Study of Tax Saving Schemes in Mutual Funds MBA Project

STUDY OF TAX SAVING SCHEMES IN MUTUAL FUNDS IN ICICI PRUDENTIAL LIFE INSURANCE CO. LTD.

Project submitted in partial fulfillment for the award of the Degree of MASTER OF BUSINESS ADMINISTRATION

DECLARATION I here by declare that the project report titled “Study of Tax Saving Schemes in $usiness before utual

!unds" prepared under the guidance of ##### and submitted by me to the Department of anagement #####% is a bonafied wor& underta&en by me and it is not submitted to any other 'niversity or Institution for the award of any degree(certificate or published any time

)

ACKNOWLEDGEMENT

I ta&e this opportunity to express my deep and sincere gratitude to #### *'nit

anager+ of

I,I,I Prudential -ife Insurance ,o.-td.% #### $ranch for his gesture of allowing me to underta&e this project and its various employees who lent their hands towards the completion of this study I would li&e to than&s and gratitude to my !aculty of !inance #### for their &ind cooperation and made it easy for me to complete this assignment. /e wish and express my heart full gratitude to the project guide for the guidance and suggestions throughout the project% without which we would not have been able to complete this project successfully. /e extend my than&s to all my friends for their moral support and encouragement. -ast but not least we than& my parents and relative who inspired us always to do the best. ######

0

CHAPTER I

INTRODUCTION

1

MUTUAL FUND INDUSTRY An Overview The mutual fund industry in india began with the setting up of the 'nit Trust of india *'TI+ in )231 by the 4overnment of India. Till the year 0555% 'TI has grown to be a dominant player in the industry with the assets of over 6s. 73%897 crores as of arch 1)% 0555. the 'TI is governed by a special legislation% the 'nit Trust of India :ct% )231. in )2;7 public sector ban&s and insurance companies were permitted to set up mutual funds. :lso the two insurance companies -I, and 4I, established mutual funds. Securities <xchange $oard of India *S<$I+ formulated the utual !und *6egulation+ )221% which for the first time established a comprehensive regulatory framewor& for the mutual fund industry. Since then several mutual funds have been set up by the private and the joint sectrors. Gr w!" # M$!$%& F$n'( The Indian utual !und has passed through three phases. The first phase was between )239 and )2;7 and the only player was the 'nit Trust of India% which had a total assets of 6s. 3755 crores at the end of )2;;. The second phase is between )2;7 and )221 in which period ; funds were established *3 by ban&s and one each by -I, and 4I,+. The total assets under management had grown to rs. 3)50; crores at the end of )229 and the number of schemes were )37.

9

INTRODUCTION The third phase began with the entry of private and foreign sectors in the industry in )221. =othari Pioneer sector in association with a foreign fund. :t the end of financial year 0555 *1) st utual !und

utual !und was the first fund to be established the private arch+ funds were

functioning with 6s. ))1558 crores as total assets under management. :s on :ugust end 0555 there were 11 funds with 12) schemes and assets under management with 6s. )50;92 crores. :s you probably &now% mutual funds have become extremely popular over the last 05 years. /hat was once just another obscure financial instrument is now a part of our daily lives. ore than ;5 million people% or one half of the households in :merica% invest in mutual funds That means that% in the 'nited States alone% trillions *yes% with a >T>+ of dollars are invested in mutual funds. In fact% to many people% investing meaying mutual funds. :fter all% it?s common &nowledge that incesting in mutual funds is *or at least should be+ better than simply letting your cash waste away in a savings account% but% for most people% that?s where the understanding of funds ends. It doesn?t help that mutual fund salespeople spea& a strange language that% sounding sort of li&e <nglish% is interspersed with jargon li&e <6% NPS% load(noAload% etc.

Briginally mutual funds were heralded as a way for the little guy to get a piece of the mar&et. Instead of spending all your free time buried in the financial pages of the /all Street Cournal% all you have to do is buy a mutual fund and you?d be set on your way to financial freedom. :s you might have guessed% it?s not that easy. utual funds are an excellent idea in theory% but% in reality%

8

they haven?t always delivered. Not all mutual funds are created eDual% and investing in mutuals isn?t as easy as throwing your money at the first salesperson who solicits your business.

OB)ECTIVES ? To study the tax savings scheme on mutual funds% its performance in the mar&et% and its exposure to stoc&. ? To study the potential of mutual funds in I,I,I Prudential life insurance co.ltd. ? To analyse the performance of various mutual funds schemes and suggests the best one. RESEARCH METHODOLOGY SOURCES OF DATA* ? Secondary dataEThis data has been collected from the financial reports and statements of the company.

LIMITATIONSE ? The study is limited to the mutual !und of I,I,I prudential life insurance. ? It studies about its performance and tax savings. ? The duration of the study is limited.

3

CHAPTER+,

LITERATURE REVIEW

7

Hi(! r- # !"e In'i%n M$!$%& F$n' In'$(!rThe mutual fund industry in India started in )231 with the formation of 'nit Trust of India% at the initiative of the 4overnment of India and 6eserve $an&. The history of mutual funds in India can be broadly divided into four distinct phases Fir(! P"%(e . /012+34 5UTI MONOPOLY6 :n :ct of Parliament established 'nit Trust of India *'TI+ on )231. It was set up by the 6eserve $an& of India and functioned under the 6egulatory and administrative control of the 6eserve $an& of India. In )27; 'TI was deAlin&ed from the 6$I and the Industrial Development $an& of India *ID$I+ too& over the regulatory and administrative control in place of 6$I. The first scheme launched by 'TI was 'nit Scheme )239. :t the end of )2;; 'TI had 6s.3%755 crores of assets under management. Se7 n' P"%(e . /034+/008 5En!r- # P$9&i7 Se7! r F$n'(6 )2;7 mar&ed the entry of nonA 'TI% public sector mutual funds set up by public sector ban&s and -ife Insurance ,orporation of India *-I,+ and 4eneral Insurance ,orporation of India *4I,+. S$I ban& utual !und was the first nonA 'TI utual !und established in Cune )2;7 followed by ,an utual !und *:ug ;2+% Indian $an& utual utual !und *Bct 20+. -I, established its utual !und *Dec ;7+% Punjab National $an&

!und *Nov ;2+% $an& of India *Cun 25+% $an& of $aroda

;

mutual fund in Cune )2;2 while 4I, had set up its mutual fund in December )225.:t the end of )221% the mutual fund industry had assets under management of 6s.97%559 crores. T"ir' P"%(e . /008+,::8 5En!r- # Priv%!e Se7! r F$n'(6 /ith the entry of private sector funds in )221% a new era started in the Indian mutual fund industry% giving the Indian investors a wider choice of fund families. :lso% )221 was the year in which the first utual !und 6egulations came into being% under which all mutual funds% except 'TI were to be registered and governed. The erstwhile =othari Pioneer *now merged with !ran&lin Templeton+ was the first private sector mutual fund registered in Culy )221. The )221 S<$I * utual !und+ 6egulations were substituted by a more comprehensive and revised utual !und 6egulations in )223. The industry now functions under the S<$I * utual !und+ 6egulations )223. The number of mutual fund houses went on increasing% with many foreign mutual funds setting up funds in India and also the industry has witnessed Several mergers and acDuisitions. :s at the end of Canuary 0551% there were 11 mutual funds with total assets of 6s. )%0)%;58 crores. The 'nit Trust of India with 6s.99%89) crores of assets under management was way ahead of other mutual funds. F $r!" P"%(e . Sin7e Fe9r$%r- ,::8 In !ebruary 0551% following the repeal of the 'nit Trust of India :ct )231 'TI was bifurcated into two separate entities. Bne is the specified 'nderta&ing of the 'nit trust of India with assets under management of 6s.02%;18 crores as at the end of Canuary 0551% representing broadly% the assets of 'S 39 scheme% assured return and certain other schemes. The Specified 'nderta&ing of 'nit Trust of India% function under an administrator and under the rules framed by 4overnment of India and does not come under the purview of the utual !und 6egulations. The second is the 'TI utual !und -td% sponsored by S$I% PN$% $B$ and -I,. It is registered with S<$I and functions under the utual !und 6egulations. /ith the bifurcation of the erstwhile 'TI which had in arch 0555 more than 6s. 73%555 crores of assets under management and with the setting up of a 'TI utual !und% conforming to the S<$I utual !und 6egulations% and with recent mergers ta&ing place among different private sector funds% the mutual fund industry has entered its current phase of consolidation and growth. :s at the end of Cune 15% 0551% there were 1) funds% which manage assets of 6s. )59730 crores under 173 schemes.

2

The graph indicates the growth of assets over the year

)95555 A )05555 G )55555A ;5555 G 35555 G 95555 G 05555 G 08 5
F

6s. in crores

GROWTH IN ASSETS UNDER MANAGEMENT

)0);58 F 209 ;7)25 2511; F 72939 F F F F )59730

F 97555 9839 F

)5

Phase II

arA;7

Phase I

marA38

))

Phase I@ Since !eb 51 H<:6S

NoteE /hile 'TI was bifurcated into 'TI

utual !und and the Specified 'nderta&ing

of the 'nit Trust of India effective from !ebruary 0551. The :ssets under management of the Specified 'nderta&ing of the 'nit Trust of India has therefore been excluded from the total assets of the industry as a whole from !ebruary.

Tren' in M$!$%& F$n'( In'$(!rThe Indian utual fund industry% despite all that has been said about it is still in a nascent

stage and has extremely bright future ahead. The industry is still oneAtenth siIe of the ban&ing deposits in the country. The private sector mutual fund industry in its resent JavatarK is barely 7 years old. The total asset under management over the past 9 to 8 tears has almost remain stagnant around the 6s )55% 555 crore mar&. This has put a Duestion mar& in front of the claims that mutual funds are growing part of the financial savings and planning industry in India. It holds scope for growth. In India this industry began with the setting up of the 'nit Trust Bf India *'TI+ in )239 by the government of India in order to mobiles small saving. During the past 17 years% 'TI has grown to be a dominant player in the industry with assets with over 6s 73%897 crore as of 6s 93%123 crore. arch0555. Lowever% trouble hit 'TI has lost its dominant position in the industry and the asset under management has slipped drastically to

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Private sector mutual funds% which were permitted along with foreign partners in )221% now enjoy a dominant position in the country. =othari Pioneer utual fund was the first fund to be established in the private sector with foreign fund. The private sector now controls around 6S 98%; crore assets under management% almost half the siIe of the industry. The mutual fund industry has become a fastest growing sector in the countryKs capital and financial mar&et with an average compounded growth rate of 05 percent over the past five years. This is despite increasing competition with more than 15 asset management companies for investorKs money. :s on Cune 0550% the industry has 6s )55%751 crore asset under management spread across 13 funds with more than 125 schemes. <xchange $oard of India *S<$I+ came out with comprehensive regulation in )221% which defined the structure of the mutual fund and asset management% ,ompanies for the first time. “The industry is in the process of evolving into a bigger and better investment medium for all mar&et segment"% Say =avita Lurry% ,<B IN4 Investment around 6s.139 crore as on Cune 0550. Dr%(!i7 Tr%n(# r;%!i n* The industry is undergoing a transformation and is witnessing large number of mergers% acDuisitions and ta&eovers in the schemes and asset management companies. utual fund products are competing with the ban&s deposits% 6eserves $an&s of India *6$I+ bonds% pension funds and post offices schemes that provide not only guaranteed return but also taxAfree returns. Lowever% mutual funds are unable to provide assured return since they are investing in financial mar&ets and returns from them are% by definition% uncertain. These transformation benefiting the investor friendly openAended schemes% increasing the range of funds to choose from% enhanced transparency and improvement regulation. M%r<e! Tren'(* : lone 'TI with just one scheme in )239 now competes with as many as 955 odd products and 19 players in the mar&et. In spite of the stiff competition and losing mar&et share% 'TI still remains a formidable force to rec&on with. anagement% further% currently% IN4 Investments manages

)1

-ast six years have been the most turbulent as well as exiting ones for the industry. New players have come in% while others have decided to close shop by either selling off or merging with others. Product innovation is now passM with the game shifting to performance delivery in fund management as well as service. Those directly associated with the fund management industry li&e distributors% registrars and transfer agents% and even the regulators have become more mature and responsible.

The industry is also having a profound impact on financial mar&ets. /hile 'TI has always been a dominant player on the bourses as well as the debt mar&ets% the new generations of private funds% which have gained substantial mass% are now seen flexing their muscles. !und managers by their selection criteria for stoc&s have forced corporate governance on the industry. $y rewarding honest and transparent management with higher valuations% a system of ris&Areward has been created where the corporate sector is more transparent then before. !unds have shifted their focus to the recession free sectors li&e pharmaceuticals% ! ,4 and technology sector. !unds performances are improving. !unds collection% which averaged at less than 6s)55bn per annum over fiveAyear period spanning )221A2; doubled to 6s0)5bn in )22;A22. In the current year mobiliIation till now have exceeded 6s155bn. Total collection for the current financial year ending arch 0555 is expected to reach 6s985bn.

/hat is particularly noteworthy is that bul& of the mobiliIation has been by the private sector mutual funds rather than public sector mutual funds. Indeed private in the case of public sector funds. utual funds are now also competing with commercial ban&s in the race for retail investorKs savings and corporate float money. The power shift towards mutual funds has become obvious. The coming few years will show that the traditional saving avenues are losing out in the current scenario. any investors are realiIing that investments in savings accounts are as good as loc&ing up their deposits in a closet. The fund mobiliIation trend by mutual funds in the current year indicates that money is going to mutual funds in a big way. The collection in the first half of the financial year )222A0555 matches the whole of )22;A22. !s saw a net inflow of 6s. 72.19 crore during the first nine months of the year as against a net inflow of 6s. 359.95 crore

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ASSET MANAGEMENT COMPANIES

I II

) ) 0 1 9

'TI :sset $B$ :sset PN$ :sset S$I !unds 4I, :sset

anagement ,o. -td. anagement Services -td. anagement Services -td. anagement ,o. -td. anagement -td. anagement ,o -tdN anagement ,o. -td. anagement ,o. -td. anagement ,o. -td.

$:N= SPBNSB6<D ,anban& Investment

III ) 0 1 9 I@ ) 0

INSTIT'TIBNS Idbi Principal :sset I- O !S :sset

Ceevan $ima Sahayoog :sset P6I@:T< S<,TB6 $enchmar& :sset

anagement co. -td. anagement ,o. -td.

,holamandalam :sset

)8

1 9 8 3 7 @ ) 0 1 9 8 3 @I ) 0 1 9 8 3 7 ; 2 )5 ))

<scorts :sset C. .,apital =ota&

anagement -td. anagement Pvt. -td. anagement ,o. -td. anagement -td.

ahindra :sset

6eliance ,apital :sset Sundaram :sset

anagement ,ompany -td. anagement ,o. -td. anagement ,o. -td. anagers -td.

CBINT @<NT'6<SAP6<DB IN:NT-H INDI:N $irla Sun -ife :sset ,redit ,apital :sset DSP !irst Indian LD!, :sset

errill -ynch !und

anagement Private -td. anagement ,o. -td. anagement Private -td.

Tata TD /aterhouse :sset

CBINT @<NT'6<SAP6<DB IN:NT-H !B6<I4N :lliance ,apital :sset Deutsche :sset LS$, :sset anagement *India+ Pvt. -td. anagement *India+ Pvt. -td. anagement *India+ Pvt. -td. anagement *India+ Pvt. -td. anagement Pvt. -td.

Dundee Investment management O 6esearch *Pvt.+ -td. IN4 Investment

organ Stanley Dean /riter Investment Standard ,hartered :sset Sun ! O , :sset Templeton :sset Purich :sset

Prudential I,I,I :sset management ,o. -td. anagement ,o. Pvt. -td. anagement *India+ Pvt. -td. anagement *India+ Pvt. -td.

anagement ,o. *India+ Pvt. -td.

VALUE CHAIN

:s a business organisation% a mutual fund management company or fund complex *firm+ underta&es a series of activities designed to generate value ofr its customers. $y arraying a firmKs strategically important activities% one can construct a firmKs value chain representation. This analytic tool has been advanced by Mi7"e%e& P r!er. In grouping a firmKs activities the analyst

)3

must consider the manner in which the economies of various activities differ and how rivals distinguish themselves on the basis of these activities. /e identify five lin&s in the value chain for a typical mutual fund% as shown in the figure *previous page+. The #ir(! %7!ivi!- i( !"e inve(!;en! (e&e7!i n. utual funds implement their investments strategy through their selection of security holdings. !unds vary in the amount of latitude they grant to portfolio managers. Investments may be dectated completely by fund charter% as is done in an SO P 855 index fund%or security selection may be left completely to the fund managerKs discretion% as in a growth fund. To support this function% funds reDuire research which may be conducted inA house or purchased from vendors either with cash or with softAdollar payment from bro&ers. The ne=! %7!ivi!- i( !r%'in> %n' e=e7$!i n. Bnce the decision has been made to buy or sell a particular security% a trade must be executed in the capital mar&ets. This process involves not only getting the best price for the security% but also administering bac&office functions such as custodial servies. This particular lin& in the chain may seem minor at first glance% trading and execution expertise are increasingly being recognised as critical activities. The !"ir' i!e; in the chain is customer record &eeping and reporting. This refers to the tas&s performed by transfer agents and to the activities and resources reDuired to produce periodic statements for funds share holders. The # $r!" %7!ivi!-? ;%r<e!in> %n' 'i(!ri9$!i n? describes how the funds communicate with potential customers and sell their products. Traditionally% openAended mutual funds were categoriIed as either noAlaid funds used print and electronic media% word of mouth% and mailing to appeal to consumers directly whereas load funds hired sales people to mar&et and sell their products. To pay the sales people% load funds charged customers oneAtime fees% called “loads". The #in%& %7!ivi!- in our value chain is inve(! r &i@$i'i!- (ervi7e(. $y this we mean the activities funds underta&e to permit investors to switch among various investment or to liDuidate portfolios.

SYSTEMATIC PORTFOLIO MANAGEMENT The goal of portfolio management is to assemble various securities and other assets into portfolios that address investor needs and then to manage those protfolios so as to achieve investment objectives. The investorKs needs are defined in term of ris&% and the portfolio manager maximiIes return for investment underta&en. A A((e! %&& 7%!i n

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Security selection within asset classes asset allocation can best be characteriIed as the blending together of major asset classes to obtain the highest longArun return at the lowest ris&. anagers can ma&e opportnistic shifts in asset class weightings in order to improve return prospects over the longAterm objective. :lso managers can improve return prospects by selecting securities that have above average expected return within the individual asset classes. F Inve(!;en! ;%n%>er( ultitudes of investment management organiIation offer portfolio management services to clients including mutual funds. Investments organiIation differ not only in siIe and degree of specialiIation but also in their approaches to investment analysis and portfolio management. Bn the whole% however the business portfolio management has tended toward greater structure and discipline in the investment process and toward greater use of systematic approaches to investing. Those organiIations at the forefront in implementing systematic approaches to portfolio management have gained mar&et share at the expense of other firms% in large part because they have been more effective in addressing client needs and achieving investment objectives.

F

P%r!i7iB%n!( Several groups other than professional portfolio managers are important participants in the

portfolio management process. In mar&eting the asset allocation decision% major portfolio investors employ the service of investment management consultants. These are organiIations that specialiIe in not only advising on asset allocation but other critical aspects% such as setting of goal and selection of investment managers. F A((e! 7&%((e( Developing the appropriate asset allocation is a critical phase of the portfolio management process. <Duities% bonds and money mar&et instruments are major asset categories that are large% are generally highly mar&etable and have tradionally been used extensively by longterm portfolio investors. :sset classes for portfolio investment ,orporates ,ommon stoc&s );

Domestic eDuities -argeAcapitaliIation SmallAcapitaliIation International eDuities ajorAcountry mar&ets <merging mar&ets $onds 4overnment and agencies :::Arated LighlyAyield *jun&+ bonds ortgageAbac&ed securities International bonds oney mar&et instruments Treasury bills ,Ds and commercial paper 4uaranteed investment contracts 6eal estate @enture capital The portfolio management industry has evolved over the last two decades into a structure with several distinct groupings of highly professional participants. :lthough the current structure differs from the past% the critical components of the investment decision process remain the same. Investors need to establish goals and be aware of the capital mar&et tradeoff in developing an asset allocation that the best meets the return target at an acceptable level. There are three based areaswhich investing styles differ. :ll influence the ris&% returns and period of investment and involve finding a sport between the extremes that suits the fund and investors the best. A!!i!$'e* does it follow a topAdown approach *first list industries or sectors for investment and then select specific companies within these industries+ or a bottomAup approach *individual stoc&s which are li&ely to outperform the mar&et are identified first and only then study the industry or macro level factors+Q In!en(i!- # ;%n%>e;en!* is the scheme actively *review the portfolios regularly+ or passively *less intensely managed stoc&s+Q Di(!ri9$!i n ne!w r<*

)2

The rapid accumulation in assets of mutual funds creates more challenges% most important among them being the distribution networ&. !or the longAterm health of the industry% it is crucial that investors who come into a fund come with a full understanding of the ris&s involved in the investment. :nd distributors play an important role in dissemination of such information. :t present% the majority of funds rely on branch networ& of ban&s in order to sell their products since the branch networ& of most fund houses is restricted to a few cities. A#!er+(%&e( (ervi7e* In India typically the distributorKs role comes to an end as soon as the product is sold to the investor. !or subseDuent transactionsAredemption or switchoversAthe investors often has to get bac& to the fund itself. :n investorKs interface with a fund would be simpler if the whole range of services% from deciding on the right product to processing the final redemption reDuest% is handled by a singled entity. BASIC MUTUAL FUND INVESTMENT INSTRUMENT M$!$%& F$n'( %re inve(!in> in 8 !-Be( # #$n'(* ? Stoc&s ? $onds ? oney mar&et instruments

Br %'&-? M$!$%& F$n'( inve(! 9%(i7%&&- in 8 !-Be( # %((e! 7&%((e(. ). S! 7<(*+ Stoc&s represent ownership or eDuity in a company popularly &nown as shares. 0. B n'(*+ These represent debt from companies% financial institutions or government agencies. 1. M ne- M%r<e! In(!r$;en!(*+ These include short G term dent instrument such as treasury bills% certificate of deposits% and inter ban& call money. M$!$%& F$n' 7%n 9e 7&%((i#ie' 9%(e' n !"eir 9Ce7!ive( %(* ? Se7! r e@$i!- (7"e;e(*+ These schemes invest in share of companies in as specific sector. ? Diver(i#ie' e@$i!- (7"e;e(*+ These schemes invest in shares and fixed income of the economy of companies across different sectors. ? H-9ri' e7 n ;- (7"e;e(*+ These schemes invest in a mix shares and fixed income instruments. ? In7 ;e (7"e;e(*+ These schemes invest in fixed income instruments such as bonds issued by corporate and financial institutions% and government securities.

05

? M ne- M%r<e! (7"e;e(*+ These schemes invest in short G term instrument such as certificate of deposits% treasury bills and short G term bonds. ANALYSIS OF MUTUAL FUND Br %'&- !"e %n%&-(i( 7%!e> rie( in 8 !-Be(* ? !undamental analysis ? Technical analysis ? $eta( odern portfolio theory * PT+ FUNDAMENTAL ANALYSIS* The analysis of such fundamental factor general business conditions% industry outloo&% earnings% dividends% Duality of management etc.% In !"i( !%<e 7 n(i'er%!i n n !"e ( ;e # && win> #%7! r(*+ ). ,ompany net asset value. 0. <stimation of “True". 1. @alue of profit earning ratio. 9. <stimating the mar&et value of current and forecasting. 8. ,ompare with various ratios li&e 'S% '=. 3. <stimate the future yield dividends.

? S! 7< r%!in>* The rating for common stoc& depends over the certain of dividend in ta&e the consideration followingsR. ). Ingredients of security analysis. 0. It include historical data% sales% capital etc.% ? E7 n ;i7 %n%&-(i(* ). ,yclic effect 0. <conomic analysis *fashions+ ? Fin%n7i%& %n%&-(i(* ). <PS 0. <$IT 1. 6BI

0)

9. P:T ? B n' r%!in>D ). AAA . "i>" inve(!;en! >r%'e* Debentures rated “:::" are judged to offer highest safety of timely payment and interest and principles. 0. AA . "i>" (%#e!-* It is offer highest safety of timely payment and interest and principles. Inve(!;en! >r%'e( 1. A . %'e@$%!e (%#e!-* Debentures rates “:" are judged offer highest safety of timely payment and interest and principles. 9. BBB .; 'er%!e (%#e!- $$$ are judged to offer sufficient safety of timely payment and interest and principles. SBe7$&%!ive >r%'e* 8. BB . In%'e@$%!e (%#e!-* Debentures rated “$$" are judged to offer timely payment and interest and principles. 1. B . "i>" ri(< 7. C . ($9(!%n!i%& ri(<* Timely payment possible only in favorable circumstances continues. 3. D+ In 'e#%$&!

BETA E MPT ANALYSIS :nalysis the responsiveness of the price of a particular company stoc& to change in the value some mar&et average. TECHNICAL ANALYSIS* :n analysis of mar&et based factors such as Stoc& price movements% charts etc.% TYPES OF MUTUAL FUND SCHEMES BY STRUCTURE* ? OPEN . ENDED SCHEME

00

? CLOSED . ENDED SCHEME ? INTERVAL SCHEME BY INVESTMENT OB)ECTIVE* ? GROWTH SCHEME ? INCOME SCHEME ? MONEY MARKET SCHEME OTHER SCHEMES* ? TAX SAVING SCHEME ? SPECIAL SCHEME ? INDEX SCHEME M$!$%& F$n' 9r %'&- 7&%((i#ie' in! TWO 7%!e> rie(* /. OBen . En'e' S7"e;e #$n'( ,. C& (e' . En'e' S7"e;e #$n'( Now discuss details regarding above funds

OPEN + ENDED SCHEME FUND* The concept of these funds is that the investors are free to enter or exit the scheme at any point of time during the fund period. The investors can purchase( sale units of mutual fund through mutual fund trust. The prices at which the units are purchased( sold depend on the N of the fund. :t that point of time as specified by the funds. The N of fund is the current mar&et value of their investments. $esides the Net :sset @alue% certain funds ta&e an additional charge from the investors in the form of <ntry load or <xit load. Some <xamples of Bpen G <nded scheme funds areE ? Templeton India 4rowth !und. ? PruI,I,I Discovery !und. ? =ota& Bpportunities 01

? Principal Dividend Hield !und. ? 6eliance 4rowth !und.

CLOSED . ENDED SCHEME FUND* In the care of close ended fund% the investors have to loo& their funds with the trust for particular periods of time as a specified y the terms of the offer. The main problem for the investor is that they cannot move in out of the fund freely. In the case of ,losed G<nded schemes the prices of the units are calculated in the same manner as in the case of Bpen G <nded schemes. Lowever these schemes do not charge an <ntry( <xit load as in the case of open G ended scheme.

INTERVAL SCHEME FUND* The concept of these funds is that the investors are free to <nter( <xit the scheme at any point of time during the fund period and the investors have to loc& their funds with the trust for a particular periods of time as a specified by the terms of the offer.

GROWTH FUND* It is primarily loo& for growth of capital such funds invests in shorter with potential for growth and capital appreciation. They invest in well G established companies where the company it self and the industry in which it operates are thought to have well long G term growth potential and hence growth fund provide low current income. 4rowth potential generally incurred higher ris&s than Income !und% in an effort to secure more pronounced growth. Some growth funds concentrate on one or more industry sectors and also invest in a $road range of industries. 4rowth funds are suitable for investors who can offer to assume the ris& of potential loss in value their investment in the short G term in the hope of achieving substantial and risings gains.

09

<ventually they are not suitable for investors who must conserve their principal or who must maximiIe current income.

GROWTH AND INCOME FUND* 4rowth and Income funds see& long G term growth of capital as well as current income. The investment strategies used to reach there goals very among funds. Some invest in a dual portfolio consisting of growth stoc& and income stoc&s% or a combination of growth stoc&s paying high dividends preferred stoc&% convertible securities or fixed income securities such as corporate bonds and money mar&et instruments. 4rowth and Income funds have low to moderate stability of principal and moderate potential for current income and growth they are suitable for investors who can assume some ris& to achieve growth of capital but who also want to maintain a moderate level of current income.

MONEY MARKET SCHEME* It is invested only in high liDuidityN shortA term top G rated money mar&et instruments. oney mar&et funds are suitable for investors who want high stability of principal and current income with immediate liDuidity.

LAW RELATING TO TAX SAVINGS UES 3: $.Deductions in respect of certain payments 78SDeduction in respect of life insurance premia% deferred annuity% contributions to provident fund% subscription to certain eDuity shares or debentures% etc. 73;5,. 77*)+ In computing the total income of an assessee% being an individual or a Lindu undivided family% there shall be deducted% in accordance with and subject to the provisions of this

08

section% the whole of the amount paid or deposited in the previous year% being the aggregate of the sums referred to in subAsection *0+% as does not exceed one la&h rupees. *0+ The sums referred to in subAsection *)+ shall be any sums paid or deposited in the previous year by the assessee *i+ to effect or to &eep in force an insurance on the life of persons specified in subAsection *9+N *ii+ to effect or to &eep in force a contract for a deferred annuity% not being an annuity plan referred to in clause *xii+% on the life of persons specified in subAsection *9+E Provided that such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment in lieu of the payment of the annuityN *iii+ by way of deduction from the salary payable by or on behalf of the 4overnment to any individual being a sum deducted in accordance with the conditions of his service% for the purpose of securing to him a deferred annuity or ma&ing provision for his spouse or children% in so far as the sum so deducted does not exceed oneAfifth of the salaryN *iv+ as a contribution by an individual to any provident fund to which the Provident !unds :ct% )208 *)2 of )208+ appliesN *v+ as a contribution to any provident fund set up by the ,entral 4overnment and notified7; by it in this behalf in the Bfficial 4aIette% where such contribution is to an account standing in the name of any person specified in subAsection *9+N *vi+ as a contribution by an employee to a recognised provident fundN *vii+ as a contribution by an employee to an approved superannuation fundN *viii+ as subscription to any such security of the ,entral 4overnment or any such deposit scheme as that 4overnment may% by notification in the Bfficial 4aIette% specify in this behalfN

03

*ix+ as subscription to any such savings certificate as defined in clause *c+ of section 072 of the 4overnment Savings ,ertificates :ct% )282 *93 of )282+% as the ,entral 4overnment may% by notification;5 in the Bfficial 4aIette% specify in this behalfN *x+ as a contribution% in the name of any person specified in subAsection *9+% for participation in the 'nitAlin&ed Insurance Plan% )27) *hereafter in this section referred to as the 'nitAlin&ed Insurance Plan+ specified in Schedule II of the 'nit Trust of India *Transfer of 'nderta&ing and 6epeal+ :ct% 0550 *8; of 0550+N *xi+ as a contribution in the name of any person specified in subAsection *9+ for participation in any such unitAlin&ed insurance plan of the -I, utual !und ;5aSnotified underT clause *01D+ of section )5% as the ,entral 4overnment may% by notification in the Bfficial 4aIette% specify in this behalfN *xii+ to effect or to &eep in force a contract for such annuity plan of the -ife Insurance ,orporation or any other insurer as the ,entral 4overnment may% by notification;0 in the Bfficial 4aIette% specifyN *xiii+ as subscription to any units of any utual !und ;0aSnotified underT clause *01D+ of section )5

or from the :dministrator or the specified company under any plan formulated in accordance with such scheme as the ,entral 4overnment may% by notification;1 in the Bfficial 4aIette% specify in this behalfN *xiv+ as a contribution by an individual to any pension fund set up by any utual !und ;1aSnotified

underT clause *01D+ of section )5 or by the :dministrator or the specified company% as the ,entral 4overnment may% by notification;9 in the Bfficial 4aIette% specify in this behalfN *xv+ as subscription to any such deposit scheme of% or as a contribution to any such pension fund set up by% the National Lousing $an& established under section 1 of the National Lousing $an& :ct% )2;7 *81 of )2;7+ *hereafter in this section referred to as the National Lousing $an&+% as the ,entral 4overnment may% by notification in the Bfficial 4aIette% specify in this behalfN *xvi+ as subscription to any such deposit scheme of

07

*a+ a public sector company which is engaged in providing longAterm finance for construction or purchase of houses in India for residential purposesN or *b+ any authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning% development or improvement of cities% towns and villages% or for both% as the ,entral 4overnment may% by notification in the Bfficial 4aIette% specify in this behalfN *xvii+ as tuition fees *excluding any payment towards any development fees or donation or payment of similar nature+% whether at the time of admission or thereafter% *a+ to any university% college% school or other educational institution situated within IndiaN *b+ for the purpose of fullAtime education of any of the persons specified in subAsection *9+N *xviii+ for the purposes of purchase or construction of a residential house property the income from which is chargeable to tax under the head Income from house property *or which would% if it had not been used for the assessees own residence% have been chargeable to tax under that head+% where such payments are made towards or by way of *a+ any instalment or part payment of the amount due under any selfAfinancing or other scheme of any development authority% housing board or other authority engaged in the construction and sale of house property on ownership basisN or *b+ any instalment or part payment of the amount due to any company or coAoperative society of which the assessee is a shareholder or member towards the cost of the house property allotted to himN or *c+ repayment of the amount borrowed by the assessee from *)+ the ,entral 4overnment or any State 4overnment% or *0+ any ban&% including a coAoperative ban&% or 0;

*1+ the -ife Insurance ,orporation% or *9+ the National Lousing $an&% or *8+ any public company formed and registered in India with the main object of carrying on the business of providing longAterm finance for construction or purchase of houses in India for residential purposes which is eligible for deduction under clause *viii+ of subAsection *)+ of section 13% or *3+ any company in which the public are substantially interested or any coAoperative society% where such company or coAoperative society is engaged in the business of financing the construction of houses% or *7+ the assessees employer where such employer is an authority or a board or a corporation or any other body established or constituted under a ,entral or State :ct% or *;+ the assessees employer where such employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority or a coA operative societyN or *d+ stamp duty% registration fee and other expenses for the purpose of transfer of such house property to the assessee% but shall not include any payment towards or by way of *:+ the admission fee% cost of share and initial deposit which a shareholder of a company or a member of a coAoperative society has to pay for becoming such shareholder or memberN or *$+ the cost of any addition or alteration to% or renovation or repair of% the house property which is carried out after the issue of the completion certificate in respect of the house property by the authority competent to issue such certificate or after the house property or any part thereof has either been occupied by the assessee or any other person on his behalf or been let outN or *,+ any expenditure in respect of which deduction is allowable under the provisions of section 09N

02

*xix+ as subscription to eDuity shares or debentures forming part of any eligible issue of capital approved by the $oard on an application made by a public company or as subscription to any eligible issue of capital by any public financial institution in the prescribed form;9a. <xplanation.!or the purposes of this clause% *i+ eligible issue of capital means an issue made by a public company formed and registered in India or a public financial institution and the entire proceeds of the issue are utilised wholly and exclusively for the purposes of any business referred to in subAsection *9+ of section ;5AI:N *ii+ public company shall have the meaning assigned to it in section 1;8 of the ,ompanies :ct% )283 *) of )283+N *iii+ public financial institution shall have the meaning assigned to it in section 9:;3 of the ,ompanies :ct% )283 *) of )283+N *xx+ as subscription to any units of any mutual fund referred to in clause *01D+ of section )5 and approved by the $oard on an application made by such mutual fund in the prescribed form;3aE Provided that this clause shall apply if the amount of subscription to such units is subscribed only in the eligible issue of capital of any company. <xplanation.!or the purposes of this clause eligible issue of capital means an issue referred to in clause *i+ of the <xplanation to clause *xix+ of subAsection *0+. The following clause *xxi+ shall be inserted after clause *xx+ of subAsection *0+ of section ;5, by the !inance :ct% 0553% w.e.f. )A9A0557 E *xxi+ as term deposit *a+ for a fixed period of not less than five years with a scheduled ban&N and *b+ which is in accordance with a scheme framed and notified% by the ,entral 4overnment% in the Bfficial 4aIette for the purposes of this clause. 15

<xplanation.!or the purposes of this clause% scheduled ban& means the State $an& of India constituted under the State $an& of India :ct% )288 *01 of )288+% or a subsidiary ban& as defined in the State $an& of India *Subsidiary $an&s+ :ct% )282 *1; of )282+% or a corresponding new ban& constituted under section 1 of the $an&ing ,ompanies *:cDuisition and Transfer of 'nderta&ings+ :ct% )275 *8 of )275+% or under section 1 of the $an&ing ,ompanies *:cDuisition and Transfer of 'nderta&ings+ :ct% )2;5 *95 of )2;5+% or any other ban&% being a ban& included in the Second Schedule to the 6eserve $an& of India :ct% )219 *0 of )219+. *1+ The provisions of subAsection *0+ shall apply only to so much of any premium or other payment made on an insurance policy other than a contract for a deferred annuity as is not in excess of twenty per cent of the actual capital sum assured. <xplanation.In calculating any such actual capital sum assured% no account shall be ta&en *i+ of the value of any premiums agreed to be returned% or *ii+ of any benefit by way of bonus or otherwise over and above the sum actually assured% which is to be or may be received under the policy by any person. *9+ The persons referred to in subAsection *0+ shall be the following% namelyE *a+ for the purposes of clauses *i+% *v+% *x+ and *xi+ of that subAsection% *i+ in the case of an individual% the individual% the wife or husband and any child of such individual% and *ii+ in the case of a Lindu undivided family% any member thereofN *b+ for the purposes of clause *ii+ of that subAsection% in the case of an individual% the individual% the wife or husband and any child of such individualN *c+ for the purposes of clause *xvii+ of that subAsection% in the case of an individual% any two children of such individual. *8+ /here% in any previous year% an assessee

1)

*i+ terminates his contract of insurance referred to in clause *i+ of subAsection *0+% by notice to that effect or where the contract ceases to be in force by reason of failure to pay any premium% by not reviving contract of insurance% *a+ in case of any single premium policy% within two years after the date of commencement of insuranceN or *b+ in any other case% before premiums have been paid for two yearsN or *ii+ terminates his participation in any unitAlin&ed insurance plan referred to in clause *x+ or clause *xi+ of subAsection *0+% by notice to that effect or where he ceases to participate by reason of failure to pay any contribution% by not reviving his participation% before contributions in respect of such participation have been paid for five yearsN or *iii+ transfers the house property referred to in clause *xviii+ of subAsection *0+ before the expiry of five years from the end of the financial year in which possession of such property is obtained by him% or receives bac&% whether by way of refund or otherwise% any sum specified in that clause%then% *a+ no deduction shall be allowed to the assessee under subAsection *)+ with reference to any of the sums% referred to in clauses *i+% *x+% *xi+ and *xviii+ of subAsection *0+% paid in such previous yearN and *b+ the aggregate amount of the deductions of income so allowed in respect of the previous year or years preceding such previous year% shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year. *3+ If any eDuity shares or debentures% with reference to the cost of which a deduction is allowed under subAsection *)+% are sold or otherwise transferred by the assessee to any person at any time within a period of three years from the date of their acDuisition% the aggregate amount of the deductions of income so allowed in respect of such eDuity shares or debentures in the previous year or years preceding the previous year in which such sale or transfer has ta&en place shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year.

10

<xplanation.: person shall be treated as having acDuired any shares or debentures on the date on which his name is entered in relation to those shares or debentures in the register of members or of debentureAholders% as the case may be% of the public company. *7+ !or the purposes of this section% *a+ the insurance% deferred annuity% provident fund and superannuation fund referred to in clauses *i+ to *vii+N *b+ unitAlin&ed insurance plan and annuity plan referred to in clauses *xii+ to *xiiia+N *c+ pension fund and subscription to deposit scheme referred to in clauses *xiiic+ to *xiva+N *d+ amount borrowed for purchase or construction of a residential house referred to in clause *xv+% of subAsection *0+ of section ;; shall be eligible for deduction under the corresponding provisions of this section and the deduction shall be allowed in accordance with the provisions of this section. *;+ In this section% *i+ :dministrator means the :dministrator as referred to in clause *a+ of section 0 of the 'nit Trust of India *Transfer of 'nderta&ing and 6epeal+ :ct% 0550 *8; of 0550+N *ii+ contribution to any fund shall not include any sums in repayment of loanN *iii+ insurance shall include *a+ a policy of insurance on the life of an individual or the spouse or the child of such individual or a member of a Lindu undivided family securing the payment of specified sum on the stipulated date of maturity% if such person is alive on such date notwithstanding that the policy of insurance provides only for the return of premiums paid *with or without any interest thereon+ in the event of such person dying before the said stipulated dateN *b+ a policy of insurance effected by an individual or a member of a Lindu undivided family for the benefit of a minor with the object of enabling the minor% after he has attained majority to secure insurance on his own life by adopting the policy and on his being alive on a date *after such adoption+ specified in the policy in this behalfN *iv+ -ife Insurance ,orporation means the -ife Insurance ,orporation of India established under the -ife Insurance ,orporation :ct% )283 *1) of )283+N

11

*v+ public company shall have the same meaning as in section 1;7 of the ,ompanies :ct% )283 *) of )283+N *vi+ security means a 4overnment security as defined in clause *0+ of section 0;; of the Public Debt :ct% )299 *); of )299+N *vii+ specified company means a company as referred to in clause *h+ of section 0 of the 'nit Trust of India *Transfer of 'nderta&ing and 6epeal+ :ct% 0550 *8; of 0550+N *viii+ transfer shall be deemed to include also the transactions referred to in clause *f+ of section 032':.T

T%= . P&%nnin>* !or most individuals%financial planning and taxAplanning are to mutually exclusive exercises. /hile planning our investments we spend a considerable amount of time evaluating various options and determining which suits us the best. $ut when it comes to planning out investments from a tax G saving perspective% more often than not% we simply go the traditional way and do the exact same thing that we did in the earlier years. /ell% in case you were not aware the guidelines governing such investments are a lot different this year and lethargy on your part to rewor& your investment plan could cost you dear. /hy are the sta&es higher this yearQ 'ntil the previous%tax benefit was provided as a rebate on the investment amount% which could not exceed 6s )%55%555 N of this 6s 15%555 was exclusively reserved for infrastructure $onds. :lso% the

19

rebate reduced with every rise in the income slabN individuals earning over 6s 855%555 per year were not eligible to clain any rebate.!or the current financial year% the 6s )%55%555 limit has been retainedN however internal caps have been done away with. Individuals have a greater degree of flexibility in deciding how much to invest in the eligible instruments. The other significant changer are A Bne% the rebate has been replaced by a deduction from gross total income% effectively. The higher your income slab% the greater is the tax benefit. :nd two% all individuals irrespective of the income brac&et are eligible for this investment. !or most readers% these developments will result in higher taxAsavings.

TAX SAVING SCHEME* In the care of close ended fund% the investors have to loo& their funds with the trust for particular periods of time as a specified y the terms of the offer. The main problem for the investor is that they cannot move in out of the fund freely. In the case of ,losed G<nded schemes the prices of the units are calculated in the same manner as in the case of Bpen G <nded schemes. Lowever these schemes do not charge an <ntry( <xit load as in the case of open G ended scheme. In this scheme main advantage is that the investor can claim for the tax saving. This one on the other same to the closed G ended scheme but one extra feature is in this that the tax saving he can claim that under the section ;5 , for this the investor has to through with the tax brac&ets. :ccording to the new budget 0553 G 57 every body who earns an income falls under a “Tax $rac&et". It is important to &eep in mid that your “Taxable Income"% or income after deductions% defines your tax brac&et which could actually be lower than the amount of money you have earned over the year. The current income tax determined four main tax brac&ets% which are as followsE -ower -imit 5 6s.)%55%55) 6s.)%85%55) 6s.0%85%55) 'pper limit 6s.)%55%555 6s.)%85%555 6s.0%85%555 No 'pper -imit Tax Payable Nil )5U of income in excess of 6s.)%55%555 6s.8%555 V 05U of income in excess of 6s.)%85%555 6s.08%555 V 15U of income in excess of 6s.0%85%555

!or example% if your taxable income is 6s.0%55%555 for the year% you would fall within the 6s.)%85%55) to 6s.0%85%555 tax brac&et. Hou would have to pay the fixed sum for this slab% which is 6s.8%555 plus 05U of the amount that exceeds 6s.)%85%555. In your case% this excess amount would be 6s.85%555. So% your total income tax for the year would be 6s.8%555 V 6s.)5%555 W 6s.)8%555.

18

Hou can JmoveK into a lower tax brac&et by investing in a tax saving instrument. Low does this wor&Q 6ead on. H w ;$7" 7%n - $ (%ve* The government has made a host of individual savings “Tax G deductible" under one umbrella called Section ;5, and a simple new rule has emerged G if you invest up to 6a.) la&h in a tax saving instrument or even a combination of them% you effectively reduce our taxable income by up to 6s.) la&h. This means you could save up to 6s.15%555X *,onditions apply+ in taxes. The chart below shows how this happensE Hour annual taxable income *6s+ )%05%555 )%85%555 0%55%555 1%55%555 9%55%555 8%55%555 7%85%555 2%55%555 Hour applicable tax before investment *6s+ 0%555 8%555 )8%555 95%555 75%555 )%55%555 )%78%555 0%05%555 :mount invested under Section ;5, *6s+ )%55%555 )%55%555 )%55%555 )%55%555 )%55%555 )%55%555 )%55%555 )%55%555 Hour JnewK taxable income *6s+ 05%555 85%555 )%55%555 0%55%555 1%55%555 9%55%555 3%85%555 ;%55%555 Hour applicable tax after investment *6s+ 5 5 5 )8%555 95%555 75%555 )%98%555 )%25%555 Hour Savings *6s+ 0%555 8%555 )8%555 08%555 15%555 15%555 15%555 15%555

The Dualities that have to be seen before investing are that% :ll <Duity -in&ed Saving Schemes are eligible for tax benefits under Section ;5,. /hile there is no set way of determining which scheme may fit your reDuirements% remember that by investing in an <-SS% you trust your hard G earned money to the asset management company for at least three years. :s& yourself certain Duestions before ma&ing your decisions. Is the company respected in the investment fieldQ Las it done well in the pastQ Does it have the right credentials% experience% philosophy and expertise to ma&e your money grow in the long runQ Does it have a well A defined investment process and has it demonstrated commitment to this process through good and not G so G good timesQ :bove all% do you trust it to ma&e the right decisions for youQ $y satisfying these Duestions% you can rest assured that your money is in good hands. :s always% spea&ing to your tax and( or your investment adviser will certainly help you ma&e the right tax saving investment for your future. :ccording to the new budget 0557 G 5; every body who earns an income falls under a “Tax $rac&et". It is important to &eep in mind that your “Taxable Income"% or income after deductions%

13

defines your tax brac&et which could actually be lower than the amount of money you have earned over the year. The current income tax determined four main tax brac&ets% which are as followsE -ower -imit 5 6s.)%)5%55) 6s.)%85%55) 6s.0%85%55) 6S )5%55%555 !or example% if your taxable income is 6s.0%55%555 for the year% you would fall within the 6s.)%85%55) to 6s.0%85%555 tax brac&et. Hou would have to pay the fixed sum for this slab% which is 6s.9%555 plus 05U of the amount that exceeds 6s.)%85%555. In your case% this excess amount would be 6s.85%555. So% your total income tax for the year would be 6s.9%555 V 6s.)5%555 W 6s.)9%555.In this example for simple calculation no extra tax are considered other than the slab rates. The government has made a host of individual savings “Tax G deductible" under one umbrella called Section ;5, and a simple new rule has emerged G if you invest up to 6a.) la&h in a tax saving instrument or even a combination of them% you effectively reduce our taxable income by up to 6s.) la&h. This means you could save up to 6s.15%555X *,onditions apply+ in taxes. The chart below shows how this happensE Hour annual taxable income *6s+ )%05%555 )%85%555 0%55%555 1%55%555 9%55%555 8%55%555 7%85%555 2%55%555 Hour applicable tax before investment *6s+ )555 9%555 )9%555 12%555 32%555 22%555 )%79%555 0%)2%555 :mount invested under Section ;5, *6s+ )%55%555 )%55%555 )%55%555 )%55%555 )%55%555 )%55%555 )%55%555 )%55%555 Hour JnewK taxable income *6s+ 05%555 85%555 )%55%555 0%55%555 1%55%555 9%55%555 3%85%555 ;%55%555 Hour applicable tax after investment *6s+ 5 5 5 )9%555 12%555 32%555 )%99%555 )%;2%555 Hour Savings *6s+ )%555 9%555 )9%555 08%555 15%555 15%555 15%555 15%555 'pper limit 6s.)%)5%555 6s.)%85%555 6s.0%85%555 6s)5%55%555 No limit Tax Payable Nil )5U of *TI A 6s.)%)5%555+V1U<, 6s.9%555 V 05U of *TI A 6s.)%85%555+V1U<, 6s.08%555 V 15U *TI A 6s.0%85%555+V1U<, 6s 0%92%555 V15U*TI G 6s )5%55%555+V)5US,V1U<,

17

DOFS AND DONTFS WHILE SELECTING A MUTUAL FUND* DOFS* ? ,hec& the trac& record of the asset management company. ? See what is offered in terms of afterAsales service. ? Bpt for an income or growth scheme on the basis of income reDuirements. ? ,onsider your liDuidity needs to choose between an openAorAcloseAended fund. ? <xamine redemption and reApurchase facilities. DONTFS* ? Never judge a mutual fund by the name of the group that is floating it. ? DonKt invest in a mutual fund when the mar&et is on an upswing. ? Do not opt for a fund where the N independently on the sensex. ? Do not view N independently of the sensex. ? Never but when the unit is Duoted at a premium to N. ADVANTAGES OF MUTUAL FUND* ? PROFESSIONAL MANAGEMENT* <xperienced fund managers supported by research team% select appropriate securities to the fund. The forecasting of the mar&et is done effectively. ? DIVERSIFICATION* utual !und invests in a diverse range of securities and over many industries. Lence% all the eggs are not played in one bas&et. Normally an investor has to have large sump of money to achieve this objective. If he invests directly in the stoc& mar&et. Through can achieve diversification of portfolio at a fraction at of the cost. ? CONVINIENT ADMINISTRATION* !or the investors there is reduction in paper wor& and saving in time. It is also very convenient. utual !und helps in overcoming the problems relating to bad deliveries delayed payments and the li&e. utual !und% he

1;

? RETURN POTENTIAL* edium and the long term ? LOW COST* The funds handle the investments of a large number of peopleN they are in a position to pass on relatively low bro&erage and other costs. This is because the funds can ta&e advantage of the economics of scale. ? LIGUIDITY* 'T':- !und provides liDuidity in two ways. In open Gended schemes% the investors can get bac& this money at any time by selling bac& the units to the fund at N related prices. In closed G ended schemes fund% he has the option to sell the units through the stoc& exchange. ? FLEXIBILITY* ,urrently most funds have regular investment plans% regular withdrawal plans and divided reinvestment schemes. : great deal of flexibility is assured in the process. ? CHOICE OF SCHEME* utual !und offers a variety of schemes to suit varying needs of the investors. ? WELL REGULATED* The funds are registered with the securities and exchange of board in India and their operations are continuously monitored. ? TRANSPARANCY* utual !unds provide information on each scheme about the specific investments made there under and so on. SELECTION OF A FUND ? O9Ce7!ive # !"e #$n'* The !und whether income oriented or growth oriented. ,onsistency of performanceE a mutual fund is always intended to give steady long term returnsN hence the investors should measure the performance of a fund over a period of at least three years. utual !und have the potential to provide high return.

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? Hi(! ri7%& 9%7<>r $n'* The success of any fund depends upon the competence of the management% its integrity% periodicity and experience. ? C (! # OBer%!i n* utual funds see& to do a better job of the investible funds at a lower cost the he investible fund at lower cost. The investors compare with their funds with others. ? C%B%7i!- # inn v%!i n* Some companiesK introduced innovation schemes to meet the diverse needs of investors. Investors will loo& for funds which are capable of introducing innovation in the financial mar&et.

? Inve(! r (ervi7in>* The most important factor is prompt and efficient servicing. Service li&e Duic& response to investors Dueries% prompt dispatch of unit certificates% Duic& transfer of units etc.% FACILITIES AVAILABLE TO INVESTORS ? 6e purchase facilities ? 6eissue facilities ? 6oll over facilities ? -ateral shifting facilities

Tax G Saving !undsE Section ;5c has come as a boon to investors who have an appetite for ris&.'ntil the previous year% investment in tax G saving funds *otherwise &nown as <Duity -in&ed Savings Schemes+ for the purpose of availing a tax benefit was restricted to 6s )5555 P.: In the current year all such restrictions have been done away withN an individual assessee now has the flexibility to invest the 6s )55555 that is allowed uncer section ;5(c in any proportion that he wishes *only in PP! is there

95

an upper limit of 6s 75555 pa+ in specified instruments. Naturally% those with a ris& appetite should be loo&ing at increase their exposure to taxAsaving funds. $ut now Tax $enefit will get up to 6s )%55%555 .These leading taxAsaving funds as on )9A))A0558.

Tax saving funds are simply eDuity funds that have mandatory loc&Ain of three years. The loc&Ain is one of the &ey strengths of such fundsN it allows the fund manager to invest for the longterm and also saves him from the pressures of managing fund inflows and outflows on a dayAtoA day basis. In case of taxAsavings funds% the fund outflows are &nown relatively well in advance and therefore can be planned for. $efore we delve further into understanding why taxAsaving funds should be considered for your portfolio%let us first understand ris&s associated with them.

RISK FACTORS IN MUTUAL FUND Cust li&e in any other investment% utual !und investment also carry certain ris&s% the ris&s in

particular scheme of a mutual fund is a basically a function of five factor. ? M%r<e! Ri(<* In generally% there are certain ris&s associated with every &ind of investments of shares. They are called mar&et ris&s. The mar&et ris&s can be reduced. $ut cannot be completely eliminated even by good investment management. The prices of shares are subjected to wide price fluctuations depending upon mar&et conditions. <g% cycle G boom O slump and recovery. ? S7"e;e Ri(<(*

9)

There are certain ris&s inherent in the scheme itself. T all depends upon the nature of the scheme. !or instance% in a pure growth scheme% ris&s are greater. It is obvious because if one expects more returns an in the case of a growth scheme% one has to ta&e more ris&s. ? Inve(!;en! Ri(<(* /hether the utual !und ma&es money in shares or loses depends upon the investment expertise of the :sset management ,ompany *: ,+. If the investment advice goes wrong% the fund has to suffer a lot. The investment expertises of various funds are different and it is reflected on the returns which they offer to investors. ? B$(ine(( Ri(<* The corpus of a utual !und might have been invested in companyKs shares. If the business of that company suffers any set bac&% it cannot declare any dividend. ? P &i!i7%& Ri(<* Successive 4overnments bring with them fancy new economy ideologies and policies. It is often said that many economy decisions are politically motivated. ,hanged in 4overnment bring in the ris& of uncertainty which every player in the financial service industry has to face. So utual !unds are no exception to it.

90

CHAPTER+8

COMPANY PROFILE

ICICI Bank ICICI B%n< is India?s second largest ban& and largest private sector ban& with assets of 6s. 028;.10 billion as on December 1)% 0553. I,I,I $an& provides a broad spectrum of financial services to individuals and companies. This includes mortgages% car and personal loans% credit and debit cards% corporate and agricultural finance. The $an& services a growing customer base through

91

a multiAchannel access networ& which includes over 328 branches and extension counters% 158) :T s% call centers and Internet ban&ing.

Pr$'en!i%&PLC <stablished in -ondon in );9;% Prudential plc% through its businesses in the '= and <urope% the 'S and :sia% provides retail financial services products and services to more than 0) million customers% policyholder and unit holders worldwide. Today% Prudential has millions of customers worldwide and over Y01; billion *as of 15 Cune 0553+ of funds under management. In :sia% Prudential is the leading <uropean life insurance company with a vast networ& of life and fund management operations in thirteen countries A ,hina% Long =ong% India% Indonesia% Capan% =orea% Philippines% Singapore% Taiwan% Thailand% @ietnam and 'nited :rab <mirates alaysia% the

The I,I,I Prudential edge comes from our commitment to our customers% in all that we do A be it product development% distribution% the sales process or servicing. Lere?s a pee& into what ma&es us leaders. ). Bur products have been developed after a clear and thorough understanding of customers? needs. It is this research that helps us develop <ducation plans that offer the ideal way to truly guarantee your child?s education% 6etirement solutions that are a hedge against inflation and yet promise a fixed income after you retire% or Lealth insurance that arms you with the funds you might need to recover from a dreaded disease. 0. Laving the right products is the first step% but it?s eDually important to ensure that our customers can access them easily and Duic&ly. To this end% I,I,I Prudential has an advisor base across the

99

length and breadth of the country% and also partners with leading ban&s% corporate agents and bro&ers to distribute our products 1. 6obust ris& management and underwriting practices form the core of our business. /ith clear guidelines in place% we ensure eDuitable costing of ris&s% and thereby ensure a smooth and hassleA free claims process. 9. <ntrusted with helping our customers meet their longAterm goals% we adopt an investment philosophy that aims to achieve ris& adjusted returns over the longAterm. 8. -ast but definitely not the least% our )8%555 plus strong team is given the opportunity to learn and grow% every day in a multitude of ways. /e believe this &eeps them engaged and enthusiastic% so that they can deliver on our promise to cover you% at every step in life.

India?s Number Bne private life insurer% I,I,I Prudential -ife Insurance ,ompany is a joint venture between I,I,I $an&Aone of India?s foremost financial services companiesAand Prudential plcA a leading international financial services group headDuartered in the 'nited =ingdom. Total capital infusion stands at 6s. );.)8 billion% with I,I,I $an& holding a sta&e of 79U and Prudential plc holding 03U.

/e began our operations in December 0555 after receiving approval from Insurance 6egulatory Development :uthority *I6D:+. Today% our nationAwide team comprises% about 855 offices% over 055%555 advisorsN and 00 $an& assurance partners.

I,I,I Prudential was the first life insurer in India to receive a National Insurer !inancial Strength rating of ::: *Ind+ from !itch ratings. !or three years in a row% I,I,I Prudential has been Ioted as India?s ost Trusted Private -ife Insurer% by The <conomic Times A :, Nielsen B64 arg survey of ? ost Trusted $rands?. :s we grow our distribution% product range and customer base% we continue to tirelessly uphold our commitment to deliver worldAclass financial solutions to customers all over I

98

THE C ;B%n-

I,I,I Prudential -ife Insurance ,ompany is a joint venture between I,I,I $an&% a premier financial powerhouse% and Prudential plc% a leading international financial services group headDuartered in the 'nited =ingdom. I,I,I Prudential was amongst the first private sector insurance companies to begin operations in December 0555 after receiving approval from Insurance 6egulatory Development :uthority *I6D:+.

I,I,I Prudential?s capital stands at 6s. );.)8 billion with I,I,I $an& and Prudential plc holding 79U and 03U sta&e respectively. !or the )5 months ended Canuary 1)% 0557% the company garnered 6s 1%095 crore of weighted retail V group new business premiums and wrote over ).1 million policies. The company has assets held to the tune of over 6s. )9%555 crore. I,I,I Prudential is also the only private life insurer in India to receive a National Insurer !inancial Strength rating of ::: *Ind+ from !itch ratings. The ::: *Ind+ rating is the highest rating% and is a clear assurance of I,I,I Prudential?s ability to meet its obligations to customers at the time of maturity or claims.

!or the past six years% I,I,I Prudential has retained its position as the No. ) private life insurer in the country% with a wide range of flexible products that meet the needs of the Indian customer at every step in life. To &now more about the company% please visit www.iciciprulife.com. Di(!ri9$!i n I,I,I Prudential has one of the largest distribution networ&s amongst private life insurers in India.

93

:s of Canuary 1)% 0557 the company has over 895 offices across the country and over 055%555 advisors. The company has over 05 bancassurnace partners% having tieAups with I,I,I $an&% !ederal $an&% South Indian $an&% $an& of India% -ord =rishna $an&% Idu&&i District ,oAoperative $an&% Calgaon Peoples ,oAoperative $an&% Shamrao @ithal ,oAop $an&% <rna&ulam $an& and 2 $an& of India sponsored 6egional 6ural $an&s *66$s+. It has also tied up with N4Bs the distribution of rural policies. !Is and corporates for

B %r' # Dire7! r( M(.S"i<"%S"%r;%? anagingDirectorO,<B Mr.N.SK%nn%n?<xecutiveDirector Mr.B"%r>%vD%(>$B!%?<xecutiveDirector M(.Ani!%P%i?<@PA,ustomerServiceOTechnology Mr.AHi;Mi!"%ni?,hief:ctuary Mr.P$nee!N%n'%?,hiefInvestmentsBfficer Mr. Bin%-%< D$!!%? ,hief G Sales and distribution P$nee! N%n'%* C"ie# Inve(!;en! O##i7er M%ni(" K$;%r* He%' .E@$i!L%<(";i<%n!" Re''-* VP+Inve(!;en!( )i!en'r% Ar r%* AVP+Inve(!;en!( Ar$n Sriniv%(%n* AVP+Fi=e' In7 ;e A<%&B G$B!%* An%&-(! Pr$'en!i%& ICICI 9e7 ;e( N ./ M$!$%& F$n' 0557A51A53

97

Prudential I,I,I : , has emerged as the largest Indian mutual fund having recorded assets under management *:' + of 6s. 91%0;5.37 crores% as per figures released by the :ssociation of utual !unds of India *: !I+ for the month ended !ebruary 0557. PruI,I,I has added 6s. ;%818 crores during the month of !ebruary to achieve this milestone. ,ommenting on the occasion% r. Pan&aj 6aIdan% anaging Director% Prudential I,I,I : , said%

“/e are committed to deliver customer outcomes and will continue to offer our investors Duality service% innovative investment solutions% convenience in transaction and consistency in product performance. ore than position% it is our consistent and sustained efforts to offer our customers an overall experience% &eeping in mind the regulatory framewor&. " Starting with an :' base of 6s. )35 crores in ay)22;% Prudential I,I,I has successfully

managed to grow its assets by over 055 times to 6s. 91%0;5.37 crore *as on !eb 0;% 0557+. Laving started with 0 schemes in )22;% the company currently has over 15 schemes in its product portfolio. In order to address the issue of penetration and to offer customer convenience% the company has expanded its networ& from a presence in merely 0 cities to more than ;5 cities across India. The following table depicts Prudential I,I,I : ,Ks :' growth over the years.

9;

Date 0;.50.055 7 1).)0.055 3 1).)0.055 8 1).)0.055 9 1).)0.055 1 1).)0.055 0 1).)0.055 ) 1).)0.055 5 1).)0.)22 2 1).)0.)22 ; Inception *)22;+

,orpus*6s. crores+ 910 11158 0)220 )7))) )3)97 )581; 78)1 9;11 1)78 109 )35

Pr$'en!i%& ICICI MF i( n w ICICI Pr$'en!i%& MF Prudential I,I,I r. 0% 0557. The fund changed its name% owing to the change in the shareholding pattern of I,I,I $an& and Prudential Plc *effected in :ugust 0558+% in the :sset ,ompany. anagement ,ompany *: ,+% and the Trust utual !und% changed its name to I,I,I Prudential utual !und with effect from

92

The names of the : , and the Trust ,ompany% have been changed to I,I,I Prudential :sset anagement ,ompany and I,I,I Prudential Trust respectively.

In sync with the above changes% names of its entire schemes underwent changes. In The arch )22;% Prudential Plc of '= acDuired 88U sta&e in the erstwhile I,I,I :sset remaining 98U share were with I,I,I anagement 4roup.

,ompany subseDuent to which% it was renamed as Prudential I,I,I :sset

anagement ,ompany.

Lowever% In :ugust 0558% 3U of Prudential PlcZs holding in the : , was transferred to I,I,I $an&. /ith this transfer the total holding of I,I,I ban& increased to 8)U% due to which the fund has now changed its name. There is no change in the board.

De#ini!i n* S<$I * !s+ 6egulation )221% defines utual !und as followsN

utual fund means a fund established in the form of a trust by a sponsor to raise money by the Trustees through the sale of units to the public under one or more schemes for investing in Securities in accordance with these 6egulations. : mutual fund is a special type of company that pools together money from many investors and invests it on behalf of the group% in accordance with a stated set of objectives. utual funds raise the money by selling shares of trhe fund to the public% much li&e any other company can sell stoc& in itself to the public. !unds then ta&e the money they receive from the sales of their shares *along with any money from previous investments+ and use it to purchase various investments vehicles% such as stoc&s% bonds and money mar&et instruments. In return for the money they give to the fund and% in effect% in each of its underlying securities. !or most mutual funds% shareholders are free to sell their share at anytime% although the price of a share in a mutual fund will fluctuate daily% depending upon the performance of the securities held by the fund. utual fund units are investment vehicles that provide a means. : large number of investors pool their money in order to obtain a spread of professionally managed Stoc& <xchange investments that they cannot obtain individually. :ccording to /eston C.!red and $ridgham% <ugene% !.% 'nit Trusts are “,orporations which accept dollars from savers and then use these

85

dollars to buy stoc&% long term bonds% short term debt instruments issued by business of government unitsN these corporations pool funds and thus reduce ris& by diversification.

CHAPTER+2

DATA ANALYSIS
8)

AND INTERPRETATION

-eading TaxASaving funds TaxASaving !unds N *,rKs+ 93.2; )55.3 33.;2 37.87 98.93 1).89 )7.29 )Ayr *U+ ))3.; 20.3 73.; 3).0 8;.2 81.) 82.2 1Ayr *U+ 2).7 72.2 7;.8 78.5 70.5 70.1 31.8 8Ayr *U+ 02.8 90.0 95.1 A 02.1 15.9 1).8 Std Dev *U+ ;. ;.57 2.;7 7. 7.28 7.0) ;.88 Sharpe 6atio *U+ 5.8; 5.81 5.12 5.97 5.1; 5.18 5.12

:4N'

T:# 4:IN

LD!, T:# S<6 *4+ P6' I,I,I T:# P-:N *4+ LD!, -T @:NT:4< *4+ $I6-: <['ITH P-:N T:T: T:# SIN4 S'ND:6: T:# S<6

80

!6:N=-IN INDI: T:# SLI<-D*4+ In!erBre!%!i n* :4N'

;;.09

85.5

8;.1

0;.5

3.77

5.90

T:# 4:IN has N of 6s. 93.2; crs. It has standard deviation ;.U by

using sharpe ratio it has 5.8;U. LD!, T:# S<6 has N of 6s. )55.3 crs. It has standard deviation ;.57U by using sharpe ratio it has 5.81U. P6' I,I,I T:# P-:N has N of 6s. 33.;2U crs. It has standard deviation 2.;7U by using sharpe ratio it has 5.12U. LD!, -T @:NT:4< has N of 6s. 37.87U crs. It has standard deviation 7.U by using sharpe ratio it has 5.97U. $I6-: <['ITH P-:N has N of 6s. 98.93U crs. It has standard deviation 7.28U by using sharpe ratio it has 5.1;U. T:T: T:# SIN4 has N of 6s. 1).89U crs. It has standard deviation 7.0)U by using sharpe ratio it has 5.18U. S'ND:6: T:# S<6 has N of 6s. )7.29U crs. It has standard deviation ;.88U by using sharpe ratio it has 5.12U. !6:N=-IN INDI: T:# SLI<-D has N of 6s. ;;.09U crs. It has standard deviation 3.77U by using sharpe ratio it has 5.90U. Pr$ICICI T%= P&%n

Sn%B(" !* F$n' M%n%>er( * San&aran Naren In'i7%!ive Inve(!;en! H riH n* 1 yrs O more In7eB!i n '%!e* )2A5;A)222 F$n' SiHe* 6s. 090.27 crores NAV 5A( n 8/+)%n$%r-+:16* Gr w!" B!i n* 6s. 73.07 Divi'en' B!i n* 6s. 02.)1 ? NAV 5A( n :I+ABri&+:46* ? Gr w!" B!i n* 6s. .;;

81

JJE=Ben(e R%!i # r !"e ; n!" # )%nK:1* 0.13U XXThis is a close approximation of the number. R(./:?::: inve(!e' %! in7eB!i n* T%= P&%n V( SLP CNX Ni#!-*

Per# r;%n7e Re7 r'J* Gr w!" OB!i n*

89

Se7! r A&& 7%!i n*

P r!# &i *+ C ;B%n- E I(($er M%r<e! V%&$e M! 88

A$! Lero Londa -imited A$! An7i&&%rie( F Sundaram ,layton -imited F <xide Industries -imited Sundaram $ra&e -inings -td =esoram Industries -imited 6ane adras -imited 6ane Loldings -imited 6ane $ra&e -inings -td B%n<( ,orporation $an& Punjab National $an& $an& of $aroda Ce;en! F ,entury Textiles O Industries -td Brient Paper O Industries -imited Po&arna -td C"e;i7%&( :ndhra Sugars -td India 4lycols -imited Navin !lourine International -td 'ltramarine O Pigments -td. C n($;er N n+D$r%9&e F awana Sugars -td Pidilite Industries -imited 4odrej ,onsumers Larrisons alayalam -imited 'nited $reweries -td Ferr $( Me!%&( Tayo 6olls -td Fer!i&iHer( F D, Shriram ,onsolidated -imited 4ujarat State !ert O ,hem -imited Puari Industries -imited Fin%n7e 6eliance ,apital @entures -td C ;B%n- E I(($er H%r'w%re L,- Infosystems -td H !e&( Taj 4v& Lotels O 6esorts -td

5 R( L%<"6 8,I.42 108.79 8:/1.0, 293.;8 7;7.07 0;1.)7 030.;; 085.71 085.10 018.75 410.2I 179.53 072.0) ))3.); /848.,/ 270.23 089.;3 )98.12 /214.42 700.)5 119.73 039.10 )93.83 ,:/8.02 ;85.83 878.15 979.92 2;.38 )9.29 20.02 92.29 ,:,8.82 ;90.)0 709.)1 987.52 /0.:4 )2.57 M%r<e! V%&$e 5 R( L%<"6 2,0.2/ 902.9) 231.0: 15).83

NAV /.82M ).19U /,.2,M 1.25U 1.09U ).)7U ).5;U ).51U ).51U 5.27U 8./4M ).89U ).)8U 5.9;U I.1IM 9.55U ).58U 5.35U 1.:2M 0.27U ).1;U ).52U 5.35U 3.,0M 1.85U 0.17U ).28U 5.9)U 5.53U :.,/M 5.0)U 3.88M 1.97U 0.2;U ).;;U :.:3M 5.5;U M! NAV /.44M ).77U ,.::M ).09U

83

Briental Lotels -imited In'$(!ri%& C%Bi!%& G '( :ban -loyd ,hiles Bffshore -imited Numeric Power Systems -td In'$(!ri%& Pr '$7!( Polyplex ,orporation -imited !orgings -imited Supreme Industries -imited <sab India -imited Miner%&(EMinin> 4ujarat ineral Development ,orporation -td N n+Ferr $( Me!%&( F National :luminium ,ompany -imited Oi& Lindustan Bil <xploration -td 6eliance Natural 6esources -td Pe!r &e$; Pr '$7!( 6eliance Industries -imited P"%r;%7e$!i7%&( F Sun Pharmaceuticals -imited F !D, -imited F ,adila Lealthcare -imited !ulford India -imited P wer 4ujarat Industries Power ,o -imited 6eliance <nergy @entures -td S #!w%re Subex Systems -imited =PIT Infosystems Te&e7 ; Servi7e( 6eliance ,ommunications @entures -td Te=!i&e( + C !! n Precot ills -td aral Bverseas -imited Te=!i&e( + Pr '$7!( C ;B%n- E I(($er 6aymond -imited =. 4. Denim -imited Nitin Spinners -td Te=!i&e( + S-n!"e!i7 F S6! -imited C%("? C%&&? CBLO L Rever(e ReB

);8.19 /://.2, 782.53 080.13 /,:,.22 189.7; 190.39 03).3; 091.19 ,:3.I2 05;.89 //:2.3: ))59.;5 //:.,8 )53.03 1.27 I14.:/ 837.5) 8,03.21 )183.92 )530.37 ;57.2) 7).12 /:4.11 32.77 17.;2 323.,/ 875.5) 07;.05 /,0.84 )02.17 03/.,, 709.95 083.;0 3:3.04 M%r<e! V%&$e 5 R( L%<"6 320.2) ))0.08 1. 3,3.8: ;0;.15 ,2I.:1

5.73U 2./1M 1.)0U ).59U 2.0IM ).93U ).9)U ).5;U ).55U :.31M 5.;3U 2.IIM 9.88U :.2IM 5.99U 5.50U ,.88M 0.11U /8.I3M 8.8;U 9.17U 1.11U 5.02U :.22M 5.02U 5.)3U 8.20M 0.18U ).)9U :.I8M 5.81U 2.:2M 0.2;U ).53U 8.88M M! NAV 0.;8U 5.93U 5.50U 8.2/M 1.9)U /.:/M

87

O!"er C$rren! A((e!( T !%& Ne! A((e!( F Top Ten Loldings G$%n!i!%!ive In'i7%! r(* :verage P(< :verage P($@ :verage Dividend yield E )3.85 E 0.82 E ).03 E 0.27 times

34:.:3 8.I3M ,2,04.28 /::.::M

:nnual Portfolio Turnover 6atio

Portfolio turnover has been computed as the ratio of the higher value of average purchase and average sales% to the average net assets in the past one year *since inception for schemes that have not completed a year+. The figures are not netted for derivative transactions.

R( In Cr( A((e!( "e&' %( n )%n 8/? ,::4 R( /2?,44 Cr( <Duity 82U ;%9)5 Debt 9)U 8%;37 Total )55U )9%077 A((e!( "e&' 9- * Bther than -in&ed policy holders -in&ed policy holders KOTAK ELSS OBen . En'e' E@$i!- Lin<e' S%vin> S7"e;e( 0%9)9 ))%;31 )9%077

A9 $! !"e S7"e;e*

8;

: diversified eDuity scheme that invests in eDuity and eDuity related securities and enable investors to avail the income tax rebate% as permitted from time to time. The investment strategy is to have ;5 G )55 U in eDuity portion and 5 G 05U in one eDuity portion. I'e%& Inve(!;en! H riH n* 1 years and above. C rB$(* 6s.)53.71 crores R%!i * Portfolio P(< E 07.57 ? NAV 5A( n 8/ . Canuary G 53+E o Gr w!" B!i n* 6s.)).8;3 ? NAV 5A( n :I . ril G 57+E o Gr w!" B!i n* 6s.)1.70

Per# r;%n7e*

Se7! r A&& 7%!i n*

82

P r!# &i *A N%;e # !"e In(!r$;en! E@$i!- L E@$i!- Re&%!e' 5Li(!e'E Aw%i!in> &i(!in>6 Caipra&ash :ssociates -td National :luminium ,ompany -td :reva T and D India -td. Television <ighteen India -td. cdowell O ,ompany -td. Pantaloon 6etail *india+ -td. 6! -imited LD!, -td. Infosys Technologies -td. :lembic -td. :lfa -aval *India+ -td <ID Parry *India+ -td. :ndhra Sugars -td Taj4@= Lotels O 6esorts -imited Nestle India -td. ,enturion $an& of Punjab -td. Lindalco Industries -td S=! India -td Punjab National $an& I,I,I $an& -td. Nagarjuna ,onstruction ,ompany -td :mte& :uto -td. $ajaj :uto -td. In'$(!r-E R%!in> M ! Ne! A((e!(

,onstruction NonA!errous etals Industrial capital 4oods edia O <ntertainment ,onsumer Non Durables 6etailing :uto :ncillaries !inance Software Pharmacuticals Industrial capital 4oods ,onsumer Non Durables ,hemicals Lotels ,onsumer Non Durables $an&s NonA!errous etals Industrial Products $an&s $an&s ,onstruction :uto :ncillaries :uto

1.;; 1.33 1.30 1.8) 1.9) 1.02 0.;9 0.78 0.70 0.37 0.31 0.8; 0.87 0.83 0.88 0.97 0.0; 0.0) 0.05 0.)8 0.)8 0.)0 0.58 35

$ritannia Industries -td. 6aymond -imited ollo Tyres -td. 'gar Sugar /or&s -td Tata ,hemicals -td. P@6 -td. S6<I Infrastructure O !inance -td $harat $ijlee -td Nahar Industrial <nterprises -td. Siemens -td. $harati Shipyard -td. =PIT ,ummins Infosystems -td. L,- Infosystems -td. N%;e # !"e In(!r$;en! ,elebrity !ashions -td. arico -td. Deccan ,hronicle Loldings -td. Indo 4ulf !ertiliIer -td. Ipca -aboratories -td. Texmaco -td. 4@= Power O Infrastructure -td. Sadbhav <ngineering -td. T !%& 0/.:8 M ne- M%r<e! In(!r$;en!( C ;;er7i%& P%Ber(ECer!i#i7%!e # DeB (i!( C rB r%!e De9! E Fin%n7i%& In(!i!$!i n( ,itifinancial ,onsumer !inance India -td. T !%& ,ollateral $orrowing O -ending Bbligation Ne! C$rren! A((e!(E5Li%9i&i!e(6 Gr%n' T !%&

,onsumer Non Durables Products :uto :ncillaries ,onsumer Non Durables !ertilisers edia O <ntertainment !inance Industrial capital 4oods Textiles A ,otton Industrial capital 4oods Industrial capital 4oods Software Lardware In'$(!r-E R%!in> Textile Products ,onsumer Non Durables edia O <ntertainment !ertilisers Pharmacuticals Industrial capital 4oods Power ,onstruction

).22 ).2) ).;1 ).;1 ).73 ).7) ).39 ).31 ).3) ).8; ).93 ).93 ).17 M ! Ne! A((e!( ).0; ).09 ).)8 5.22 5.;2 5.92 5.); 5.)3 0/.:8

P)V

5.;7 :.34 ).78 3.18 )55.55

Prin7iB%& T%= S%vin> F$n' :n Bpen G <nded <Duity -in&ed Saving Schemes FUND FEATURES W" (" $&' inve(!*

3)

T"e S7"e;e i( ($i!%9&e # r inve(! r( (ee<in> in7 ;e !%= 'e'$7!i n $n'er Se7!i n 3:C 5,6 # ITA %& n> wi!" & n>+!er; e@$i!-+;%r<e! re!$rn( #r ; inve(!;en! in e@$i!ie(. Inve(!;en! O9Ce7!ive * To provide longAterm growth of capital. Li@$i'i!-* Sale and 6epurchase on a continuous basis% subject to loc&Ain period of 1 years. Inve(!;en! OB!i n(* 4rowth T%= Bene#i!(* :n investment by an Individual or a Lindu 'ndivided !amily in the <-SS scheme will entitle the investor to a deduction from their 4ross Total Income as provided under clause *xiii+ of section ;5, *0+ of the Income Tax :ct% )23). The maximum deduction permissible under this section is 6s. )55%555(A in a year% subject to availability of gross total income of the assessee. No 4ift Tax% no /ealth Tax. Please consult your own professional advisor concerning possible tax conseDuences on your investment. F$n' M%n%>er* 6. Srinivasan A((e!( $n'er ;%n%>e;en!* 6s.)18.)8 core ? NAV 5A( n 8/ . Canuary G 53+E o Gr w!" B!i n* 6s.09.93 ? NAV 5A( n :I . ril G 57+E o 4rowth optionE

Per# r;%n7e*

30

Se7! r S!r%!e>-*

B r!# &i *A

31

In(!r$;en! $L<6eliance Industries -td 4odrej Industries -td aharashtra Seamless -td BN4, -td 4odrej ,onsumer Products -td 'nited $reweries Lolding -td ,rompton 4reaves -td :utomative :xles -td S$I Pantaloon 6etail *I+ -td 4reaves ,otton -td Caipra&ash :ssociates -td 4oodlass Nerolac Paints -td LD!, $an& -td ahindra and ahindra -td Bmax :uto -td $lue Star -td Cindal Steel O Power -td P@6 -td $lue Dart <xpress -td In(!r$;en! =irlos&ar $rothers -td Infosys Technologies 6ajshree Sugars O ,hemicals -td :$$ -td ,<S, Lindustan ,onstruction ,ompany -td Spice Cet -td ahavir Spinning ills -td The South Indian $an& -td 4raphite -td <ID Parry -td idAday ultimedia -td 6eliance Natural 6esources -td Super Sales -td $annari :mman Sugar -td @ardhaman Spinning O 4eneral ills C%("? C%&& %n' O!"er A((e!( Ne! A((e!(

In'$(!rIndustrial ,apital 4oods Petroeum Products ,hemicals !errous etals Bil ,onsumer Non Durables !inance Industrial ,apital 4oods :uto :ncillaries $an&s 6etailing Industrial Products ,onstruction ,onsumer Non Durables $an&s :uto :uto :ncillaries ,onsume Durables !errous etals edia O <ntertianment ,ourier In'$(!rIndustrial Products Software Sugar Industrial ,apital 4oods Power ,onstruction Transport Textiles A ,otton $an&s Industrial Products ,onsumer Non Durables edia O <ntertianment 4as Textiles A ,otton ,onsumer Non Durables !inance

M # NAV 8.10 9.28 9.09 1.22 1.13 1.0; 1.03 1.)3 1.)9 1.)5 1.58 1.51 1.5) 0.25 0.;1 0. 0.72 0.31 0.8; 0.8) 0.02 M # NAV 0.08 0.)5 0.52 0.53 ).2; ).7; ).75 ).8; ).88 ).8) ).07 ).03 ).00 ).)9 ).57 5.21 1.,3 /::.::

Fr%n<&in In'i% T%=("ie&'

39

Inve(!;en! S!-&e* The fund manager see&s steady growth by maintaining a diversified portfolio of eDuities across sectors and mar&et cap ranges. Inve(!;en! O9Ce7!ive* :ims to provide medium to long term growth of capital along with income tax rebate. D%!e # A&& !;en!* ril )5% )222 F$n' M%n%>er* Satish 6amanathan L%!e(! NAV* 5A( n 8/ . Canuary G 53+E 4rowth Plan 6s. ))5.8) Dividend Plan 6s. 19.;8 ? NAV 5A( n :I . ril G 57+E o Gr w!" B!i n* 6s.));.97 F$n' SiHe* 6s. 013.8) crores T$rn ver* Portfolio Turnover 7).9;U S!%n'%r' Devi%!i nE 3.18 R+(@$%re'* 5.20 Be!%* 5.;1 S"%rBe R%!i J* 5.35 X 6is&Afree rate assumed to be 8.51U *based on CP E=Ben(e R%!i * 0.91U Mini;$; Inve(!;en!E M$&!iB&e( # r New Inve(! r(* 6s.855(855 A''i!i n%& Inve(!;en!E M$&!iB&e( # r E=i(!in> Inve(! r(* 6s.855(855 organ 1 month TA$ill Index+

T%= Bene#i!(* Investments will Dualify for tax benefit under the new Section ;5, as amended by the !inance :ct 0558

F$n' M%n%>erF( C ;;en!%r-* 38

The eDuity exposure of the fund has increased to 29.81U from ;;.7)U during the month% as we deployed the cash position. The main addition to the portfolio was 6eliance ,apital. <xposure to ! ,4 and finance sectors has gone up% while that to software and media has come down. R(./:?::: inve(!e' %! in7eB!i n in FIT L SLP CNX I::*

Se7! r S!r%!e>-*

33

Re&i%n7e T%= S%ver 5ELSS6 F$n' 37

FUND DATA S!r$7!$re* BpenAended <Duity -in&ed Savings Scheme In7eB!i n D%!e* September 00% 0558 C rB$(* 6s )%)23.1) crore * arch 1)% 0553+ Mini;$; Inve(!;en!* 6s 855 O in multiples of 6s 855 F$n' M%n%>er* :shwani =umar En!r- L %'* \0cr A 0.08UN W0cr \8cr A ).08UN W8cr A Nil E=i! L %'* Nil ? NAV 5A( n 8/ . Canuary G 53+E o Gr w!" B!i n* 6s.)1.8) ? NAV 5A( n :I . ril G 57+E o Gr w!" B!i n* 6s.)1.)5 INVESTMENT OB)ECTIVE: The primary objective of the scheme is to generate longAterm capital appreciation from a portfolio that is invested predominantly in eDuity and eDuityArelated instruments.

Se7! r A&& 7%!i n*

3;

In'$(!r:uto Industrial ,apital 4oods Software $an&s :uto :ncillaries ,ement ,onsumer Non Durables Industrial Products Pharmaceuticals !errous etals Textiles Petroleum Products ,hemicals !ertilisers Textile Products Power Steel Telecom Services edia O <ntertainment In'$(!rDredging ,onstruction Industrial achinery 6etail <ngineering Bil T !%&

M A&& 7%!i n )0.23 )0.12 2.13 ;.7 3.)3 8.0; 9.80 9.13 9.00 1.2 1.71 1.1) 0.9 0.00 ).22 ).79 ).12 ).02 ).) M A&& 7%!i n 5.;2 5.70 5.99 5.)) 5.5; 5.53 08.8,

Pr$ICICI T%= P&%n* ? F$n' SiHe* 6s. 090.27 crores

32

? NAV 5A( n 8/+)%n$%r-+:16* ? Gr w!" B!i n* 6s. 73.07 ? NAV 5A( n :I+ABri&+:46* ? Gr w!" B!i n* 6s. .;; ? :s we &now that at the inception the fund value will be 6s.)5 but at this stage the value of the fund is 6s.73.07. ? The return of the fund is 13.27U where as the bench mar& of the SOP Nifty was )1.01U. :ccording to this the fund has done better then the assumption of the mar&et. ? N has been increased from rs 73.07 to 6s .;;. K !%< ELSS* ? F$n' SiHe* 6s.)53.71 crores ? NAV 5A( n 8/ . Canuary G 53+E o Gr w!" B!i n* 6s.)).8;3 ? NAV 5A( n :I . ril G 57+E o Gr w!" B!i n* 6s.)1.70 ? :s we &now that at the inception the fund value will be 6s.)5 but at this stage the value of the fund is 6s.)).8;3. ? The return of the fund is )7.25U where as the bench mar& of the SOP Nifty 855 was )8.35U. :ccording to this the fund has done better then the assumption of the mar&et. ? N has been increase from 6s.)).8;3 to 6s.)1.70 Prin7iB%& T%= S%vin> F$n'* ? F$n' SiHe* 6s.)18.)8 crores ? NAV 5A( n 8/ . Canuary G 53+E o Gr w!" B!i n* 6s.09.93 ? NAV 5A( n :I . ril G 57+E o Gr w!" B!i n* 6s.70 ? :s we &now that at the inception the fund value will be 6s.)5 but at this stage the value of the fund is 6s.09.93. ? The return of the fund is 08.50U where as the bench mar& of the SOP Nifty was )1.);U. :ccording to this the fund has done better then the assumption of the mar&et. ? N has been increased from 6s.09.93 to 6s.70

75

Te;B&e! n In'i% T%=("ei&'* ? F$n' SiHe* 6s.013.8; crores ? NAV 5A( n 8/ . Canuary G 53+E o Gr w!" B!i n* 6s.))5.8) ? NAV 5A( n :I . ril G 57+E o Gr w!" B!i n* 6s.));.97 ? :s we &now that at the inception the fund value will be 6s.)5 but at this stage the value of the fund is 6s.))5.8). ? The return of the fund is 7).9;U where as the bench mar& of the SOP Nifty 855 was 85.07U. :ccording to this the fund has done better then the assumption of the mar&et. ? N has been increased from 6s.))5.8) to 6s 6s.));.97

Re&i%n7e T%= S%ver 5ELSS6 F$n'* ? F$n' SiHe* 6s.))23.1) crores ? NAV 5A( n 8/ . Canuary G 53+E o Gr w!" B!i n* 6s.)1.8) ? NAV 5A( n :I . ril G 57+E o Gr w!" B!i n* 6s.)1.)5 ? :s we &now that at the inception the fund value will be 6s.)5 but at this stage the value of the fund is 6s.)1.8). ? The return of the fund is 15.8)U where as the bench mar& of the SOP Nifty 855 was 0).57U. :ccording to this the fund has done better then the assumption of the mar&et. ? N has been decreased from 6s.)1.8) to 6s.)1.)5

7)

INTERPRETATION* F F utual funds outnumber traded securities. utual funds have a number of objective functions which lead to observably different trading

styles. These styles includeE F : wide variety of firms that trade on news regarding the endowment shoc&s of individuals. In the real world this might correspond to fundamental research about how various parts of the economy are doing. F : price fund that trades only on the eDuilibrium price G essentially a technical trading fund. F : fund that simply trades a fixed amount of stoc& G basically an index fund. F :dding mutual funds to the economy increases stoc& price volatility. This result contrasts sharply with models where funds act li&e people with utility functions. In those papers additional funds reduce volatility. F Since many funds have demands which are completely price inelastic% the introduction of an additional such fund does not directly affect the ris& discount in the prices of ris&y securities. There may be such an effect% but it operates through a change in investorsK implied ris& aversions. F 4enerally% new funds should be endowed with trading strategies which are maximally different from those of existing funds.

70

CHAPTER+I

CONCLUSION LSUGGESTIONS

71

). $y this study we conclude that the minimum Tax saving of and individual is 6s )555 and the maximum Tax saving is 15555. 0. :n Individual can ta&e an advantage of this funds and schemes to save tax by investing maximum of 6s )%55%555 1. If an Individual pays a premium more than 6s )%55%555 then he or she canKt avail tax benefit of what he or she pays excess of 6s )%55% a. The conclusion of this study is that the lower ris& with the higher returns is the important aspet of the mutual funds. :s we are studing on the tax saving funds in this the two type of benefits will be enjoyed by the investor i.e.% first he will be saving the tax and the money what he is investing in that he should not pay any type of tax. b. In the above funds we can see that PruI,I,I tax plan fund had given 13.27U of return form the inception time% =ota& <-SS fund has given the return of )7.2U in one year% the Principal Tax Saving !ud has given 08.50U of returns form the inception period% Templeton India Tax sheild fund had given the returns of 7).9;U from the inception period and the 6eliance Tax saver *<-SS+ fund had given 15.8)U of return from the inception. c. :ccording to the N the Principal Tax Saving Plan !und is well%but the other and the competetor is !ran&lin Templeton Taxshield fund and I,I,I P6'D<NTI:- Tax Plan !und. The fund is in the mar&et for the long time but also the return of the fund are well. So% the investor can invest in the Principal Tax Saving Plan !und or I,I,I P6'D<NTI:- Tax Plan !und both. Lere% the !ran&lin Templeton fund in the mar&et for the long time more than the five years and the performance of the fund is also well. The more fluctions are not i.e.% the fund is not have more up and downs in the mar&et the fund manager had maintained the fund in a good order and the portfolio is maintained in the well desired way and same with the I,I,I P6'D<NTI:- Tax Plan !und also the investor can invest any one of the fund.6elience !undKs N has come down during this one year.So Investigate properly before investing in 6elience Tax Saver d. /hile investing the main things are that has to be noted that the fluctions are there are and how the fund is doing from the inception period. In the tax saving scheme the main intension of the investor is to save the tax% and he wants the money to be get some value added to it.

79

BIBLIOGRAPHY

). L.Prem 6aja %0557% “Systematic Study of Income Tax".

78

0. :llen% !. and D. 4ale% )2;2% “Bptimal Security Design%" Review of Financial Studies, ) *1+% 002G031. 1. :llen% !. and 4. 4orton% )221% “,hurning $ubbles%" Review of Economic Studies% 35 *9+% 1A;13. 9. $iais% $.% T. !oucault% and !. SalaniM% )22;% “!loors% Dealer ar&ets%" Journal of Financial Markets% )% 081A0;9. ar&ets and -imit Brder

DATA SOURCES*+

8. www.pruicici.com
3. www.&ota&mutual.com 7. www.principalindia.com ;. www.templetonindia.com 2. www.reliancemutual.com )5.www.google.com )). www.myiris.com

73



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