AN INTERIM REPORT

ON SYSTEMATIC STUDY OF MUTUAL FUNDS IN INDIA. A COMPARATIVE EVALUATION OF THE TOP THREE MUTUAL FUNDS

FOR

UTI AMC Pvt. Ltd. www.utimf.com

REPORT
ON SYSTEMATIC STUDY OF MUTUAL FUNDS IN INDIA. A COMPARATIVE EVALUATION OF THE TOP THREE MUTUAL FUNDS

FOR

Contents
1. Indian Mutual fund Industry 2. UTI MF Investment Philosophy 3. Statutory Details 4. Credentials of UTI 5. Mutual Fund Setup & Structure 6. About UTI MF 4 7 8 8 12 13

7. Fund management & Fund Managers 8. Portfolio Management Services(PMS) 9. Introduction to MF & Benefits of MF 10. Types of MF 11. About MF 12. Distribution Of MF 13. Trends in Marketing MF 14. Inherent problems in Distribution System 15. Drivers Shaping the Future of MF Industry 16. Gold MF 17. Mutual Funds in Derivative Markets 18. Budget 06- Mutual Fund 19. Optimizing Tax using MF 20. Tracking Error Risk 21. MF Offer Document 22. Risk Factors

21 & 22 26 31 33 36 37 38 40 42 45 47 51 53 54 59 62

FINANCE IS CHANGING.. ARE YOU?

If you were to name one industry which has undergone the most dramatic transformation in the post-liberalisation era of the nineties, the financial services sector and in particular, the mutual fund industry would be a strong contender. There has been a paradigm change in the quality and quantity of product and service offerings. After being serviced by monopoly players for decades with hardly any choice in product offerings, the Indian consumer today is being wooed by virtually the Who's Who of global and Indian players with a choice that was unimaginable a decade back. In this backdrop, what strategic marketing choices do mutual fund companies have, to survive and thrive in this highly promising industry in the face of such cut-throat competition? Mutual funds are companies that pool funds from a large number of investors and invest them on their behalf for a financial return by buying, holding and selling securities. Funds managed by institutional investors are huge and growing rapidly, particularly as part of the resolution of pension pressures in various parts of the world. Global Assets under Management (AUM) rose 6 per cent to US $ 38.2 trillion in the first half of 2003. The global compound annual growth rate for the industry would be 8 per cent between for 2007.

INDIAN MUTUAL FUND INDUSTRY: The history of Indian mutual fund industry can be distinctly divided into two phases

The period before liberalisation where only public sector players existed with one dominant player Unit Trust of I ndia.

1963-1987: The Unit Trust of India was the sole player in the industry. Created by an Act of Parliament in 1963, UTI launched its first product, the unit scheme 1964, which is even today the single largest mutual fund scheme. UTI created a number of products such as monthly income plans, children's plans, equity-Oriented schemes and offshore funds during this period. UTI managed assets of Rs 6700 crore at the end of this phase. 1987-1993: In 1987 public sector banks and financial institutions entered the mutual fund industry. SBI mutual fund was the first non-UTI fund to be set up in 1987. Significant shift of investors from deposits to mutual fund industry happened during this period. Most funds were growth oriented closed ended funds. By the end of this period, assets under UTI's management grew to Rs 38247 crore and public sector funds managed Rs 8,750 crore

The post-liberalisation era where the industry was opened up to private players.

1993-1996: The Mutual fund industry was open to private sector players, both Indian and foreign. SEBI's first set of regulations for the industry was formulated in 1993 and, substantially revised in 1996. Significant innovations in servicing, product design and information disclosure happened in the phase, mostly initiated by private sector players. 1996-1999: The implementation of the new SEBI regulation and the restructuring of the mutual fund industry led to rapid asset growth. Bank mutual fund was recast according to the SEBI recommended structure, and UTI came under voluntary SEBI supervision. 1999-2003: Very rapid growth in the industry and significant increase in market shares of private sector player marked this phase. Assets crossed Rs. 100, 0000 crore. The tax break offered to mutual funds in 1999 created arbitrage opportunities for a number of institutional players. Bond funds and liquid funds registered the highest growth in this period, accounting for nearly 60% of the assets. UTI's share of the industry dropped below 50%. 2003-2006: 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 2003, representing 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. As at the end of March, 2006, there were 29 funds, which manage assets of Rs.231862 crores under 421 schemes.

UTI Mutual Fund

Investment Philosophy

UTI Mutual Funds investment philosophy is to deliver consistent and stable returns in the medium to long term with a fairly lower volatility of fund returns compared to the broad market. It believes in having a balanced and well-diversified portfolio for all the funds and a rigorous in-house research based approach to all its investments. It is committed to adopt and maintain good fund management practices and a process based investment management.

UTI Mutual Fund follows an investment approach of giving as equal an importance to asset allocation and sectoral allocation, as is given to security selection while managing any fund. It combines top-down and bottom-up approaches to enable the portfolios/funds to adapt to different market conditions so as to prevent missing an investment opportunity.

In terms of its funds performance, UTI Mutual Fund aims to consistently remain in the top quartile vis--vis the funds in the peer group.

Mumbai 1st Feb 2003.

STATUTORY DETAILS: In terms of The Unit Trust of India (Transfer of Undertaking and Repeal) Act 2002 (Act), the assets and liabilities of the erstwhile Unit Trust of India have been bifurcated into two parts,

The Specified Undertaking: The Administrator of the Specified Undertaking of The Unit Trust of India comprises of US 64 and the assured return schemes (most of which have since been converted into tax free bonds, the present investment is guaranteed by the Govt. of India) . The Specified Company: The Specified Company has been set up as a mutual fund viz. UTI MF, comprising of all Net Asset Value based schemes. UTI MF has been structured in accordance with SEBI (Mutual Funds) Regulations, 1996.The mutual fund was registered with SEBI on January 14, 2003 under Registration Code MF/048/03/01.

CREDENTIALS OF UTI:

TWO-WORD TOOL for THREE-LETTER TRUST:

EFFICIENT IMPLEMENTOR: UTI

First UTI made a hash of things. Then, under a new Chairman, it turned around smartly. As this closer look at the institution reveals, purely in terms of efficiency-gain, UTI wins the top-prize for effective deployment of it on the investor services front.

the time taken to allot or encash units has come down from anything between 15 days and 30 days to one day; average office space across cities has, come down from 5,000 square feet to 2,000; the annual phone bill, by Rs 1 crore; and unit holders can now conduct business from any UTI Investor Services office (earlier, they could do this only from the office where the unit had been issued).

All this is courtesy a Rs 42-crore investment in linking investor services offices across 63 locations to the institution's headquarters in Mumbai's Bandra Kurla Complex and its registrar located on the outskirts of the city. This information infrastructure services more than 10 million investors.

THE FINANCIAL POWERHOUSE:

Largest Mutual Fund House in India with total Assets Under Management (AUM) as on 31st march 2006

51 Domestic schemes and 4 offshore schemes to cater the whole gamut of the investment needs. The fund house with the largest number of retail investors.More than 6 million investors has invested in various funds. Nearly 65% of the investor accounts of the Indian Mutual fund industry is with UTI MF which endorses the fact that the countries largest MF enjoys tremendous investors trust and confidence. Almost each of the top 1500 investors / savers of the Indian Economy have investment in one of the funds of UTI Mutual fund. Distribution network of 63 financial centers, 343 Chief Representative / Chief Agents and over 18000 AMFI Certified Financial Advisors. Nation wide Network of satellite connecting all UFCs and branches.

INVESTOR SERVICES:

UTI MFs commitment to offer the BEST flows into the function of Investor Services as well. Optimal use of Technology is the Mantra to deliver better services to its valued investors. Some of the important initiatives in this direction are:

State of the art high-tech central processing center has been established to offer faster and efficient services. More than 2500 high-tech computers connected through a strong network of satellites and cables assist in bringing best fund management and investor service management practices.

All UTI MF branches and UFCs are well connected through a robust IT network to ensure quicker, cost-effective, efficient service and transaction processing. State-of-the-art systems and communications are in place to ensure a seamless flow across the various activities undertaken by UTI AMC. A feature and content rich website (www.utimf.com) and interactive kiosks are used for dissemination of information and delivery services. Automatic trigger option for automatic repurchase/ redemption to allow the investors to identify desired levels of exit to book profits. Introduced systematic investment plan as a convenient way of investment which has an auto debit facility. UTI MF now offers mobile enabled services to its customers. Investors can now access information pertaining to NAVs and the latest dividend declared on their mobile through the SMS route on 98926-06666. UTI MF has also tied up with Andhra Bank, Indian Bank, Corporation Bank, Allahabad Bank, Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, UTI Bank, and UCO Bank for distributing its numerous investment schemes. UTI MF has also tied up with Department of Post to further expand its distribution network.

UTI Mutual fund maintains its numero uno position in 2005-06 in terms of assets under management (AUM) on a year on year basis. UTI Mutual funds won 8 Awards with the ICRA Mutual funds awards 2006.

Fund UTI Master Index Fund UTI Bond Fund UTI Nifty Index Fund UTI Bond Fund (3 Year Period)

Rating Gold Gold Gold Gold

Category Equity Index Debt Scheme Equity Index Debt Scheme

No. of schemes 9 23 13 26

UTI G-Sec Fund Short Term Plan UTI Floating Rate Fund UTI Gilt Advantage Fund UTI MIS Advantage Fund

Gold Silver Silver Silver

Gilt Scheme Floating fund Gilt Scheme Marginal Equity

14 24 19 32

UTI COUNTS MOST STARS:

UTI Mutual fund is the tallest of them all. Of the 33 funds it manages which have Star Ratings, as many as eight of its schemes are top rated as per the revised ratings released for the month of April 2006. UTI has around one-fourth of its funds in the Five-star category. Seven of its funds are in the Four-star category. UTI Bond fund, UTI Liquid, UTI Mahila unit Scheme and UTI MMMF gained one notch each in their ratings to become five star funds.

FUND FAMILY: HOW THEY STACK UP

AMC Name

8 4 4 4 4 2 2 2 2 2 2

UTI Mutual fund HDFC PRUDENTIAL ICICI CAN BANK RELIANCE BIRLA SUNLIFE TATA SBI KOTAK MAHINDRA LIC JM

2 2 2 2 2 3 4 4 2

8 8 4 2 3 4 2 8 1 3 2

8 6 7 4 4 17 11 5 7 4 6

7 9 8 1 2 10 6 2 6 3 1

DSP ML FRANKILN TEMPLETON

1 6

4 15

5 5

2 1

MUTUAL FUND SET UP: A mutual fund is set up in the form of a trust, which has

Sponsor - The Trust is established by a Sponsor or more than one sponsor who is like Promoter of a company. Trustees - The Trustees of the mutual fund hold its property for the benefit of the unitholders. They are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund. Asset Management Company (AMC) - Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian - Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody.

SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.

ABOUT UTI:

UTI Asset Management Company Private Limited is a company incorporated under The Companies Act, 1956.

UTI Mutual Fund is managed by UTI Asset Management Company Private Limited which has been appointed by the UTI Trustee Company Private Limited for managing the schemes of UTI Mutual Fund and the schemes transferred / migrated from UTI Mutual Fund. The UTI AMC will provide professionally managed back office support for all business services of UTI Mutual Fund. UTI Mutual Fund has come into existence with effect from 1st February 2003.

UTI Trustee Company Private Limited, a company incorporated under The Companies Act, 1956 will be the Trustee of transferred/migrated schemes and the sole trustee of the Mutual Fund under the Trust Deed dated December 9, 2002 executed between the Sponsors and the Trustee Company (the Trustee).

UTI Asset Management Company Pvt. Ltd. (UTI AMC): The AMC was approved by SEBI to act as the Asset Management Company for UTI Mutual Fund has started a new division which offers Wealth Management Solutions. UTI AMC has been registered as a portfolio manager under the SEBI (Portfolio Managers) Regulations, 1993 on February 3 2004, for undertaking portfolio management services. UTI Asset Management Company presently manages a corpus of over Rs30000 Crores. The division, operating under the brand name of Axel, shall offer the entire suite of investment solutions to its private clients like HNIs, Trusts, Corporates, and NRIs etc. To begin with Axel shall be offering discretionary Portfolio Management Services (PMS) to its clients.

UTI International Ltd., a 100 % subsidiary of UTI AMC, registered in Guernsey, Channel Islands, acts as manager for offshore funds and markets the offshore funds abroad. UTI Mutual Fund has a nationwide network consisting 68 UTI Financial Centres (UFCs) and UTI International offices in London, Dubai and Bahrain. With a view to reach to common investors at district level, 4 satellite offices have also been opened in select towns and districts.

SPONSORS:

UTI AMC has been promoted by four sponsors each holding 25% paid-up capital:Three leading public sector banks

State Bank of India (SBI) Bank of Baroda (BOB) Punjab National Bank (PNB) Life Insurance Corporation of India (LIC), the largest public financial investment institution and life insurer in India have entered into an agreement with the Government of India as Sponsors of the UTI Mutual Fund.

STATE BANK OF INDIA:

The State Bank of India is the largest public sector bank in India with 9033 branches in India and 48 offices in 28 countries worldwide. In addition to this, SBI also has 17 subsidiaries.

BANK OF BARODA:

Bank of Baroda was established in July 1908 by Maharaja - Sir Sayajirao Gaikwad III. It has a track record of uninterrupted profits since inception in 1908. The Bank is also one of the few Indian Banks with a formidable presence overseas with 38 branches and covering almost every state and union territory in the country thus, making a total branch network of 2,753 as at 31.03.2003. The bank is also called as Indias International Bank.

PUNJAB NATIONAL BANK:

PNB is a statutory body performing banking activities in terms of Banking Companies (Acquisition and Transfer of undertaking) Act 1970 under which the Undertaking of the Bank was taken over by the Central Government. Punjab National Bank has 4037 branches and 4 subsidiaries. The bank has a deposit size of Rs.75813.49 crores as on 31.03.2003.

LIFE INSURANCE CORPORATION OF INDIA:

Life Insurance Corporation of India (LIC) is amongst the largest insurance companies in the world, serving over 10 crore policy holders and managing a Fund of over Rs.-186000 crores.

The sponsors are not responsible nor liable for any loss resulting from the operation of all the schemes of UTI Mutual Fund beyond the contribution of an amount of Rs.10,000/made by them towards setting up of the UTI Mutual Fund.

TRUSTEE: UTI Trustee Company Private Limited a company incorporated under The Companies Act, 1956 will be the Trustee of transferred/migrated schemes are the first and sole trustee of the Mutual Fund under the Trust Deed dated December 9, 2002 executed between the Sponsors and the Trustee Company (the Trustee). Registered office: UTI Tower, Gn Block, Bandra - Kurla Complex, Bandra (East), Mumbai - 400 051.

CUSTODIANS:

Stock Holding Corporation of India Limited Citibank NA HDFC Bank Limited

Custodians are responsible for the securities held in the mutual funds portfolio. They discharge an important back office function, by ensuring that the securities that are bought are delivered and transferred to the books of the mutual funds, and that funds are paid out when a mutual fund buys securities. They keep investment account of the mutual fund and also collect the dividends and interest payment on the mutual fund investments.

REGISTRARS:

Computer Age Management Services Pvt Ltd.(CAMS) Datamatics Financial Software & services Limited Karvy Computershare Pvt. Ltd.

UTI Technology Services Ltd.

The R&T agents are responsible for the investor servicing functions, as they maintain the record of the investors, process the investor applications, record the details provided application forms, send out periodical information on the performance of the mutual fund, process dividend payout to investors, and keep the investor record up to date, by recording new investors and removing investors who have withdrawn their funds.

REGISTARS

SCHEMES

Computer Age Management Services Pvt Ltd.(CAMS) UTI-Retirement Benefit Pension Fund UTI-Children Career Bond Plan(Balanced) UTI-Leadership Equity Fund

Datamatics Financial services Limited

Software

& UTI-Master Plus Unit Scheme UTI Equity Fund (Formerly UTI-Mastergain Unit Scheme)

Karvy Computershare Pvt. Ltd.

UTI-Liquid Advantage Fund UTI-Liquid Cash Plan UTI-Liquid Short Term Plan UTI-Money Market Fund UTI-Bond Advantage Fund STP

UTI-Fixed Maturity Plan Quarterly -August-04 UTI-Fixed Maturity Plan Quarterly -July-04 Karvy Computershare Pvt. Ltd. UTI-FMP QUATERLY DEC2004-I UTI-FMP Yearly Series Feb 05 UTI-FMP Quarterly March 2005 II UTI-Floating Rate Fund STP UTI-Fixed Maturity Plan-Yrly Nov04 (GP) UTI-FMP Quarterly February 2005 I UTI-Gilt Advantage Fund LTP UTI-Gilt Advantage Fund STP UTI-India Advantage Equity Fund UTI-Index Advantage Fund (NIFTY) UTI FMP Quarterly January, 2006 Series II UTI-Bond Advantage Fund LTP UTI-Mis Advantage Plan UTI-Index Advantage Fund (SENSEX) UTI-Dynamic Equity Fund UTI-FMP Yearly Series Sep 05 UTI-FMP Quarterly November 2005 II UTI-Growth & Value Fund UTI FMP - Yearly Series July 05 UTI-FMP Quarterly January2005 - I (GR) UTI-FMP Quarterly January2005 - I (IR)

UTI-Fixed Maturity Plan Qrtly Nov04 UTI-Fixed Maturity Plan(Jan2004) Karvy Computershare Pvt. Ltd. UTI-Fixed Maturity Plan-Yrly Nov04 (DP) UTI-Dividend Yield Fund UTI - Fixed Term Income Fund - Series I - Plan 18 (18 Months Plan) UTI-FMP Quarterly December 2005 I UTI Fixed Term Income Fund Series I - Plan18 Q4 UTI-FMP Quarterly Feb 06 - Series II

UTI Technology Services Ltd.

UTI-Bond Fund UTI-Children Career Plan (Bond) MIP -2000(II) UTI-G-SEC STP UTI-Variable Investment Scheme UTI-Master Index Fund UTI-Auto Sector Fund UTI-Banking Sector Fund Grihalaxmi Unit Plan UTI-Mahila Unit scheme UTI-G-Sec-Investment Plan US64 Bond ARS Bond

UTI-Monthly Income Scheme UTI-Index Select Fund UTI Technology Services Ltd. UTI-Nifty Index Fund UTI-Sunder UTI-Basic Industries Fund UTI-Equity Tax Savings Plan UTI-Grandmaster Unit Scheme UTI-Growth Sector Fund - Brand Value UTI-Growth Sector Fund Petro UTI-Growth Sector Fund Pharma UTI-Growth Sector Fund Services UTI-Growth Sector Fund Software UTI-Large Cap Fund UTI-Master Equity Plan 1998 UTI-Master Equity Plan 1999 UTI-Master Equity Plan Unit Scheme UTI-Master Value Fund Other - Schemes Not Listed Above UTI-Mastergrowth UTI-Mastershare Unit Scheme UTI-Mid Cap Fund UTI-MNC Fund UTI-PEF Unit Scheme

UTI-Psu Fund UTI-Unit Scheme 1992 UTI Technology Services Ltd. UTI-Senior Citizens Unit Plan UTI-Balanced Fund UTI-Unit Link Insurance Plan UTI-Unit Scheme 2002 MIP -2000(III) MIP-2001 UTI-Charitable & Religious Trust & Registered Society UTI-Opportunities Fund UTI-Contra Fund

FUND MANAGEMENT:

UTI MF has a highly qualified and professional fund management team- second to none in the industry to take care of the unit holders investments. An equally strong in-house research department supports the fund management team in their decision making process. UTI MF has the distinction of being the only mutual fund in India with a full-fledged Research Department including a debt research and macroeconomic research cell. The integration of world class practices in day to day working and upgradation thereof on a continuous basis allows UTI MF to meet the challenges existing and emerging and maintain its leadership position. Some of the notable practices are:

Higher empowerment to the Fund Managers for greater efficiency and accountability. Creation of a Risk Management Department to ensure better management of risks associated with fund management so as to eliminate future NPSs. Vigorous and regular investment monitoring to enable better health of the funds employed and step-up/ensure recovery of existing NPSs. complete integration of fund management activities including equity / debt dealing and back office activities by introducing a robust software platform called Front Office systems. The system also allows adherence to statutory/regulatory and internal investment guidelines. Benchmarking of funds with suitable and well-accepted indices to ensure objective assessment of the funds performance. Greater transparency by monthly disclosure of portfolios. Daily NAVs and well documented monthly fact sheets (namely Bulletin Plus) to provide complete information on scheme performance.

Reduced sales and repurchase loads for various schemes thereby enhancing the returns for the investors.

With several of UTI MFs schemes attaining critical size the expense ratios have been brought down for the benfit of investors. In a monthly income plan(MIP), the expense ratio has been capped at 1 percent as against 1.4 percent earlier, while G-sec (institutional plan) it has been capped at 75 basis points. UTI has well-qualified, professional fund management teams, who have been highly empowered to manage funds with greater efficiency and accountability in the sole interest of unit holders. The fund managers are also ably supported with a strong in-house equity research department. To ensure better management of funds, a risk management department is also in operation.

FUND MANAGERS:

A K SRIDHAR

He is the Chief Investment Officer of UTI Mutual Fund. Mr. Sridhar is a Chartered Accountant and has over 21 years of experience in Finance and Funds Management area. He joined erstwhile UTI in December 1988 and has worked in the areas of Investment Analysis, Dealing in Treasury and Money Market operations and Fund Management of various Income and Equity Schemes. He has also headed the Equity Research Cell and Internal Credit Rating division for a period of 2 years before proceeding to head the Fund Management of Equity Schemes of UTI Mutual Fund. He manages assets over Rs.29000 crore along-with a team of 7 Fund Managers.

SANJEEV BHASIN

Sanjeev Bhasin is Vice President with UTI Mutual Fund. He has over nine years of experience in Portfolio Management, Investment Analysis and Investment Banking. He is managing Fixed Income Schemes like Bond, Gilts and Liquid Funds, of around 1600 Crs.

AMANDEEP CHOPRA

Amandeep Singh Chopra is Senior Vice President with UTI Mutual Fund. He joined UTI in May 1994 and helped establish the Equity Research Cell. After extensive experience of over 4 and half years in securities research covering a wide range of industries and corporates, he moved into the area of fund management in 1998. Amandeep has spent over 5 and half years in fund management and handles equities as well as debt portfolios. He currently manages 13 schemes with a corpus of around Rs. 7700 crore. He is the fund manager of:

UTI Money Market Fund UTI Liquid Fund UTI Floating Rate Fund UTI G-Sec Fund UTI Gilt Advantage Fund UTI Bond Fund UTI Bond Advantage Fund UTI Monthly Income Scheme UTI MIS-Advantage Plan UTI Balanced Fund UNIT Scheme 2002

SANJAY RAMDAS DONGRE

Sanjay Dongre is Vice President with UTI Mutual fund. He is currently working as Fund Manager. He joined Unit Trust of India in 1994 as a Debt analyst acting as a support service for fund management activity. He also worked as Equity Research analyst covering wide range of corporates and industries. Subsequently he worked as Equity Dealer which involved handling all the activities relating to secondary equity market operations. He is a Fund Manager for the last 3 years and manages the equity schemes of assets exceeding Rs 4400 crores. He is the fund manager of:

UTI- Master Plus unit scheme, UTI Pharma & Healthcare Fund, UTI - Software Fund, UTI Basic Industries Fund(Renamed as UTI Infra Fund) and UTI Leadership Equity Fund.

SWATI KULKARNI

Swati Kulkarni joined in UTI in 1992. In the initial six years at UTI, she handled Mutual Fund Research, Market Research, Product Reviews and Quantitative Analysis of Funds Performance. Since 1998, she has been in Funds Management and has acquired a handson experience of analysing companies across industries while assisting the Fund Managers. Swati has managed Balanced Funds and Offshore Equity Funds before moving on to handle Domestic Equity Funds. Currently, she manages:

UTI ETSP UTI MNC

UTI Brand Value Fund UTI Dividend Yield Fund UTI Large Cap UTI VIS ILP The passive index Funds viz.: UTI MIF, UTI NIF and SUNDER UTI NIF holds ICRA GOLD Award signifying the best Index Fund in the industry.

SIDDHARTH DEMBI

Sidharth Dembi joined UTI in 1998.He has worked in the Department of Securities Research prior to joining the Department of Funds Management. He has the experience of tracking various sectors including IT services, Automobiles, and Metals. He was also instrumental in starting the economy and debt market tracking. He is currently managing:

UTI ULIP-71, UTI-CRTS, UTI Equity Fund, UTI Opportunities Fund and UTI Contra fund. UTI Mahila Unit Scheme UTI Childrens Career Plan UTI Retirement Benefit Plan

GAUTAMI DESAI

Gautami Desai joined UTI in 1998.She has worked in Credit Rating Cell for three years and has experience of research in various sectors like construction, engineering, ceramics, textiles, banks, etc. She has been an Assistant fund manager in the Department of Fund Management (Equity) for 4 years and has been actively involved in the fund management activities. She is currently managing:

UTI Mastergrowth, UTI Index Select Fund, UTI Service Sector Fund, UTI PSU Fund, UTI Petro Fund and UTI Banking Sector Fund.

PORTFOLIO MANAGEMENT SERVICES (PMS)

UTI AMC has started a new division to offer Wealth Management Solutions to its clients. The division, operating under the new brand name of Axel, shall offer the entire suite of wealth management solutions to private clients like HNIs, Trusts, Corporates, NRIs etc.

AXEL: Axel is a division of UTI Asset Management Co. Pvt. Ltd., offering 360 0 Wealth Management Solutions to private Clients. Axel aim to understand the financial needs and provide financial solutions to meet those needs. Axel Portfolio Management Service (PMS) is a money and/or securities management service, to manage clients funds /securities on their behalf, as per the agreed terms and conditions.

Regulatory body Axel is registered as a Portfolio Manager with Securities Exchange Board of India (SEBI) under the SEBI (Portfolio Managers) Regulations, 1993 with wide registration number INP 000000860.

Schemes offered by UTI under its PMS UTI is currently offering only Discretionary Portfolio Management services and the schemes offered under this are as follows:

Fixed Fee Portfolio Management Scheme (FF)

Fixed +Variable Fee Portfolio Management Scheme (VF)

Difference between schemes of PMS and Equity schemes of Mutual Funds Mutual Fund schemes are designed with specific investment objectives and the fund manager manages the scheme with these objectives. PMS schemes are managed with the objectives of the individual investor in mind. Besides these, there are other differences that are summarized as follows:-

AXEL PMS Fund Management Portfolio As per clients risk profile Tailor Made

Equity Mutual Funds As per scheme objective Same for all investors within the scheme Predefined Predefined and High Low Medium

Management Fees* Entry/Exit Load Service Level Customization Convenience

Options available Very low or Nil High High

* PMS has fixed fee structure as well as performance based fee structure, whereas Mutual fund has only fixed fee structure.

Benefits with Axel: Axel offers the following:

Fund Management Expertise:

Axel has a rich blend of experience and expertise in fund management to create a portfolio and deliver returns in-sync with clients expectations.

Axel has an experienced & dedicated fund management teams who are equipped with the latest tools of financial management and are well networked to gather vital market information. Research team Axel tracking the individual equities on a daily basis provides fundamental inputs to the fund mangers, strengthening their decision making process.

Service:

Axel Relationship Officer will be at client service and will provide complete information about the PMS account. Client will receive monthly statements of your portfolio, details of securities, expenses and transactions. Client can also view his portfolio details on a daily basis on Axel official website www.utiwms.com using unique username/ID and password, which shall be allotted by Axel. Fund Manager will offer his views and comments on a monthly basis thorough a newsletter.

Efficient Operations:

Axel has the state of art software with a strong and experienced back office team to ensure smooth & efficient operations.

Cost Efficiency:

Fee structure is streamlined for your benefit ensuring a cost-effective relationship over the longer term.

Finally Axel offers, Peace of Mind.

Minimum investment amount in PMS The minimum investment amount is 25 lakhs and no limit on maximum investment.

Minimum investment period in PMS The PMS contract will be for the period of one year after which it needs to be renewed.

Different types of Portfolio Management Schemes: Normally there are three types of schemes under Portfolio Management Services, these are:

Discretionary Portfolio Management Schemes: Under this scheme, portfolio manager has full discretion to manage an investors portfolio without consulting the investor. However investment is made taking into consideration the risk profile of the investor. Non-Discretionary Portfolio Management Schemes: Under this scheme, the portfolio manager seeks an approval from the investor before making any investment decision. The Portfolio Manager based on the risk profile of the client will suggest changes to the portfolio from time to time; however the final decision rests with the client. The Portfolio manager will execute the investment based on instructions from the client and follow up with payments, settlements, custody and other back-office functions. Advisory Services: This is in the Nature of providing advise only and the decision to take action on the advise and execution rests with the client.

Axel currently offering only Discretionary Schemes.

Types of clients who are eligible to enroll for PMS Service offered by Axel: Following are eligible to enroll for Axels PMS services:

Resident High Networth Individuals (HNIs) Non Resident Indians Private limited companies Public Limited companies State Government Central and State government bodies

Trusts etc.

Other services Axel will take complete care of investments in PMS account, including corporate benefits such as rights issue, bonus issue, dividend, interest receipts, payments and custody of shares or other certificates. Axel is planning to induct external tax consultants and legal advisors to help investors on your tax planning and legal issues, with an additional cost.

Construction of a portfolio by UTI-PMS Axel follows best practices and makes the best use of available resources to construct the portfolio of clients. The following factors would play a key role in the construction of portfolio:

Risk Profile of the client Expected Returns Age of the Clients and his beneficiaries Financial Goals (Major, Minor, Immediate and Long-term) Investment Horizon Liquidity Needs Tax Issues Legal and Regulatory factors Clients Unique Needs and Preferences.

The above information will be captured in the IPD (Investor Profiling Document), which will help the Portfolio Manager in the asset allocation of funds.

IPD (Investor Profiling Document)

IPD forms the most critical element of any PMS. This document is in the form of questions, to be answered by clients. The document provides valuable information about:

the client his financial position his requirements expectations

which allows the portfolio manager to understand his investment psychology, his investment objective and create an optimum portfolio for him. With the help of this IPD, Portfolio Manager designs the unique portfolio catering to the needs of this client.

Investment avenues under PMS: The following investment avenues are available:

Equity & equity related products Debt & debt related products Mutual Fund Schemes Derivatives Money Market Instruments

Prior to investing clients money, Axel will indicate the profile based on the IPD submitted by their clients and then invest accordingly.

Level of transparency Axel intends to follow the highest possible level of transparency. Axel will send monthly statement of clients portfolio, transactions during the period and the performance statement. In addition to this, client can also view his portfolio details on

a daily basis on Axel official website www.utiwms.com using unique username and password, which shall be allotted by Axel. INTRODUCTION TO MUTUAL FUNDS:

Mutual Fund: Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unitholders. The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.

BENEFITS OF INVESTING IN A MUTUAL FUND: There are several benefits from investing in a Mutual Fund.

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 analyse the markets and economy to pick good investment opportunities.

 Spreading Risk: An investor with a limited amount of fund might be able to 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.

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 amount 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.

NET ASSET VALUE (NAV) OF A SCHEME:

The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV). In simple words, Net Asset Value is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date. For example, if the market value of securities of a mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the mutual funds on a regular basis - daily or weekly - depending on the type of scheme.

TYPES OF MUTUAL FUNDS

SCHEMES ACCORDING TO MATURITY PERIOD:

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.

Open-ended Fund/ Scheme

An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices, which are declared on a daily basis. The key feature of open-end schemes is liquidity.

Close-ended Fund/ Scheme

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices.

SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

SCHEMES ACCORDING TO INVESTMENT OBJECTIVE:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major Income / Debt Oriented Scheme The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as

Bonds Corporate debentures Government securities Money market instruments

Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long-term investors may not bother about these fluctuations. part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the

options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Balanced Fund

The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

Gilt Fund

These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as are the case with income or debt oriented schemes.

Index Funds

Index Funds replicate the portfolio of a particular index such as the

BSE Sensitive index, S&P NSE 50 index (Nifty), etc

These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.

There are also exchange traded index funds launched by the mutual funds, which are traded on the stock exchanges.

Sector specific funds/schemes

These are the funds/schemes, which invest in the securities of only those sectors or industries as specified in the offer documents. e.g.

Pharmaceuticals Software Fast Moving Consumer Goods (FMCG) Petroleum stocks, etc.

The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.

Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest predominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.

ABOUT MUTUAL FUNDS:

Entry load and exit load

A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund, which are more important. Efficient funds may give higher returns in spite of loads.

Sales or repurchase/redemption price

The price or NAV a unitholder is charged while investing in an open-ended scheme is called sales price. It may include sales load, if applicable. Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases or redeems its units from the unitholders. It may include exit load, if applicable.

Assured return scheme

Assured return schemes are those schemes that assure a specific return to the unitholders irrespective of performance of the scheme. A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document. Investors should carefully read the offer document whether return is assured for the entire period of the scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year.

DISTRIBUTION OF MUTUAL FUNDS:

MUTUAL BANKING: A new concept mutual banking has emerged offering new product and service innovations for the customers who avail of mutual fund products through banks and mutual fund (MF) distribution has become a fashion statement among all banks. With the projected growth rate of 30 per cent in the retail banking space, fee-based income is also expected to grow at a rapid pace. MF distribution by banks is emerging a key element that is fuelling this growth. Alliances between banks and mutual funds have become a daily occurrence. Alliances are arranged, (bank and MF belonging to the same group), between families (bank and MF are standalone entities) and also multiple (one bank ties up with more than one MF).

The result:

One MF launching a co-branded debit card for withdrawal upto specified limits of investments in MF schemes through bank accounts. Maximisation of comfort for the customer, bank and the MF is the basic premise on which these marriages are happening. A scientifically structured business implementation model will reap benefits for all concerned.

Why tie up? MF distribution offers good scope for augmenting fee-based income of banks.

Upfront Commission, Trail (loyalty) Commission,

Mobilisation Incentives, Special Incentives, Collection Charges are the income triggers for New Fund Offers. For a single application, there are multiple revenue streams.

Banks as a distribution channel have huge potential to build and improve the retail side of the investors' universe of MFs, which is skewed towards the institutional side now. There is no other distribution channel for MFs that can offer such a lucrative retail base on a platter by a tie-up. Trained frontline staff of the bank will serve as ready-made marketers for distribution. For the bank, a strike rate of even 10 per cent of the targeted customers will translate into huge volumes for the MFs to encash. Customers are offered a buffet of MF products with different themes and return expectations through the bank, based on their risk appetite. They are also offered counseling support from the bank and the MF personnel.

Top 10 Distributors for UTI all over India

Following are the statistics of the Top 10 Distributors for UTI all over India. Figures are quite indicative of the tremendous potential drawn out of Mutual banking, major being Private Sector banks. PSU Banks are not being made use of appropriately, yet.

Agent Code AV0139 AV0124 AV0148 1001662 AV0129 AV0105

AV0081 1007539

Agent Name STOCK HOLDING CORPORATION OF INDIA LTD HDFC BANK LIMITED ICICI BANK LTD VARUN FINSTOCK PVT LTD. SPA CAPITAL SERVICES LTD. ENAM SECURITIES PVT LTD UTI SECURITIES EXCHANGE LIMITED YES BANK LIMITED

Sale Applns 677 2817 712 611 678 543

Sale Amount 46837581022 10998433554 8173636586 6689735000 4882413203 3665792842

Rep. Applns 129 382 180 242 197 106

Rep Amount 47173113518 9363551252 7550310116 6637897604 4384168541 2369014068

Net Sale -335532495.9 1634882302 623326469.3 51837395.53 498244662.2 1296778774

5053 18

3341348947 3081971970

564 8

2969865286 2933681150

371483661.3 148290820.7

Y00373 AV0128

200128 1001937

DSP MERRILL LYNCH LTD UTI BANK KARVY STOCK BROKING LTD DISTRIBUTION DIVISION BIPUL CHOWDHURY

366 2663

2830614896 2348125462

89 314

2692187235 1869663188

138427660.7 478462273.9

8702 475

2314956832 2183942625

2427 175

2254230485 1587376664

60726346.94 596565961

TRENDS IN MARKETING MUTUAL FUNDS IN INDIA: The changing marketing trends in the mutual fund industry in India can be easily linked and traced to its history of growth. The changes in marketing strategies can be characterised by 4 stages which have evolved along with the growth and evolution of the industry.

Product Focus:

In the Product Focus stage, the aim of the mutual fund companies was to introduce a wide variety of products. The only parameter on which the selling was based was the relative performance of the products. Distribution Focus: Specialist distribution companies such as Karvy, Bajaj Capital, and Integrated Enterprises etc. had emerged. Special focus was given to investor servicing so that investors could experience superior servicing standards from private players. Some groups such as Birla Mutual Fund even set up their own distribution companies (Birla Distribution). While the focus on improved distribution and investor servicing did help the private players and large players like UTI, it had also resulted in a lot of problems. In the rush to gain volumes and thereby commission incomes, the distribution companies many a time sold the wrong product to the wrong customer. A growth product, which invests primarily in risky instruments like equities, was sold to old, retired people looking for regular, steady income as pension. The ensuing dissatisfaction has thus paved the way at last for the most critical area for marketing, the Customer Ownership Focus.

Customer Ownership Focus:

Mutual fund companies began to segment their target customers and position their various products based on the target segment they proposed to address. The target segment was broadly divided into

institutional segment which consisted of

treasury departments of Corporates, Trusts etc,

Where suitable products such as Institutional Income schemes, Money Market schemes and Liquid Schemes were targeted at them where the investment horizon will be from one day to any number of days.

individual investor segment where the individual investor was in turn divided into various segments such as

Young Families with small or no children, Middle-aged People saving for retirement and Retired People looking for steady income.

Suitable products such as Growth and Balanced schemes for young families and Income schemes for retired people were marketed. By proper segmentation and by targeting the right product to the right customer, Mutual Fund companies hoped to win the confidence of their customers and 'own' them for a lifetime.

Specialised Product & Service Focus

If one observes the trends in the recent past, Companies have been taking the above customer focus further by designing and launching specialised products and services. As awareness levels of individual investors go up, focus is on identifying one's investment needs depending on one's financial goals, risk taking ability and time horizon. Investors chose companies, which help them in the above through specialised products and services.

For example, a common financial goal is to save and invest for meeting the education needs of children, UTI Mutual Fund has launched UTI Childrens Career Plan which has been designed to serve this specific need.

A similar such need is planning for a comfortable retirement. UTI Retirement Benefit Plan has launched to cater the above post retirement obligations of the investors.

INHERENT PROBLEMS IN THE DISTRIBUTION SYSTEM:

Absence of well informed, educated selling by financial intermediaries. Limited knowledge based differential distributors typically tend to sellwhat sellsand not whats good or what is required Absence of need based selling. Investment options are today sold as products not as solutions. Direct result of this sale approach has been the practice of selling financial products on the basis of rebates. Due to usage of rebates as sops, investors decision making is primarily based on the rebates they are offered.

Need for the distributors & intermediaries to educate their investors and add value through advice. AMCs are not concentrating on Rural Areas. Lack of Aggressive marketing is the drawback of UTI AMC. Strategic tie-ups with different public sector and private sector banks is another strategy to rapidly expand the distribution network. But there is no follow up whether these targets have been reached or not. There are no deadlines to reach the target. UTI AMC Hyderabad is not cashing the benefits of the Mutual Banking. This can be depicted from the below table of Top 10 Distributors of UTI AMC Hyderabad. On the first glance, it is quite evident from the figures in the table below the unused potential of Mutual Banking; only one PSU Bank being utilized.

Top 10 Distributors for UTI AMC Hyderabad

Agent Code Agent Name Sale Applns Sale Amount Rep. Appln s Rep Amount Net Sale

200128

1007044 1005018 1005838 1004693 1004935 656330 1002399 1004389 P53087 656385 1001304

KARVY STOCK BROKING LTD DISTRIBUTION DIVISION VST DISTRIBUTION STORAGE & LEASING CO PVT LTD ANDHRA BANK SRI LAXMI INVESTMENTS BARLA SHEKAR KALAPALA RAVIKUMAR PADARTHI VENKATA SITA MAHALAKSHMI KORPOL VENKATESHWAR A RAVIKUMAR CHANDRA SEKARAN E C LEELAVATHI R MADHAVEE LATA

8702

2314956832

2427

2254230485

60726346.94

53 3648 291 21 8 8 128 34 191 187 18

308967687.7 229816163 98736355.33 22914500.00 21000000.00 11520000.00 8458623.11 6002000.00 5350050.62 4656351.12 4209000.00

4 335 67 14 8 6 9 5 60 16 20

173081582 254550499 58501020.6 22963980.7 21024775.4 10052657.5 2036047.08 5663606.53 4115900.88 372317.05 5817338.89

135886105.4 -24734335.81 40235334.77 -49480.72 -24775.36 1467342.46 6422576.03 338393.47 1234149.74 4284034.07 -1608338.89

DRIVERS SHAPING THE FUTURE OF THE MF INDUSTRY Some of the drivers that are shaping the industry which are likely to have substantial influence on the marketing strategies of the future are as follows:

The average projected life span of an Indian after retirement (that is, after 60) is expected to go up from 15 years to 20 years. And the number of the elderly (those over 60) is expected to increase significantly from 6.8 per cent of the population in 1991 to 8.9 per cent in 2016 and further to 13.3 per cent by 2026. Pension reform is likely to be a big driver. The Indian Pension Sector is to be thrown open to competitionTHIS IS EXPECTED TO CREATE TREMENDOUS GROWTH OPPORTUNITIES. The government is finalizing guidelines for specialised pension funds to operate in India.

Retirement benefit plan of UTI MF has a very good future.

Advisory services are becoming more critical to investors and Individual Financial Advisors and planners are gaining ground. Banks are planning to enter into advisory services in a big way. An entirely new distribution channel will be created consisting professional advisors who will exert substantial influence on what products customers will buy. This the time for AMCs to form tie-up with different public and private sector banks to capture the market.

As investors turn more aware, either by themselves or with the help of financial Advisors, there will be demand for more specialised products. For example, specialised products hitherto not introduced in India such as hedge funds, derivativebased products, Gold funds. MF companies are catching the trends and introducing the products as per the trends.

Digital marketing: E-commerce is gradually showing signs of gaining acceptance and electronic sale of financial products is especially gaining volumes. There is a likelihood of the volumes reaching a significant size, thereby spawning a new distribution paradigm.

Introduction of EET structure There was a proposal of introducing EET (Exempt Exempt Tax) structure in financial markets. The US experiment of 401 (K) Plan which has an EET structure is a major success and a similar plan could be introduced in India too.

MFs are allowed to float REITs, derivative based commodity funds, GOLD Funds. Mutual Funds now are allowed to float REITs (Real Estate Investment Trusts) ,derivative based commodity funds and Gold Funds. This would help Mutual Funds to provide investment solution to investors across asset classes and facilitate diversification.

Cap on investments in RBI bonds so that investors can look at MFs. RBI Bonds offer a very high interest rate of 8% today. There should be some upper limit specified on the amount to be invested in RBI Bonds so that investor can also then take a look at mutual funds.

Sops to arouse long-term interest in the capital markets Today, an investor with a two-year investment horizon into equities enjoys the same tax incentive that one with a 20-year investment horizon enjoys. We believe that going forward; investors should be given added incentive to stay invested in the capital markets and other investment instruments over long periods of time. This is what will aid the process of transformation from 'savings' to 'investments'.

SEBI should permit AMCs to launch Capital Guaranteed Funds The government through the market regulator SEBI should permit Asset Management Companies to launch capital guaranteed funds so that investors who have not invested in equities (for the fear of losing a part of their capital) start investing in products where the principal is guaranteed with a potential upside of equity returns.

Introduction of Feeder Funds Through the concept of feeder funds the Indian investors should be allowed to take exposures to various global markets. This will enhance diversification and thereby reduce concentration risk of just being restricted to Indian equities.

An Example of marketing Strategy adopted by Reliance AMC: The Reliance fund began leveraging synergies across the group, right from Reliance Energy to Reliance Infocomm.

For instance, the MF was advertised on the electricity bills of Reliance Energy, The Reliance mobile handset became a channel for communication,

As did the Reliance Web World, details of transactions and net asset values could also be accessed through R World, Reliance Infocomm's value-added service.

It is suggested to UTI that it has to find out some tie ups with leading Mobile service companies for up-to-date information about the NAVs of funds to their customers through SMS at a free of cost.

The role of intermediaries will be more critical.

Distribution too, is undergoing a revolution in the Country New ideas & thoughts in processin line with international practices. Moving from Unorganized to Organized. Price & product based selling to Advised based selling. Alternative distribution channels also coming to fore. Segmentation in the market, between the HNIs & retail investorsin line with International norms. Investors are getting more sophisticatedand expect financial counselingprior to the sale.

Growth rates are expected to explodewith the boom, and this is expected to create tremendous job opportunities.

Today, funds of high net worth individuals constitute 85 per cent of the corpus, which perhaps prompted the AMC to flag off its portfolio management scheme (PMS). UTI has tie up with Axel PMS.

GOLD MUTUAL FUNDS:

Gold mutual funds may soon be a reality in India. Securities and Exchange Board of India (SEBI) has cleared the way for introducing Gold Exchange Traded Funds (ETF) in the country. Gold mutual funds offer investors a new, innovative, relatively cost efficient and secure way to access the gold market SEBI has approved two models for launching the product

Under the mutual fund custodian bank integrated model, the physical gold will be held by a custodian bank on behalf of the mutual fund. The mutual fund sells or buys units to a wholesale intermediary based on the value of the gold with the custodian bank. These units will then be traded on stock exchanges and retail investors could buy them from the wholesale intermediary. In case of the mutual fund warehouse receipt model, gold warehouse receipts are held by a custodian bank on behalf of the mutual fund. The mutual fund sells or buys units to a wholesale intermediary based on the value of the gold warehouse receipts with the custodian bank. The wholesale intermediary in turn sells or buys the units to the retail investors on the stock exchange. With this move, India will join the five nation group trading in gold mutual funds.

Trading in gold mutual funds is a relatively new investment class. Presently, gold ETFs are in the New York Stock Exchange (NYSE) in the US, Australia, UK, South Africa and France. NYSE is the largest exchange to attract investors in gold ETF segment. Gold shares are intended to offer investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold. Investors can buy and sell that interest through the trading of a security on a regulated stock exchange.The introduction of gold shares is intended to lower many of the barriers like access, custody, and transaction costs that have prevented some investors from investing in gold. ETFs are similar to index funds but are traded more like a stock. They represent a basket of securities that are traded on an exchange. A Gold ETF will represent gold as the underlying security which will be traded at the trade exchange.

These funds are akin to mutual funds. The only difference being instead of equities and bonds, these funds invest in gold. They apply various financial techniques including arbitrage opportunities to enhance the value of the investments in the funds.

The fund actually buys gold and holds it as the underlying security. A unit in the fund represents one-tenth of an ounce of physical gold. The value of the unit will be at the current global price of gold. The value per unit will be the total value of gold held divided by the number of outstanding units, less the trusts expenses and liabilities. The net asset value (NAV) changes with the gold price. Based on the NAV, investors accounts will be evaluated. For example, if an investor has purchased one unit of gold ETF at Rs 7,000 and if the price shoots up tomorrow to Rs 7,500 along with the NAV, the investor who sells will gain Rs 500, less transaction cost.

Investments through this mode are:

more efficient; cost effective; and convenient as compared to investments directly in gold bullion.

The investors get an instrument to invest and thereby reduce their risks simultaneously with increasing their returns. The funds are managed by professionals and as such the fund managers can make informed decisions. The investment management services provide professional management and maximum return within the framework of chosen risk and reward. Time and pricing models are used to take investment decisions. With the establishment of gold mutual funds, people can own units of gold with a small investment. SEBI is now working out the regulatory framework to facilitate mutual funds offering gold fund units to investor, and also to facilitate trading of these units on the stock exchanges.

MUTUAL FUNDS IN DERIVATIVES MARKETS:

Indian equity market has added one more feather by starting a Derivatives segment in year 2000, since than as on today Derivatives markets has outperformed cash market by leap and frog manner. The derivatives segment of NSE once again found favor in the media recently with SEBI permitting Mutual funds to participate in the Derivatives segment at par with other players like HNI and FII. The recent permission by SEBI for Mutual funds to participate will act much beyond the capacity of traditional hedgers. With this, one thing is sure that Derivatives segment is again set to witness a new round of evolution waiting for many surprises to be unveiled as the opportunity unfolds itself and as the mutual funds gear themselves for the exploitation of the same.

NEED FOR A DERIVATIVES MARKET:

The derivatives market performs a number of economic functions:

They help in transferring risks from risk averse people to risk oriented people They help in the discovery of future as well as current prices They catalyze entrepreneurial activity They increase the volume traded in markets because of participation of risk Averse people in greater numbers They increase savings and investment in the long run.

ROLE OF MUTUAL FUNDS:

Following the recommendations of the Secondary Market Advisory Committee, the SEBI decided to permit the Mutual funds to participate in the Derivatives market at par with Foreign Institutional Investors (FII).

Accordingly, the Mutual funds shall be treated at par with registered FII in respect of positions limits in Index futures, Index options, Stock options and Stock futures contracts. The Mutual funds will be considered as trading members like registered FIIs and the schemes of Mutual funds will be treated as clients like sub-accounts of FIIs.This revised policy will be applicable to all new schemes which are yet to be launched and for existing schemes, the Mutual funds are require to obtain positive consent from the majority unit holders for participation in the Derivatives segment while simultaneously allowing exit option to dissenting members without any load.

Impact Analysis of Mutual funds participation in Derivative segment:

There are following possible impacts of Mutual funds participants will be on Derivatives and Cash segment.

Introduction of structured product regime: As on today the mutual funds had been offering the plain vanilla equity and debt products with add-ons. The new guidelines are likely to facilitate the way for new regime of structured products where the mutual funds will be able to offer hybrid of equity, debt and derivatives products with varied features in terms of risk reward parameters. Some of the new product structures could be:

Limited Loss Products: Hedged products Index based products Fixed Income products

Greater opportunity for Retail Investors to avail advantage in Derivatives: The retail investors will have even more options to choose between various options. It is expected to benefit the retail investors of Derivatives in the same way as the retail investor of equity. The investors will get a chance to diversify their

derivatives portfolio with much lesser investment than otherwise in the form of margin money require in direct derivatives segment. Moreover portfolio will be in the hands of professionals, which will reduce the unsystematic risks. On the other hand the availability of leveraged products at lesser investment would attract and develop new investing community, which are as on today are not investing in Mutual funds due to less risk reward philosophy. In Debt segment also Mutual funds can have cannibalization advantage in which mixture of debt segment and derivatives can keep returns far more favorable and competitive compared to other investment avenues.

Greater liquidity and market depth: Mutual funds are now eligible to take positions in directional bets and not just hedging. By considering various position limits as specified by SEBI, it is likely to add liquidity of Rs. 75000Crore per month which will fuel Derivatives segment activity and Dependence of FII on Derivatives segment can be reduce by greater extend. Currently derivatives segment seems to be underutilized and the open positions are skewed towards the near month contracts. As a result the derivatives segment is yet to reap benefits of numerous strategies particularly the time spread strategies. The infusion of liquidity will encourage trading in lower maturities in both futures and options with relatively lesser impact cost. This will not only improve the market structure but will also open room for applications of more complex strategies, which generally fall within the purview of institutional trade.

Improved Pricing Efficiency: As we know that higher liquidity and greater number of institutional players will improve the pricing efficiency as this will lead to enhanced market making which is currently not present in middle and far month contracts. After the permission to Mutual funds to trade in Derivatives segment options segment will be major beneficiary as market making institution will reduce the bid ask spreads in all the maturations. This will be a boon for retail investors who will get more opportunity for investment in options.

Decline in arbitrage opportunities: Efficient market making will lead to greater pricing efficiency. This will shrink the spread between the spot and the derivatives segment, which will virtually eliminate the arbitrage opportunities between the two. Hence this may prove tough for the arbitrageurs and the arbitrage mutual funds. However liquidity in options across the entire horizontal (price) and vertical (time) spectrum may give rise to synthetic and cross arbitrage opportunities.

Undue market volatility towards settlement With directional investments coming in from mutual funds after this permission, the derivatives settlement cycles are likely to be exceptionally volatile and choppy. Unwinding of large open positions towards the expiry will induce additional volatility in the markets. The stocks where the liquidity is currently limited will also come in the ambit of higher activity and trading interests due to large liquidity flowing into their derivatives instruments. This will give way to good trading opportunities in relatively smaller stocks too. Higher volatility is further expected to improve the pricing in the options segment.

Conclusion: Thus it is to conclude that permitting Mutual funds to trade in Derivatives segment will not only benefit retail investors to hedge their positions without directly burning their fingers in highly volatile and risky Derivatives segment, but also other players like HNI and FII will also benefit due to much needed liquidity in Derivatives segment. Finally, only time would decide the success and failures of Mutual funds trading in derivatives market - till that period of time everyone will eagerly watch the whole drama which is about to unveil for a bright future of Derivatives from Mutual funds side. UTI MF is about to launch a NFO named as SPREAD FUND which is to be traded in Derivatives segment.

Budget '06 - Mutual Fund:

Security Transaction Tax:

As per the current provisions, STT is payable by the investors at the time of redemption of units from the fund as well as on purchase/sale of units of ETFs on the exchange. STT should not be levied on these units issued by equity schemes of mutual funds and units of exchange traded funds to a multiple taxation.

Equity oriented Fund-of-Funds should attract equity taxation

Investment in the "fund of funds"(FOF), which invests in equity schemes of Mutual Funds, should also be extended the same preferred treatment of taxation which is applicable to the equity schemes, and not debt taxation as is prevalent today.

DDT on non-equity scheme for retail should be reduced

In the case of dividend distribution tax on non-equity scheme, the rate is 14% for retail and 22% for corporate. The rate for the retail should be reduced so that it becomes more competitive for the common man to invest in debt schemes.

Zero dividend tax should be extended to close ended schemes

Zero dividend tax, which is currently available only for open-ended equity schemes, should be extended to close ended schemes as well.

Clarification on short-term capital gains tax for NRIs

The industry wants the finance ministry to clarify whether the short term capital gains tax for NRIs has to be 30% according to an old Section 95 or 10% according to new Section 11 A.

Mandate of mutual funds should be extended to include pensions

Allowing pension funds in mutual funds should give a boost to the industry. This will be another source of channelising long-term savings into the financial markets.

Long Term Capital Gains Tax structure should continue, in the existing form

Debt funds should get same tax structure as equity based mutual funds

Debt funds should get the same tax structure as the equity based mutual funds. A larger inflow into the debt mutual funds would also lead to higher liquidity in the corporate and Govt. bond markets. In fact a vibrant debt market is the need of the day, more so with the rising need of funds for infrastructure.

More conducive norm for Fund Industry to invest in overseas securities

Mutual Funds can invest only in those companies abroad, which have atleast 10% stake in listed companies in India. This criterion restricts the universe of companies to about 50. The Fund industry could better serve Indian investors, if the norm were more conducive.

Separate ELSS investment limit under section 80(C)

Under section 80 (C), investments in ELSS schemes, upto Rs 100000 is deductible for calculation of taxable income. To encourage more investors to participate in equity markets, there should be a separate ELSS investment limit under section 80 (C).

OPTIMIZING TAX USING MUTUAL FUNDS: Mutual Funds by their very nature are not tax saving instruments but investment products that offer tax concessions.

Equity Linked Savings Schemes (ELSS):

ELSS schemes give twice the benefit as compared with diversified equity schemes. They give tax sops on investments and are also exempt from long term capital gains tax. These are special equity funds, which have to invest at least 80% of their corpus in equity, and investments are locked in for a period of 3 years. These Investments can get you benefits under Section 80 C i.e. investments of upto Rs 1 lakh in such schemes can be reduced from your gross income. ELSS is the best example of an investment option that provides very simple way of investing in stock market and save taxes. Being equity oriented schemes, ELSS have the potential to provide better returns than most of the options under section 80C.

Equity Funds:

Apart from ELSS schemes, diversified equity schemes are a good investment considering that capital gains in equity funds below one year are taxed at a rate of 10% and over a year are tax-free. This option can be best exercised using a Growth Plan offered by mutual funds. The primary objective of a Growth Plan is to provide investors long-term growth of capital.

Dividend paid in Dividend Plans is tax free, and no distribution tax is deducted. However, every time we buy or sell equity shares a Securities Transaction Tax, STT, of 0.25% is paid and further when you redeem your investment, again STT is deducted from your redemption price.

Debt Funds :

Debt funds have lost their sheen, thanks to falling interest rates and paling tax sops when compared with equity schemes. Any fund wherein the average holding in equity is 65% (as per Budget 2006) or below is treated as a debt fund. If the investment is for less than 1 year in the growth option of a debt fund, then Capital Gains Tax has to be paid on "profits" at the rate at which income tax has paid on income. But, if it is more than a year, then either pay 10% tax on the profits or pay 20% after reducing the rate of inflation (indexation benefit). So if the investment is for three or four years, tax may become much, much lower than 10%. TRACKING ERROR RISK: Tracking error is defined as the annualised standard deviation of the difference in returns between the Index fund and its target Index. The tracking error is, therefore, the fluctuation in the differential returns between the index fund and its benchmark.

In simple terms, it is the difference between returns from the Index fund to that of the Index. An Index fund manager needs to calculate his tracking error on a daily basis especially if it is open-ended fund.

Lower the tracking error, closer are the returns of the fund to that of the target Index. A low standard deviation of the tracking error means the fund has been able to consistently track the index. If not, the fund is running a high tracking-error risk.

Tracking Error is always calculated against the Total Returns Index which shows the returns on the Index portfolio, inclusive of dividend. Tracking error measures how the index fund has performed vis--vis its benchmark. Suppose the Nifty index returns 4 per cent in a month, while the index fund benchmarked to the Nifty returns only 3.5 per cent, the fund is said to have a tracking error. If the fund generates 5 per cent returns instead: The fund still has a tracking error. The reason is that the fund has promised to perform only as well as the index. That it has returned more than the index suggests the fund manager may have taken greater risk. And that is not good for the unit-holders.

TRACKING ERROR INDICATES:

How closely the fund is tracking the Index:

Tracking Error indicates how close the weightages of the stocks in the portfolio are to the weightages of the stocks in the Index. Closer the weightage of the stocks in the portfolio to the Index, lower will be the tracking error. The factors that affect tracking error are inflows / outflows in the fund, corporate actions, change of Index constituents and the level of cash maintained in the fund for liquidity purposes.

The cost that routinely subtracts from fund returns:

Expenses like transaction costs including broker commission, bid and ask spread, etc. gets subtracted from the returns of the fund.

Higher the expenses incurred, greater will be the tracking error.

CALCULATION OF TRACKING ERROR:

Step 1:Obtain the NAV values and the TR Index values for each day of the total time period required Step 2:Calculate the percentage change in the NAV and TR Index for each day over its previous day

Percentage change in the NAV

NAV as on day (t) NAV as on day (t-1) = -------------------------------------------------------------NAV as on day (t-1)

Step 3:Calculate the difference between the percentage change in the NAV and the percentage change in the TR Index for each day Step 4: Calculate the standard deviation of the difference obtained from day (1) to day (n) in Step 3. Step 5: Calculate the annualised tracking error as per the formula given below.

Annualised tracking error = Standard deviation obtained (Step 4) *sqrt (250)

REASONS OF TRACKING ERROR:

Expenditure incurred by the fund:

Ideally all the corpus of the fund has to be invested in the securities of the benchmarked Index as the objective of the scheme is to mimic the returns of the underlying index. But it is not possible, as the Fund has to incur expenses towards its day to day management, transaction fees payable at the time of purchase or sale of securities, etc. The expenditure of the fund has to be met out of the corpus of the fund which means that the fund will invest less funds than what it has collected. This in turns affects the returns as the fund will receive returns only on the amount which is invested. Hence, the lower the expenditure incurred by the fund, the lower will be the tracking error.

Cash balance:

Ideally, the full corpus of the fund has to be invested in the underlying index. But this may not be possible due to the funds obligation to meet requests for redemption, receipt of dividend, etc.The fund has to set aside some amount of its corpus to meet the redemption request. As the redemption has to be made within a few days, the fund has to hold cash or other short terms assets which enable it to convert such instrument in cash and therefore is not able to investment all its corpus. Further, the fund may receive dividend on the shares held by it which should again be invested in the constituents of the benchmarked index as soon as possible. If the fund is not able to invest such dividend then it holds more cash than required and hence its returns would be affected. Similar is the cash of subscription for purchase of units of the fund. So when the funds hold more cash, it has that much less to invest in the underlying index and thus it leads to mismatch in the returns. It should be the endeavour of the fund to keep the right amount of cash which at the same time can provide for redemption request and should not be ideal.

Underlying securities breaching the upper or lower circuit:

The fund has to re-balance its investment for which it has to buy or sell securities. Sometimes, it may happen that the fund is not able to buy or sell the underlying securities

due to circuit filters imposed on them. Hence, the fund is not able to hold the required number of securities which could lead to it not mimicking the index fully. It may also happen that due to the circuit filters the fund is not able to buy or sell securities at the desired price or at the same time when the rest of the underlying securities are purchase or sold. It might have to pay more to buy and receive less amount when it sells. This leads to distortion in the allocation of fund available to the portfolio of stocks.

Giving effect to the corporate actions:

Whenever there is a corporate action such as debenture or warrant conversion, rights, merger, change in constituents, bonus, forfeiture, preferential issue, etc. the fund has to realign its portfolio to the benchmarked Index which leads to buying and selling and which add up to the expenditure which again affect the returns of the fund. During this period, the Index is representing with the benefit but the Fund isnt. Sometimes if there is a redemption pressure or fresh investment during this period then it would be difficult for the fund arrive to at the precise portfolio to be sold or purchased as presently its Scheme does not truly reflect the benchmarked Index.

Rounding off of quantity of shares underlying the index:

As mentioned earlier, an Index Fund has to invest in the securities of the benchmarked Index in the same proportion or weightage of the security as it has in the Index. However, while determining the number of shares that need to be purchased for each security, one would need to round off this number as the minimum number of shares that can be purchased on the exchange is 1.

MEASURE TO BE ADOPTED TO REDUCE TRACKING ERROR:

The methods mentioned below are only indicative and the Fund Manager has to choose various methods which he thinks is the best for his scheme.

As mentioned earlier, some amount of cash has to be held by the fund. These cash reserves do not generate any returns. A number of techniques may be used to handle the flow of cash into an Index Fund such as:

Use of index futures:

Index Fund managers in order to keep their funds fully invested can use futures contract. The asset allocated to futures contract will obtain the same rate of return as the Index and the entry in and out of the futures can be made at a very low cost. Cash derived from dividend or fresh subscriptions can be used to invest in futures contracts till a short period till reinvestment is made in the stocks. When the cash reaches a size that is sufficient to invest in the securities, the futures position can be closed and funds can be invested.

Temporarily investment into fixed income securities: The cash held by the fund for liquidity purposes or divided received can be invested in short term money market instruments carrying fixed income or in the call money market. Thus the cash held for meeting the exigencies can be used to generate returns by investing in the above instruments. This would reduce the risk of the fund being hit on tracking error as these investments would be providing a return.

Stock Lending:

The stocks held by the fund can be used for Stock Lending as per the scheme laid down by SEBI. This is turn would generate return for the fund and would help in reducing tracking error.

MUTUAL FUND OFFER DOCUMENT:

Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing. Its an open secret that this 80 to 100 page bulky document is not simple to read and the legal information it contains is not easy to understand for most investors.

OFFER DOCUMENT: It is a prospectus that details the investment objectives and strategies of a particular fund or group of funds, as well as the finer points of the fund's past performance, managers and financial information. Investors can obtain these documents from fund companies directly, through mail, e-mail or phone and also through website of fund companies. SEBI has prescribed minimum disclosures in the offer document. The application form for subscription to a scheme is an integral part of the offer document. An investor, before investing in a scheme, should carefully read the offer document.

KEY INFORMATION MEMORANDUM (KIM): An abridged form of offer document called as Key Information Memorandum (KIM) which contains very useful information is required to be given to the prospective investor by the mutual fund.

IMPORTANT THINGS TO READ IN AN OFFER DOCUMENT:

Date of issue:

First, verify that OD is an up-to-date edition. An OD must be updated at least annually.

Minimum investments:

Mutual funds differ both in the minimum initial investment required, and the minimum for subsequent investments. For example, equity funds may stipulate Rs 5000 while Institutional Premium Liquid Plans may stipulate Rs 10 crore as the minimum balance.

Investment objectives:

The goal of each fund should be clearly defined from income, to long -term capital appreciation. The investors need to be sure the fund's objective matches their objective.

Investment policies:

An OD will outline the general strategies the fund managers will implement. Investors will learn what types of investments will be included, such as government bonds or common stock. The prospectus may also include information on minimum bond ratings and types of companies considered appropriate for a fund. Be sure to consider whether the fund offers adequate diversification.

Risk factors:

Every investment involves some level of risk. In an OD, investors will find descriptions of the risks associated with investments in the fund. These help investors to refer to their own objectives and decide if the risk associated with the fund's investments matches their own risk appetite and tolerance.

Past Performance data:

ODs contain selected per-share data, including net asset value and total return for different time periods since the fund's inception. Performance data listed in an OD are based on standard formulas established by SEBI and enable investors to make comparisons with other funds. Investors should keep in mind the common disclaimer, "past performance is not an indication of future performance".

They must read the historical performance of the fund critically, looking at both the long and short-term performance. When evaluating performance, investors must look at the track record of a fund over a time period that matches their own investment goals. They must check that the benchmark chosen by the fund to compare its relative performance is appropriate. In addition, investors should keep in mind that many of the returns presented in historical data don't account for tax. They must look at any fine print in these sections, as they should say whether or not taxes have been taken into account.

Fees and expenses:

Mutual funds have two goals: to make money for themselves and for Investors, usually in that order. Entry loads, exit loads, switching charges, annual recurring expenses, management fees, and investor servicing costs, these all add up over time.The OD lists the limits on these fees and also shows the impact these have had on the fund investment historically.

Key Personnel esp. Fund Managers:

This section details the education and work experience of the key management of the fund company, including the CEO and the Fund Managers. Investors get an idea of the pedigree and vintage of the management team. The performance of such a fund can be credited not to the present manager, but to the previous ones. If the current manager has been managing the fund for only a short period of time, investors need to look into his or her past performance with other funds with similar investment goals and strategies. Only then can they get a better gauge of his or her talent and investment style.

Tax benefits information:

Mutual funds enjoy significant tax benefits under Sec 23 D and Sec 115.

Equity funds enjoy Nil long terms capital gains and nil dividend distribution tax benefits. A close reading of the tax benefits available to the fund investors will enable them to plan their taxes better and to enhance their post tax returns.

Investor services:

Shareholders may have access to certain services, such as automatic reinvestment of dividends and systematic investment/withdrawal plans. This section of the OD, usually near the back of the publication, will describe these services and how one can take advantage of them.

Conclusion After reading the sections of the OD outlined above, investors will have a good idea of how the fund functions and what risks it may pose. Most importantly, they will be able to determine if it is right for their portfolio. If investors need more information beyond what the prospectus provides, they can consult the fund's annual report, which is available directly from the fund company or through a financial planner. RISK FACTORS:

Mutual Funds and securities investments are subject to market risks and there can be no assurance or guarantee that the Schemes objectives will be achieved. As with any investment in securities, the Net Asset Value of Units issued under the Schemes may go up or down depending on the various factors and forces affecting the capital market. Past performance of the Sponsors/ AMC/ Mutual Fund/ Schemes and its affiliates do not indicate the future performance of the Schemes of the Mutual Fund. The Sponsors are not responsible or liable for any loss or shortfall resulting from the operations of the Schemes beyond their contribution of Rs.10,000/- each made by them towards setting of the Mutual Fund.

The Names of the Schemes do not in any manner indicate either the quality of the Schemes or their future prospects and returns. Investors in the Schemes are not being offered any guarantee / assured returns.

PLEASE READ THE OFFER DOCUMENTS CAREFULLY BEFORE INVESTING.