by government but also
42

43. Corporate & financial institutions
2. Target low risk & stable income
3. Higher price fluctuation risk as compared to money market funds
due to significantly higher maturity period exposures
4. Higher credit risk than gilt funds due to corporate profile
5. Do not target capital appreciation; generate high current income &
distribution substantial part of surpluses to investors.
Third Phase (1993-2003) / Entry of Private Sector Funds:-
1993, the entry of Private Sector a new era started in the Indian Mutual
Fund Industry, giving the Indian Investor a wider choice of Fund Family
Also 1993, was the year in which the First Mutual Fund Regulation came
into being, under which all Mutual Fund expects UTI were to be register
& Governed. The Kothari Pioneer (now merged with Franklin Temleton)
was the First Private Sector Mutual Fund registered in July 1993.
In 1993 SEBI (MF) Regulations were substituted by a more
Comprehensive & revised MF Regulations in 1996.
At the end of Jan.2003 there were 33 MF with Total Assets of Rs.1,21,80
5 Crore. The UTI with Rs.44, 541 Crores of Asset under Mgmt. was way
ahead of other MF Industry has witnessed several Merges & Acquisitions.
Fourth Phase (Since Feb. 2003):-
In Feb.2003, UTI was bifurcated into two separate entities.
1. One is the specified Undertaking of the UTI with assets under Mgmt.
of Rs. 29,835 Crores as at end of Jan.2003, functioning under an
administrator & under the rules framed by Govt. of India & does not
come under preview of MF Regulation.
2. The second is UTI MF Ltd. Sponsored by SBI, PNB, BOB & LIC. It is
Registered with SEBI & Functions under the MF Regulations.
Bifurcation of UTI in Mar.2000 more than Rs. 76,000 Crores of assets
Under Mgmt. & with the setting up of a UTI MF conforming to the SEBI
43

44. MF Regulations.
At the end of Sept.2004, there were 29 Funds which Manages assets of
Rs. 1, 53,108 Crores under 421 Schemes.
4.4 PLACE OF MUTUAL FUND IN FINANCIAL MARKET
Indian household started allocating more of their saving to the capital
market in 1980 s with the investment flowing into equity & Debt
instrument beside the conventional mode of the bank deposits.
Until 1992 Primary Market investors were assured good return as the
price of the new equity issues was controlled. After Introduction of free
pricing of shares & with greater volatility in the Stock Markets, many
investors who bought over priced shares lost money & withdrew from
the markets altogether. Even those investors who continued as direct
investors in the Stock Market realized that the key to the successful
investing on the capital markets lay in the building a diversified
portfolio that in turn require substantial capital. Besides selecting
securities with growth & income was not possible for all investor.
Under similar circumstances in other countries, Mutual Fund had
emerged as Professional Intermediaries.
Besides providing the expertise in stock market, investing these funds
allows investing in small amount& yet holding a diversified portfolio to
limit risk. In India, Unit Trust of India occupied this place as the only
capital market intermediary Institution is emerging in India, as
elsewhere as a good alternative to direct investing in the Capital Market.
Mutual Funds serves as a link between the saving public & the capital
market in that they mobilized saving from investors & bring them to
borrower in the Capital Market. By the Very nature of their activities &
by virtue of being knowledgeable & informed investors , they influence
the Stock Market & play an active role in promoting good corporate
44

45. governance, investor protection & the health of capital market. Mutual
Fund have imparted much needed liquidity into the financial system &
challenged the hitherto dominant role of banking & financial institution
in the Capital Markets.
Mutual Fund Operation Flow Chart:
INVESTORS
RETURNS FUND MANAGER
SECURITIES
45

46. Structure
Foreign
Sponsor Trustee
Partner
Asset Management Other Service
Trust
Company Providers
Scheme 1 Scheme 2 Scheme 3
Organization of a Mutual Fund :
MUTUAL FUND - FRAMEWORK- India
Sponsor
Trustee Company Asset Management
Company
Fiduciary Fund Operations Marketing
responsibility to Management
the
Distribution
Investors Brokers Registrar
Custody
Markets Bank
46

47. 4.5 THE ADVANTAGES OF MUTUAL FUNDS
Portfolio Diversification: Each Investor in a Fund is a part of the funds
entire asset, thus enabling him to hold a diversified investment Portfolio
even with a small amount of investment, which would otherwise requires
big capital.
Professional Management: Even if an investor has a big amount of
Capital available to him, he benefits from the professional management
Skill brought in by the fund in the management of the investor s portfolio.
The investment management skills, along with the needed research into
available investment option, ensure a much better return than what an
Investor can manage on his own. Few investors have the skill & resource
of their own to success in today s fast moving, global & sophisticated
markets.
47

48. Reduction / Diversification of Risk: When an investor invest directly,
all the risk of Potential loss is his own, weather he places deposits with
a company or bank, or buys a share debenture on his own or in any other
instrument benefits of a collective investment vehicle is from the Mutual
Fund.
Reduction of Transaction Costs: What is true of risk is also the
transaction costs. The investors bear all the cost of investing such as
brokerage or custody of securities. When through a fund, he has the
benefit of economic of scale; the fund pay lesser costs because of large
volume, a benefit passed on to is investor.
Liquidity : Often, investors hold share or bonds they cannot directly,
easily & quickly sell. When they invest in the units of a fund, they can
generally case their investment any time, by selling their units to the fund
if open-ended , or selling them in the market if the fund is closed end.
Liquidity of investment is clearly a big benefit.
Open-ended
-Assures liquidity
-As liquid as the banks.
Close-ended
-Buying and selling can be done through the stock exchange
Conventional & Flexibility: Mutual Fund Management companies offer
many investors services that a direct market investor cannot get. Investors
can easily transfer their holding form one scheme to the other,get updated
market information, easy to Invest, Reduces excessive Paperwork etc,
Safety: SEBI & RBI have a control over Mutual Fund Making investme
nt in Mutual Fund a safe investment. A very good example here quoted
can be of Government of India coming to rescue of UTI s US- 64
Schemes.
48

49. Affordability:
-Provides an opportunity for a small investor
-Invest as less as an amount of
Wide Choice:
-Offers a Varieties of Schemes
-Meet the investment needs of all Investors
MF s and Tax Benefits:
Income Tax Benefits
-Equity funds - 10% TDS
-Debt Funds - Dividends are taxable
Capital Gain Benefits - Section 112 (1)
-Long term capital gain tax of 10% without indexation, or
-Long term capital tax of 20% with indexation
49

50. Mutual Funds:
A Packaged Product
Professional
Management Diversification
Convenience
Liquidity
Tax
Benefits
4.6 THE DISADVANTAGES OF MUTUAL FUNDS
No Control Over Costs: An investors in a Mutual Fund has no control
Over the overall cost of investing. He pays investment management fees
50

51. as long as he remains with the funds, in return for the professional manag
ment & research. Fees are payable even while the value of his investment
may be declining. A mutual fund investors also pays fund distribution
costs, which he would not incur in direct investing.
No Tailor-made Portfolios: Investors who invest on their own can build
their own portfolios of shares, bonds & other securities. Investing through
Funds means he delegates this decision to the fund manager. The very high
-net-worth individuals or large corporate investors may find this to be a
constraint in achieving their objectives.
Managing a Portfolio of Funds: Availability of a large number of funds
can actually mean too much choice for the investor. He may again need
advice on how to select a fund achieve his objectives, quite similar to the
situation when he has to select individual shares or bonds to invest in.
Developing a Model Portfolio
Work with Investor to develop long-term goals
Determine Asset Allocation of the investment
Determine the sector distribution
Select specific Fund Manager & their schemes
Model Portfolio
Creativity & forecasting
Shortcomings in Operation of Mutual Fund
1. The Mutual Funds are externally managed. They do not have emplo
yees of their own. Also there is no specific law to supervise the
51

52. Mutual Fund in India. There are multiple regulations. While UTI is
governed by its own regulations, the banks are supervised by Reser
ved Bank of India, the Central Government & Insurance Company
mutual regulations funds regulated by Central Government.
2. At present, the investors in India prefers to invest in Mutual Fund as
a substitute of fixed deposits in Banks. About 75% of the investors
are not willing to invest in Mutual Funds unless there was a promise
of a minimum return.
3. Sponsorship of Mutual Funds has a bearing on the integrity &
efficiency of fund management, which are key to establishing
investor s confidence. So far, only public sector sponsorship or
ownership of Mutual Fund organizations had taken care of this need.
4. Unrestrained fund rising by schemes without adequate supply of
scrip can create severe imbalance in the market & exacerbate the
distortions.
5. Many small companies did very well last year, by schemes with
out adequate imbalance in the market but Mutual Funds cannot
reap their benefits because they are not allowed to invest in smaller
companies.
6. The Mutual Funds in India are formed as trusts. As there is no
Distinction made between sponsors, trustees & fund managers, the
trustees play the roll of fund managers.
7. The increase in the number of Mutual Funds & various schemes
has increased competition. Hence it has been remarked by Senior
Broker Mutual Funds are too busy trying to race against each
other. As a result they lose their stabilizing factor in the market.
8. While UTI publishes details of accounts their investments but
Mutual Funds have not published any profit & loss Account &
Balance Sheet even after its operation.
52

53. 9. The Mutual Fund have eroded the Financial clout of institution
in the Stock market for which cross transaction between Mutual
Funds & Financial institutions are not only allowing speculators
to manipulate price but also providing cash leading to distortion
of balanced growth of market.
10. As the Mutual Fund is very poor in standard of efficiency in
Investors service; such as dispatch of certificates, repurchase
& attending to inquiries lead to the detoriation of interest of
the investors towards Mutual Fund.
11. Transparency is another area in Mutual Fund, which was neglect
till recently. Investors have right to know & asset management
companies have an obligation to inform where how his money
has been deployed. But investors are deprived of getting
information.
4.7 CLASSIFICATION OF MUTUAL FUNDS
Types of Mutual Fund
53

54. By Constitution
By Investment Objective
By Nature Of Investment
By Constitution
OPEN-END: No fixed maturity
Variable Corpus
Not Listed
Buy from and sell to the Fund
Entry/Exit at NAV related prices
CLOSED-END: Fixed Maturity
Fixed Corpus
Generally Listed
Buy and sell in the Stock Exchanges
Entry/Exit at the market prices
LOAD or NON-LOAD FUNDS
TAX EXEMPT or NON-TAX EXEMPT
By Nature of Investments
Financial Assets (Equity/Debt/Money Market)
Physical Assets (Metal/ Real Estate)
Diversified Growth Funds : Diversified Debt Funds
Focused Debt Funds : Sector / Specialized / Offshore
Municipal bonds/ infrastructure cost bond fund
Mortgaged backed
54

55. High yield debt funds : Assured Return Funds - Indian variety
Liquid Funds
By Investment objective / patterns
1) Growth - Equity
2) Income - Debt
3) Balanced - Equity and Debt
4) Money Market - Liquid Debt
5) Tax Saving - Equity
6) Specialized - Equity
7) Assured Return - Equity and Debt
Mutual Fund can also be classified as open/ closed ended Mutual Fund
Open Ended Mutual Fund Close Ended Mutual Fund
Units available for the sale & Unavailable
repurchase
Investor can buy or redeem units Investors can buy units from fund
from the Mutual Fund itself only at IPO subsequently buying &
selling at the Stock Exchange
Unit Capital is variable Unit capital is fixed
Pricing at NAV +/- depending on Prices may be quoted at premium or
load charges discount on the exchange depending
on perception about fund s future
performance
4.8 WHO CAN INVEST?
1. Resident including : 1) Resident Indian Individual
55

56. 2) Indian Companies
3) Indian Trust/ Charitable Institution
4) Banks / FIs/ Partnership Firms
5) NBFC s
6) Insurance companies
7) Provident Funds
2. Non- residents including : 1) NRI s
2) OCBs
3. Foreign entities : 1) FIIs registered with SEBI
4.9 INVESTORS RIGHTS AND OBLGATION
Investors Rights
1. Proportionate right to beneficial ownership of scheme s assets
2. Right to obtain information from trustees
3. Entitled to receive divided warrants within 30 days of declaration of
Dividend
4. Inspect major documents of the funds
5. Appointment of the AMC can be terminated by 75% of the unit
holders of the scheme present & voting
6. Right to approve of changes in fundamental attributes of a close
ended schemes so that they can redeem
7. Receive Annual Reports & A/C Statements
Legal limitations to Investors Rights
1. Unit holders cannot use the Trust
2. Can imitate legal proceeding against trustees
3. Buyers beware
56

57. 4. Sponsor of Mutual Funds have no obligation to meet any shortfall in
the assured return-unless explicitly guaranteed in the offer document
5. No rights to a prospective investor
Minimum portfolio diversification
1. Equity schemes- single company under 10% of NAV, not applicable
to index & sector funds
2. Debts funds- single issuer not more than 15% of NAV, can be
relaxed to 20% with approval of trustees % AMC
3. Unrated as well as rated but below investment grade, not more than
10% of NAV per issuer
4. All such issuers put together not more than 25% of NAV.
Investors Obligations
1. Carefully study the offer document before investing
2. Monitor his investment in a scheme by referring Financial statements,
performance updates & research report sent by the AMC
3. Complaints readdress
4. SEBI entertains complaints
Required sponsor to appoint compliance office who has to give due
diligence certificate can remove AMC with 75% vote to this effect. No
recourse to any company law.
4.10 OFFER ( DOCUMENT) BY MUTUAL FUND
Contents of an offer document
57

58. 1. Summary information- at a glance
2. Type of scheme growth / income / balanced
3. Name of AMC
4. Price of units
5. If assured return-name of guarantor
6. Opening & Closing dates of the schemes
7. Disclaimer clause of SEBI
8. Details of the sponsor & the AMC
9. Description of the scheme & the investment philosophy
10. Terms of issue
11. Historical statistics
12. Investors rights & services
13. Abridged offer document/key information memorandum with
application form
Significance
Legal document that protects and governs the right of the investor to
information
Is the primary vehicle for the investment decision
Is the operating document and describes the fundamental attributes of
schemes.
One of the most important sources of information for the prospective
investor
Is a reference document for the investor to look for relevant information
at any time.
Mandatory Information
§ Details of the Sponsor
§ Description of the scheme and investment objective/strategy
58

59. § Terms of issue
§ Historical statistics
§ Investors Rights and Services
Key Information Memorandum that is distributed with the application form
is an abridged version of the offer document.
Investment Options & Features
Options
Growth
Dividend and Dividend Reinvestment
Plans
Systematic Investment Plan - SIP
Value Averaging Plan - VAP
Systematic Withdrawal Plan - SWP
Systematic Transfer Plan - STP
Other
Nomination facility
4.11 ACCOUTING OF MUTUAL FUND
Balance Sheet of a Mutual Fund is different from that of a bank. All the
Funds belong to the investors & are held in fiduciary capacity for them.
59

60. NAV : Investor s subscriptions are unit capital rather than deposits
or liability.
Investments made on behalf on investors are reflected on
assets side
There are liabilities but of strictly short term nature.
NAV= (Market value of investment + Receivables + Other
Accrued income + Other Assets) (Accrued Expense
+ Other Payables + Other Liabilities) / No: of Units
Outstanding as at NAV date.
NAV of all schemes to be calculated & published daily. Close-
Ended schemes that are not mandatory required to be listed on
Stock Exchange may declare NAV once in a month or quarter
as permitted by SEBI.
Mutual Fund NAV is affected by four set of factors
Purchase & sale of investment securities
Valuation of all investment securities held
Others assets & liabilities
Units sold or redeemed
Other assets include any income due to the fund but not actual
received as on the valuation date. Other liabilities includes
similar liabilities include similar liabilities. These are to be
accounted for on an accrual basis. Major expenses like Mana
gement fee to be accrued on a daily basis. If non-accrual does
not affect the NAV by more than 1% then it may not be
accrued for that valuation date.
Non-recording of addition /sales of investments transaction or
Sales/purchase of units can be postponed to the next valuation
date in case such non-recording is not impacting the NAV by
more then 2%.
60

61. NAV
NAV = Net assets of scheme / No of units Outstanding
i.e. Market value of investments+ Receivables+
Other accrued income+ Other assets- accrued
expenses- Other Payables- Other liabilities
No. of units outstanding as at the NAV date
HOW NAV IS COMPUTED
§ Market value of Equities - Rs.100 crore - Asset
§ Market value of Debentures - Rs.50 crore - Asset
§ Dividends Accrued - Rs.1 crore - Income
§ Interest Accrued - Rs.2 crore - Income
§ Ongoing Fee payable - Rs.0.5 crore - Liability
§ Amt..payable on shares purchased -Rs.4.5 crore - Liability
§ No. of units held in the Fund : 10 crore units
§ NAV per unit = [(100+50+1+2)-(0.5+4.5)]/10
= [153-5]/10
= Rs. 14.80
NAV - Other information
Open end funds to declare NAV daily
61

62. NAV to be published at least weekly
Close end Schemes (which are not listed) may publish NAV
monthly/qt with prior approval from SEBI (MIP)
NAV has to consider up to date transactions
Non - recorded transactions not to affect NAV calculation
by more than 2%
§ NAV is influenced by-
1) Purchase and sale of Investment
2) Valuation of Investment
3) Other assets and Liabilities
4) Units sold or redeemed.
CHANGE IN NAV
FORMULA :
For NAV change in absolute terms =
(NAV at end of period - NAV at beginning of period) * 100
NAV at beginning of period
For NAV change in annualised terms =
( NAV change in % in absolute terms) * (365 / No. of days)
Loads
§ Entry Load or front ended load
Paid at the time of purchase
Sale Price = NAV / (1- Sales Load, if any)
62

63. § Exit Load or back ended load
Paid at the time of exit
Redemption Price = NAV/ (1+ Exit Load)
§ Contingent Deferred Sales Load (CDSL)
Deferred exit load depending on the period
Also known as deferred load
Sale Price
§ Sale Price is the price at which units are sold to investors.
§ Sale Price = NAV + Entry load
§ Formula for computation of Sale Price =
NAV/ (1-Load)
Assuming an entry load of 2% in the earlier
NAV computation example
Sale Price = 14.80/ (1- 0.02)
= 15.10
63

64. CHAPTER 5 :-
MEASURING & EVALUATING FUND PERFORMANCE
5. MEASURING & EVALUATING OF MUTUAL FUND
64

65. 5.1 NECESSARY FOR MEASURING MUTUAL FUND
PERFORMANCE
When an investing entrusts his saving to Mutual Fund naturally he hopes to
increase wealth by seeing the value of his investment grow. Having
understood the conceptual & operation aspects of Mutual Funds it is
important to analyze the issues involved in the evaluation of Fund
performance.
The Investor Perspective: - The investor would naturally be interested
In tracking through the value of as investment whether invests directly
in the markets or indirectly through Mutual Funds. He would have to
make intelligent decisions on whether he gets an acceptable return on
his investment in the funds selected by him. Or if he needs to switch to
another fund, he therefore needs to understand the basis of appropriate
performance measurement for the fund & acquire the basic knowledge
of the different measures of evaluating the performance well or not, &
make the right decisions.
The Adviser s Perspective: - If you were an intermediary recommend
A Mutual Fund to a potential investor he would accept you to give him
proper advice on which funds have a performance track record. If you
want to be an effective investment adviser, then you too have to known
how to measure & evaluate the performance of the different funds that
are available to the investor. The need to compare different fund s per
formance required the advisor to have the knowledge of the correct &
appropriate measure of evolution the fund performance.
5.2 DIFFERENT MEASURES OF FUND PERFORMANCE
65

66. § Different valuation methods
§ Change in NAV
§ Total Return
§ Total Return with dividend reinvested at NAV
§ Change in NAV - The most common
NAV on day 1 = Rs.10
NAV on day x = Rs.12
% Change in NAV = dayx-day1/day1 * 100
= 2/10 *100 = 20 %
Limitations:
Does not account for dividend
Suitable only for growth plans
Total Return
NAV on day 1 = Rs.20
NAV on day x = Rs.22
Dividend = Rs.4 per unit
Total Return = ((Distribution + Change in NAV)/day1 NAV)* 100
= ((4+ (22-20)/20)*100
= 30%
Limitation:
Does not account for reinvestment
§ Return on Investments - most suitable
§ NAV on day 1 = Rs.20
§ Dividend = Rs.4 per unit NAV at Rs. 21
§ Div reinvested = Rs (4 /21) = 0.19 units allotted
§ Total units = 1.19 (original +new allotted)
§ NAV at year end = Rs.22
§ Total Return = (NAV on year end*total units )-day1
NAV)/ day 1 NAV* 100
= ((22*1.19) - 20))/20*100
= 30.9%
Performance Measure
66

67. Section one:
Equity Funds: NAV Growth
Total Return
Total Return with reinvestment at NAV annulized Return
& Distributed
Computing Total Return (per share Income & Expenses,
Per Share Capital Change , Ratio, Share Outstanding )
The expenses Ratio Portfolio Turnover Rate Fund Size
Transaction Cost
Cash Flow Leverage
Debt Funds: Peer Group Companies
The Income Ratio Industry Exposure & Concentration
NPA s
Besides NAV Growth
Expenses Ratio
Section Two: Concepts of benchmarking for performance evolution
Performance benchmarking in the Indian Contest
Active Fund Performance against market indices as bench
Mark
Debt Fund-interest rate on alternative investment as bench
67

68. Mark.
Total Return Index
Money Market Funds Short Term Govt. Instrument
Interest rates as benchmarks.
Section Three: Tracking a funds performance Newspaper, Periodicals,
Research, Annual Report, Prospectus, Reports from
Tracking agencies, Internet & Interpretation of Data.
Other Parameters
§ Expense ratios - indicates fund efficiency and cost effectiveness
§ Portfolio Turnover ratio - measures amount of buying and selling
done by the fund
§ Transaction cost
§ Fund size
§ Cash holdings
Working of Mutual Fund & Their Performance :- It needs to be certified
that MF invest their funds in Capital market instruments such as Shares,
68

69. Debentures, Bonds, & Money Market Instruments & therefore the NAV of
such investments will reflect the market values of underlying assets. These
Market values fluctuate & therefore the NAV of the MF Schemes also
fluctuate. All the capital market instruments have varying degrees of risk,
the Degree of risk being the highest in equities & the risk factor is
highlighted in the respective offer documents as well as in the abridged offer
documents.
The investors therefore are in the full knowledge &
understanding of the risks involved in various schemes. As per SEBI
Regulation all MF disclose their portfolio periodically & all open-ended
Funds offer exit option to investors at NAV based price.
RISK RETURN GRID
Risk / Tolerance / Focus Suitable Products Benefits offered
Return Excepted by MF
Low Debt Bank / Company Liquidity, Better
FD, Debt Funds post- Tax Returns
Partially Balanced Funds, Liquidity, Better
Debt, some Diversified Post- Tax Returns
Medium Partially Equity Funds & Better Mgmt,
Equity some Debt Funds, Diversification
Mix of Shares & FD
Capital Market, Diversification,
High Equity Equity Funds Expertise in
( Diversified as Stock Picking,
well as Sector ) Liquidity, Tax
69

70. Free Dividends.
The Risk Return Trade-off
The Risk Return Trade-off
Hedge Funds
Growth Funds Sectoral Funds
Potential
Aggressive, Value,
for Growth
return
Debt
Funds Balanced Funds
Gilt Funds, Bond Ratio of Debt : Equity
Funds, High
Yield Funds
Liquid Funds
Risk
70

71. Equities are the best long term bet
percentage of studied period in which
Other 14%
investment
outperformed 37%
44%
Stocks
outperformed
56% 86%
63%
1 year 3 year 5 year
Source : RBI Report on Currency and Finance (1997-98)
BSE Sensitive Index of Equity Prices - BSE
71

72. Equities are the best long term bet
Cumulative annualised returns (1980 - 98)
25.0%
20.16%
20.0%
14.47%
15.0%
9.2% 9.74%
7.62%
10.0%
5.0%
0.0%
Inflation Gold Bank FD Co. FD Equities
Inflation Gold Bank FD Co. FD Equities
Source: RBI report on Currency & Finance (1997-98); BSE Sensitive index of Equity prices -
BSE
72

73. CHAPTER 6:-
MUTUAL FUND FEES & EXPENSES
73

74. 6. MUTUAL FUND FEES & EXPENSES
Initial Issue Expenses
Transaction Cost: Entry / Exit Load
CDSE for No-Load Fees
Annual Recurring Expenses: AMC Fee
Custodian Fee
Registry Exp.
Trustee Fee
Audit Fee
Marketing & Selling Exp.
Brokerage Exp.
Others
§ Initial Issue expenses
For launching of the scheme
Can charge up to 6%
§ Recurring Expenses
Marketing exp including brokerage
Transaction cost
R&T cost
Custodian Fees
Audit fees etc
Investor Communication s cost
§ AMC a charge Investment management fee to the fund on weekly avg.
net assets.
74

75. § The limits are: (Subject to overall limit of 6%)
1.25% for up to Rs.100 cr of weekly avg net assets
1% in excess of Rs.100 cr.
No Load schemes can charge an additional fee of 1%
§ Total Expenses that can be charged to the Fund ( excluding entry and
exit loads):
Equity Debt
On the first Rs.100 cr 2.50% 2.25%
On the next Rs.300 cr 2.25% 2.00%
On the next Rs.300 cr 2.00 % 1.75%
On the balance assets 1.75% 1.50%
Based on average weekly net assets
§ Initial issue expenses
Charge to the scheme capped at 6% of the initial resources
raised under that scheme
§ Entry/Exit Loads - Transaction costs
Sale price not greater than 107% / Re-purchase price not lower
than 93% (95% for close-ended schemes) of the NAV
§ Contingent Deferred Sales Charge ( For No-Load Schemes)
Ceiling For redemption within 1year 4%
For redemption within 2years 3%
For redemption within 3years 2%
For redemption within 4years 1%
75

76. CHAPTER 7:-
ACCOUTING & VALUATION OF MUTUAL FUND
76

77. 7. ACCOUNTING & VALUATION OF MUTUAL FUND
Accounting Policies
§ Investments to be marked to market on market prices.
§ Unrealised appreciation cannot be distributed.
§ Purchase & sale of investments to be recognised on the trade date and
not on settlement date.
§ Investments to be taken as NPA if it gives no return through interest
for more than 6 months
§ Dividend / Bonus/ rights to be recognised on ex-dividend / ex-bonus
dates and not on declared dates.
§ Income receivable on Invest NOT accrued for more than 3 months
should be provided for.
§ For determining gain/ loss on investments - avg cost is to be taken
Mutual Fund Valuation
§ Marking to Market
§ Equity Valuation Norms - Listed, Unlisted, NPA, Untreated
§ Debt valuation norms - Listed, Unlisted, Illiquid
§ Money Market Instruments - valuation norms
§ Effect of Buybacks, Mergers
§ Valuation Models - CRISIL
Valuation
§ TRADED SECURITIES
Last quoted closing price on the SE where principally traded
If Not traded on any SE on a particular day, then earliest previous
day price is taken (not more than 30 days)
Valuation = MP * current holding
77

78. § NON - TRADED SECURITIES
Stocks which are not traded for more than 30 days on any SE are valued on
good faith basis by AMC within following parameters
§ Debt - YTM basis
§ Equity capitalization of earning or NAV or combination of both
Disclosures and Reporting
§ Audit by independent auditor
§ Audited Annual report every year
§ Un-audited accounts to be published within 1 month after March 31 &
September 30
§ Within 6 months of closure, publish abridged summary of report
scheme-wise in newspapers
§ Summary to be forwarded to SEBI & unit holders
§ Full portfolio disclosure to be made within a month from the half-year
ended March 31 & September 30
§ Reporting to SEBI
Annual audited accounts
Six monthly unaudited a/cs
Half yearly statement of movements in net assets of each scheme
Qtr portfolio statement
Monthly amount mobilized
§ Communication to investor
Qtr portfolio
Annual report
Taxation
§ Capital Gain Benefits
Long term capital gain tax of 10% without indexation
Long term capital gain tax of 20% with indexation.
78

79. Investment Restrictions as a % of Net assets - AMC
§ Max. Investment under all schemes of the AMC in paid up capital
carrying voting rights in single Co. - 10 %
§ Max. Inter scheme investments of the same AMC - 5 % (no AMC fee
payable)
§ Inter scheme transfers at CMP and within the objectives of scheme
§ Max. Investment in listed shares of Group Co s - 25 % for each
scheme.
§ No investments allowed in unlisted/private placement of
group/associate cos.
§ Can borrow only to meet liquidity requirements. Max for 6 months &
not more than 20% of NAV of scheme.
Investment Restrictions as a % of Net Assets -Debt
§ Max. Investment in Rated paper in single Co - 15% (can be increased
to 20% with approval by Board of AMC/Trustee)
§ Max.Investment in Unrated/ Rated but below investment grade in
single issuer- 10% of NAV
§ Max. Investment in Unrated/Rated but below investment grade in all
cost - 25% (subject to approval of Board of AMC /Trustee).
§ Restrictions not applicable to Govt. Securities/Money Market
§ Can only invest in marketable securities - no loans
Investment Restrictions as a % of Net Assets -Equity
§ Max. Investment in Equity/Equity related instruments of single - 10%
§ No restrictions in case of Index Fund
§ Max. Investment in Unlisted Cos. - 10% in close ended & 5% in open
ended funds
§ Buy & Sell securities on Delivery position , No short selling/ carry
forward allowed.
79

80. CHAPTER 8:-
SEBI
[SECURITIES EXCHANGE BOARD OF INDIA]
80

81. SEBI
[THE SECURITIES & EXCHANGE BOARD OF INDIA ACT]
In 1992, an Act to provide for the establishment of a Board to Protect the
interests of Investors in Securities & to promote the development of & to
regulate the Securities market & for matters connected therewith or
incidental thereto on the 30 Jan. 1992 under Section 3.
8.1 MANAGEMENT OF BOARD
A Chairman
2 Members from the Officials of the (Ministry) of the Central Govt.
dealing with Finance (& Administration of the Companies Act, 1956
2 of 1934)
1 Member from the Officials of RBI.
5 Other Members of whom at least 3 shall be the whole time members.
The General Superintendence, Director, Mgmt. of the Affairs of the
Board as exercise all powers & do all acts & things which may be
exercised or done by the Board.
The Chairman & Members referred in clauses (1) & (4) are appointed by
the Central Govt. of India & the Members referred in clauses (2) &(3) are
nominated by the Central Govt. & RBI.
The Central Govt. has a right to terminate the Service of the Chairman or
Other appointed Members by giving him a Notice of not less than 3
Months in writing or 3 Months salary & allowance in lieu.
81

82. Removal of Members from Office: - The Central Govt. shall remove a
Member from Office if He/ She
1. Adjudicated as insolvent
2. Unsound mind & Stands so declared by a Competent Court
3. Convicted of an Offence, involves a Moral Turpitude
4. Abused his / her Position as to render his / her Continuation in Office
detrimental to the Public Interest.
Members not to Participate in Meetings in Certain Cases: - Any Member,
who is a Director of a Company & who as such Director has any Direct or
indirect pecuniary interest in any Matter coming up for consideration at a
meeting of a Board.
82

83. 8.2 FUNCTIONS OF BOARD
Subjects to the provisions of this Act; it shall be Duty of Board to Protect
the Investors in Securities to Promote & Development & to Regulate the
Securities Market by such measures as it thinks fit.
Registering & Regulating the Working of Stock Brokers, Sub-Brokers,
transfer agents, bankers to an Issue, trustees of Trusts deeds, Registrars
to an Issue, Merchant bankers, underwriters, portfolio managers, invest
ment adverse & such other intermediaries who may be associated with
securities markets in any manner.
Registering & Regulating the Working of the Depositories, (Participants)
Custodians of Securities, Foreign Institution Investors credit rating
agencies & such other intermediaries.
Promoting & Regulating the Self- Regulatory Organization.
Prohibiting fraudulent & unfair trade practices relating to securities
market insider trading in Securities.
Calling for Information from, undertaking Inspection, conducting
inquiries & audits of the Stock Exchanges, (Mutual Fund) & other
persons associated with the Securities market & intermediaries & self-
regulatory organization in the Securities Market.
Conducting Research
Summoning & enforcing the attendance of Persons & examining them on
oath.
Board to Regulate or Prohibit issue of Prospectus, offer document or
advertisement soliciting money for issue of Securities.
The investigating Authority shall keep in its custody the Books, Registers,
other documents & record seized under this section for such period later
than the conclusion of the investigation.
83

84. 8.3 REGISTRATION CERTIFICATE
No Stock- Broker, sub- Broker, Share Transfer Agent, Banker an Issue,
Trustee of Trust deed, Register to an Issue, Merchant Banker, under
writer, portfolio manager, investment adviser& such other intermediary
who may be associated with securities market shall buy, sell or deal in
securities except under & in accordance with the regulation made under
this Act.
No Depository, (Participant), custodian of Security, foreign institutional
Investor, Credit rating agency or any other intermediary associated with
the Securities markets as the Board may be notification in this behalf
Specify.
No person shall Sponsor or cause to be Sponsored or carry on or cause
to be carried on any venture Capital Funds or collective investment
Schemes including Mutual Fund, unless he obtains a certificate of
Registration from the Board in accordance with the Regulations.
The Board may by order, suspend, cancel or Certificate of Registration
in such manner as may be determined by Regulations.
Prohibition of Manipulative & Deceptive Devices, insider trading &
Substantial acquisition of Securities & Control :-
Use or Employ, in connection with the issue, purchase or sale of any
Security listed or proposed to be listed on a recognized Stock Exchange
& any manipulative or deceptive device or contrivance in contravention
of the provisions of this Act or the rules or the regulations made under.
Employ any device, scheme or artificial to defraud in connection with
Issues or dealing in Securities which are listed or proposed to be listed
on a recognized Stock Exchange.
84

85. Grants by the Central Govt. for all Grants, fees & charges received by
the Board under SEBI Act made by Parliament:-
All sums received by the Board from such other sources as may be
decided upon by the Central Govt.
The salaries allowances & other remuneration of members officers &
other employees of the Board & other expenses of the Board on objects
& for other purposes are funded by Central Govt.
The Board shall maintain proper accounts & other relevant records &
prepare an annual statement of A/C in such form as may be prescribed
by the Central Govt. in consultation with the comptroller & Auditor-
General of India.
Only then can the Mutual Funds hope to stage a recovery & regains some of
the recent heavy losses with a reshuffling of portfolios & net appreciation in
equity values.
All Mutual Funds / AMC/ Trustee Companies to be registered with SEBI
Responsible for protecting investors interest and promote orderly growth
of Mutual Fund Industry
Formulates regulations, monitors performance and conduct of Mutual
funds and enforces compliance to regulations through reviewing reports
and regular inspections
85

86. Reserve Bank of India & SE
RBI
Dual supervision for bank sponsored AMC s
Issue concerning ownership bank promoted AMC falls with RBI
Stock Exchange (SE)
Close ended MF listed of SE. Needs to comply with listing
guidelines.
Office of public Trustee
MF being public trustee - governed by Indian Trust Act , 1882
Trustee Co or Board of Trustee accountable to office of Public Trustee
Public trustees reports to Charity Comm.
86

87. Trustee and AMC to comply with Cos Act 1956
Registrars of Companies (ROC)
Department of Company Affairs
Company Law Board (CLB)
Ministry of Law & Justice
87

88. CHAPTER 9:
RULES & REGULATIONS
88

89. 9. RULES & REGULATIONS
Legal Frame Work: - 20 Sept.1995 The Depositories Act, 1996
Companies Act, 1956
30 Jan.1992 SEBI Act
16 Feb. 1957 The Securities Contracts
(Regulations) Act 1956
I] 1. Short Title, Extent & Commencement:
a) This Act may be called as Depositories Act, 1956
b) It extends to the whole of India
c) Come into force on 20 day of Sept. 1995
2. Definitions :- 1) Beneficial Owner means a person whose name is
Recorded as such with a depository.
2) Board means SEBI est. Under section 3 of SEBI
Act , 1992.
3) Bye- Laws means made by a Depository under
section 26.
4) Company Law Board means the Board of
Company Law Administration constituted under
Section 10 E of the Companies Act, 1956.
5) Depository means a Company formed & register
under the Companies Act, 1956 & which has been
garneted a Certificate of Registration under Sub-
section (1A) of section 12 of the SEBI Act, 1992.
6) Issuer means any person making an Issue of
Securities.
7) Participant means a Person Registered as such
Under, sub-section (1A) of section of SEBI Act.
8) Prescribed means a Prescribed by Rules made
under this Act.
89

90. 9) Record includes the records maintained in the
Form of Books or stored in a Computer or in such
form as may be determined by Regulations.
10) Registered Owner means a Depository whose name
entered as such in the Register of the Issuer.
11) Regulation means Regulation made by the Board.
12) Security means Security as may be specified by the
Board.
13) Service means any Service connected with the
Recording of Allotment of Securities or Transfer of
Ownership of Securities in the Record of Depository.
II ] Certificate of Commencement of Business by Depositories:-
1. No Depository shall act as a Depository unless it obtains a Certificate
of Commencement of Business from the Board.
2. The Board shall not grant a Certificate under sub- section; unless it is
satisfied that the Depository has adequate Systems & Safeguards to
prevent Manipulation of Records & Transactions.
III] Rights & Obligations of Depositories, Participants, Issuers &
Beneficial Owners:-
Agreement between Depository & Participant: With one or more
participants as its Agents, Specified by the Bye- Laws.
1. Services of Depository- Any Person, through a Participant may enter
into an Agreement, in such form as may be specified by the Bye-
Laws, with any Depository for availing its services.
Surrendered of Certificate of Security :
1. Any Person who has entered into an Agreement under section 5 shall
surrendered the Certificate of Security, for which he seeks to avail
the Services of a Depository.
90