A PROJECT REPORT ON STUDY OF TAX SAVING SCHEMES IN MUTUAL FUNDS

IN ICICI PRUDENTIAL LIFE INSURANCE CO. LTD.

Submitted to Punjab technical university In the partial fulfillment of the requirement for degree of MASTERS OF BUSINESS ADMINISTRATION BY Nitesh Uppal ROLL NO: 1176091

DEPARTMENT OF BUSINESS MANAGEMENT DEVRAJ GROUPS TECHNICAL CAMPUS AFFILATED TO PUNJAB TECHNICAL UNIVERSITY, JALANDHAR 2011-2013

DECLARATION
This is to certify that the project report titled STUDY OF TAX SAVING SCHEMES IN MUTUAL FUNDS ICICI PRUDENTIAL LIFE INSURANCE CO. LTD. carried out by NITESH UPPAL S/o Sh: MUKESH KUMAR UPPAL has been accomplished under the guidance and supervision of MRS. PARVEEN BALA & MS. NITIKA GUPTA This is an original work and has not been submitted by her anywhere else for the award of any degree. All sources of information and help have been duly mentioned and acknowledged.

Signature of Student Signature of faculty Guide

ACKNOWLEDGEMENT
My very special gratitude and heart felt thanks to our beloved Chairperson, for his blessings and best wishes to carry out my project work. Who is responsible for moulding our thinking to complete this project. It is my great pleasure to express my sincere gratitude and thanks to my heads of the Department Mrs. Parveen, for his valuable guidance and help. I am extremely thankful to my project guide Ms. Nitika Gupta, Department of management studies for imitating keen interest and giving valuable guidance at every stage of this project. I wish to express my sincere thanks to the company guide Mr. Rohit Gupta & Chakshina Gupta who is my external guide for his kind support and guidance to complete my project. I am also thankful to all the faculty members of the Department of management studies for their kind and valuable cooperation during the course of the project. I would also like to thank my parents, Friends and well wishers who encourage me to complete this project successfully. Date: NITESH UPPAL

LIST OF CHAPTERS
CHAPTER NO. 1 1.1 1.2 2 2.1 3 4 5 6 7 8 9 10 11 CONTENTS Introductions about company Organization chart SWOT analysis Introduction about project topic Need of study Objectives of study Review of literature Research Methodology Data analysis & interpretation Results & findings Limitations Suggestions Conclusion Bibliography PAGE NO.

CHAPTER NO: 1
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INTRODUCTION ABOUT ICICI PRUDENTIAL LIFE INSURANCE

ICICI PRUDENTIAL LIFE INSURENCE - AN INTRODUCTION

First of all one must have knowledge about what is life insurance: Life insurance is a form of insurance that pays monetary proceeds upon the death of the insured covered in the policy. Essentially, a life insurance policy is a contract between the named insured and the insurance company wherein the insurance company agrees to pay an agreed upon sum of money to the insured's named beneficiary so long as the insured's premiums are current.

With a large population and the untapped market area of this population insurance happens to be a very big opportunity in India. Today it stands as a business growing at the rate of 15-20% annually. Together with banking services, it adds about 7 percent to the countries GDP. In spite of all this growth statistics of the penetration of the insurance in the country is very poor. Nearly 80% of Indian populations are without life insurance cover and the health insurance. This is an indicator that growth potential for the insurance sector is immense in India. It was due to this immense growth that the regulations were introduced in the insurance sector and in continuation Malhotra Committee was constituted by the government in 1993 to examine the various aspects of the industry. The key element of the reform process was participation of overseas insurance companies with 26% capital. Creating a more competitive financial system suitable for the requirements of the economy was the main idea behind this reform. Since then the insurance industry has gone through many changes. The liberalization of the industry the insurance industry has never looked back and today stand as one of the most competitive and exploring industry in India. The entry of the private players and the increased use of the new distribution are in the limelight today. The use of new distribution techniques and the IT tools has increased the scope of the industry in the longer run. Insurance is the business of providing protection against financial aspects of risk, such as those to property, life health and legal liability. It is one method of a greater concept known as risk management which is the need to mange uncertainty on account of exposure to loss, injury, disadvantage or destruction. Insurance is the method of spreading and transfer of risk. The fortunate many who are exposed to some or similar risk shares loss of the unfortunate. Insurance does not protect the assets but only compensates the economic or financial loss. In insurance the insured makes payment called premiums to an insurer, and in return is able to claim a payment from the insurer if the insured suffers a defined type of loss. This relationship is usually drawn up in a formal legal contract. Insurance companies also earn investment profits, because they have the use of the

premium money from the time they receive it until the time they need it to pay claims. This money is called the float. When the investments of float are successful they may earn large profits, even if the insurance company pays out in claims every penny received as premiums. In fact, most insurance companies pay out more money than they receive in premiums. The excess amount that they pay to policyholders is the cost of float. An insurance company will profit if they invest the money at a greater return than their cost of float. An insurance contract or policy will set out in detail the exact circumstances under which a benefit payment will be made and the amount of the premiums. Classification of insurance The insurance industry in India can broadly classified in two parts. They are. 1) Life insurance. 2) Non-life (general) insurance.

1) Life insurance: Life insurance can be defined as life insurance provides a sum of money if the person who is insured dies while the policy is in effect. In 1818 British introduced to India, with the establishment of the oriental life insurance company in Calcutta. The first Indian owned Life Insurance Company; the Bombay mutual life assurance society was set up in 1870.the life insurance act, 1912 was the first statuary measure to regulate the life insurance business in India. In 1983, the earlier legislation was consolidated and amended by the insurance act, 1938, with comprehensive provisions for detailed effective control over insurance. The union government had opened the insurance sector for private participation in 1999, also allowing the private companies to have foreign equity up to 26%. Following the opening up of the insurance sector, 12 private sector companies have entered the life insurance business. Benefits of life insurance Life insurance encourages saving and forces thrift. It is superior to a traditional savings vehicle.

It helps to achieve the purpose of life assured. It can be enchased and facilitates quick borrowing. It provides valuable tax relief. Thus insurance is found to be very useful in the lives of the person both in short term and long term. Fundamental principles of life insurance contract; 1) Principle of almost good faith: A positive duty to voluntary disclose, accurately and fully, all facts, material to the risk being proposed whether requested or not. 2) Principle of insurable interest: Relationships with the subject matter (a person) which is recognized in law and gives legal right to insure that person. 2) Non-life (general) Insurance: Triton insurance co. ltd was the first general insurance company to be established in India in 1850, whose shares were mainly held by the British. The first general insurance company to be set up by an Indian was Indian mercantile insurance co. Ltd., which was stabilized in 1907. there emerged many a player on the Indian scene thereafter. The general insurance business was nationalized after the promulgation of General Insurance Corporation (GIC) OF India undertook the post-nationalization general insurance business.

1. INDUSTRY PROFILE 1.1 Insurance in India The insurance sector in India has come a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in the Indian insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries. 1.2 A Brief history of the Insurance Sector 8

The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important milestones in the life insurance in India are; 1912: The Indian Life Assurance For over 50 years, life insurance in India was defined and driven by only one companythe Life Insurance Corporation of India (LIC). With the Insurance Regulatory and Development Authority (IRDA) Bill 1999 paving the way for entry of private companies into both life and general sectors there was bound to be new-found excitement- and new success stories. Today, just three years since their entry, their cumulative share has crossed 13% (source: IRDA), far exceeding expectations. Clearly insurance is on a growth path. The percentage of premium income to GDP which was just 2.3% in 2000-01 rose to 3.3% in 2002-03; and life insurance has emerged as the dominant contributor to this growth. The industry presented a huge opportunity. Life insurance penetration, for instance, was at an abysmal 22% of the insurable population. However, private players have had to rise to many challenges. They were faced with attitudinal barriers towards the category and the perception that insurance was only a tax saving tool. Insurance per se had lost it basic rationale: protection. It wasnt surprising then that its potential lay frozen and unexploited. The challenge for private insurance players was to change the established category driver and get customers to evaluate life insurance as an investment-cumprotection tool.

1.3 Brief Review of Scenario Insurance

Insurance in India started without any Regulation in Nineteenth century. It was story of a typical colonial era. A few British companies dominated the market mostly in large urban centers.

Insurance was nationalized mainly on 3 counts First, Indian lives were not insured. Second, even if they were insured, they were treated as substandard lives and extra premium was charged. Third, there were gross irregularities in the functioning of Life insurance was nationalized in the year 1956, and then general insurance was nationalized in the year 1972. In 1999, the private insurance companies were allowed back again into insurance sector with maximum cap of 26 percent foreign holding. 1818 The British introduce to India, with the establishment of the Oriental Life Insurance company in Calcutta. 1850 Non life insurance debuts, with Triton Insurance Company. 1870 Bombay Mutual life Assurance Society is the first Indian-owned life insurer 1907 Indian mercantile Insurance is the first Indian non-life insurer. 1912 The Indian life assurance companies act enacted to regulate the life insurance business. 1938 The insurance act, which forms the basis for most current insurance laws, replaces earlier act. 1956 Life insurance nationalized, government takes over 245 Indian and foreign insurers and provident societies. 1956 Government sets up LIC 1972 Non life insurance nationalized, GIC set up. 1993 Malhotra committee, headed by former RBI governor R.N.Malhotra, set up to draw up a blue print for insurance sector reforms. 1994 Malhotra Committee recommends re-entry of private players, autonomy to PSU insurers. 1997 Insurance regulator IRDA (Insurance Regulatory and Development Authority) set up. 2000 IRDA starts giving licensed to private insurers 2001 ICICI Prudential Life Insurance came into the market to sell a policy. 2002 Banks were allowed to sell insurance plans, as TPAs enter the scene, insurers start settling non-life claims in the cashless mode.

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1.4 The Insurance Regulatory and Development Authority (IRDA): Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies. The other decisions taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies were the launch of the IRDAs online service for issue and renewal of licenses to agents. The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products, which are expected to be introduced by early next year. Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. In the private sector 12 life insurance and 6 general insurance companies have been registered.

With the demographic changes and changing life styles, the demand for insurance cover has also evolved taking into consideration the needs of prospective policyholder for packaged products. There have been innovations in the types of products developed by the insurers, which are relevant to the people of different age groups, and suit their requirements. Continued innovations in product development has resulted in a wide range of flexible products to meet the requirements for cover at different stages of life -today a variety of products are available ranging from traditional to Unit linked providing protection towards child, endowment, capital guarantee, pension and group solutions. A number of new products have been introduced in the life segment with guaranteed additions, which were subsequently withdrawn/toned down; single premium mode has been popularized; unit linked products; and add-on/riders including accidental death; dismemberment, critical illness, fixed term assurance

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risk cover, group hospital and surgical treatment, hospital cash benefits, etc. Comprehensive packaged products have been popularized with features of endowment, money back, whole life, single premium, regular premium, rebate in premium for higher sum assured, premium mode rebate, etc., together with riders to the base products. 1.5 Historical Perspective Prior to 1956 1956 2001 -242 companies operating

-Nationalization- LIC monopoly player -Government control -Opened up sector

1.6 Contribution to Indian Economy Life Insurance is the only sector which garners long term savings. Spread of financial services in rural areas and amongst socially less privileged. Long term funds for infrastructure. Strong positive correlation between development of capital markets and insurance/pension structure. Employment generation. 1.7 Insurance Industry prior to de-regulation Prior to deregulation in 2000, market was a public monopoly. Public Monopoly - 2000 Offices - Over 800,000 agents Distribution through tied agents only Sales approach primarily on a tax savings platform Traditional style product offering : Endowment and money back plans Inadequate and inflexible products Pensions: Small part of product offer Limited focus on customer needs

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Types of insurance companies

Insurance companies may be classified as

Life insurance companies, who sell life insurance, annuities and pensions products. Non-life or general insurance companies, who sell other types of insurance. In most countries, life and non-life insurers are subject to different regulations, tax and accounting rules. The main reason for the distinction between the two types of company is that life business is very long term in nature coverage for life assurance or a pension can cover risks over many decades. By contrast, non-life insurance cover usually covers a shorter period, such as one year. Insurance companies are generally classified as either mutual or stock companies. This is more of a traditional distinction as true mutual companies are becoming rare. Mutual companies are owned by the policyholders, while stockholders, (who may or may not own policies) own stock insurance companies. Reinsurance companies are insurance companies that sell policies to other insurance companies, allowing them to reduce their risks and protect themselves from very large losses. The reinsurance market is dominated by a few very large companies, with huge reserves. Captive Insurance companies may be defined as limited purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. This definition can sometimes be extended to include some of the risks of the parent company's customers. In short terms, it is an in-house self-insurance vehicle. Captives may take the form of a "pure" entity (which is a 100% subsidiary of the self-insured parent company); of a "mutual" captive (which insures the collective risks of industry members); and of an "association" captive (which self-insures individual risks of the members of a professional, commercial or industrial association).

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Size of global insurance industry Global insurance premiums grew by 9.7% in 2004 to reach $3.3 trillion. This follows 11.7% growth in the previous year. Life insurance premiums grew by 9.8% during the year due to rising demand for annuity and pension products. Non-life insurance premiums grew by 9.4% as premium rates increased. Over the past decade, global insurance premiums rose by more than a half as annual growth fluctuated between 2% and 10%.. Financial viability of insurance companies Financial stability and strength of the insurance company should be a major consideration when purchasing an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool with less attractive payouts for losses). A number of independent rating agencies, such as Best's, provide information and rate the financial viability of insurance companies.

Health insurance
Health insurance, which is coverage for individuals to protect them against medical costs, is a highly charged and political issue in the United States, which does not have socialized health coverage. In theory, the market for health insurance provision should function in a manner similar to other insurance coverage, but the skyrocketing cost of health coverage has disrupted markets around the globe, but perhaps most glaringly in the U.S. Please see health insurance for a discussion of this category.

Dental insurance
Dental insurance, like health insurance, is coverage for individuals to protect them against dental costs. Dental insurance usually goes hand-in-hand with health insurance,

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with most people in the United States receiving it included in their health insurance plan from their employer. Along with receiving dental insurance from your employer, there are ways to receive dental insurance through resellers and companies for individuals and families; although this way tends to be too expensive for most people.

2. COMPANY PROFILE ICICI Prudential Life Insurance Company Limited (the Company) a joint venture Between ICICI Bank Limited and Prudential plc of UK was incorporated on July 20, 2000 as a company under the Companies Act, 1956 (the Act). The Company is licensed by the Insurance Regulatory and Development Authority (IRDA) for carrying life insurance business in India. ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, a premier financial powerhouse and prudential plc, a leading international financial services group headquartered in the United Kingdom (UK). The company brings together the local market expertise and financial strength of ICICI Bank and Prudentials International life insurance experience. The company was granted a certificate of Registration by the IRDA on November 24, 2000 and eighteen days later, issued its first policy on December 12. ICICI Prudential was amongst the first private sector insurance companies to begin operations in December 2000 after receiving approval from Insurance Regulatory Development Authority (IRDA). From its early days, ICICI Prudential seemed to have the wherewithal for a large-scale business. By March 31, 2002, a little over a year since its launch, the company had issued 100,000 policies translating into premium income of approximately Rs. 1,200 million on a sum assured of over Rs.23 billion. When the company began its operations, the need was to build a brand that was relatable to, symbolized trust and was easily recognized and understood. It launched a corporate campaign ICICI Prudential also made using the theme of Sindoor to epitomize protection, trust, togetherness and all that is Indian; endearing itself to the masses. The success of the campaign, the calling card of the company saw the brand awareness scores almost at par with its 40 year old competitor. The theme of protection was also extended to subsequent product and

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category specific campaigns from child plans to retirement solutions which highlight how the company will be with its customers at every step of life. From day one, the company has unflinchingly focused on being mass-market player, developing products, creating a distribution network and deploying resources that would further its goal. Apart from ramping up thoroughly training its advisors, the company has twelve Bancasurance partners the largest in the country. It swiftly revised and added to its initial range of products, pioneering market-linked products and pension plans, to offer customers the most flexible life insurance policies in the country. In February 2004, ICICI Prudential increased its capital base by Rs. 500 million, its ninth capital hike, bringing the total paid up equity capital to Rs. 6,750 million. With the authorized capital of the company standing at Rs. 12 billion, ICICI Prudential continues to have the highest capital base amongst all life insurers in the country. The challenge ICICI Prudential now faces is to retain its top-notch position and continue to deliver the finest life insurance and pension solutions to its ever-growing customer base. ICICI Prudentials equity base stands at Rs. 1185 crore with ICICI Bank and Prudential plc holding 74% and 26% stake respectively. For the year ended March 31, 2006, the company garnered Rs.2, 412 crore of weighted new business premium and wrote 837,963 policies. The sum assured in force stands at Rs.45, 888 crore. The company has a network of over 72,000 advisors; as well as 9 bancasurance partners and over 200 corporate agent and broker tie-ups. ICICI Prudential is also the only private life insurer in India to receive a National Insurer Financial Strength rating of AAA (Ind) from Fitch ratings. The AAA rating is the highest credit rating, and is a clear assurance of ICICI Prudentials ability to meet its obligations to customers at the time of maturity or claims. For the past five years, ICICI Prudential has retained its position as the No.1 private insurer in the country, with a wide range of flexible products that meet the needs of the Indian customer at every step in life.

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Beginning operations in December 2000, ICICI Prudentials success has been meteoric, becoming the number one private life insurer within months of launch. Today, it has one of the largest distribution networks amongst private life insurers in India, with branches in 54 cities. The total number of policies issued stands at more than 780,000 with a total sum assured in excess of Rs.160 billion. ICICI Prudential closed the financial year ended march 31, 2004 with a total received premium income of Rs. 9.9 billion; up 135% last years total premium income of Rs.4.20 billion. New business premium income shows a 106% growth at Rs. 7.5 billion, driven mainly by the companys range of unique unit-linked policies and pension plans. The companys retail market share amongst private companies stood at 36%, making it clear leader in the segment. To add to its achievements, in the year 2003/04 it was adjudged Most Trusted Private Life Insurer (Economic Times Most Trusted Brand Survey by AC Nielsen ORG-MARG). It was also conferred the Outlook Money-Best Life Insurer award for the second year running. The company is also proud to have won Silver at EFFIES 2003 for its Retire from work, not life campaign. Notably, ICICI Prudential was also short-listed to the final round for its Sindoor campaign in EFFIES 2002. ICICI Prudentials success is rooted in its philosophy to always offer the customer a choice. This has been the driving force behind its multi-channel distribution strategy, which includes advisors, banks, direct marketing and corporate agents. In fact, ICICI Prudential was the first life insurer to invest in multiple channels and offer the customer choice and access; thus reducing dependency on any one channel, great strides in the retirement solutions and pensions market. The Companys penetration of the retirement market was driven by the focused approach towards creating awareness through sustained campaign; Retire from work, not life. Within six months, the campaign rewarded ICICI Prudential with an increased share of 23% of the total pensions market and 78% amongst private players. ICICI Prudential has one of the largest distribution networks amongst private life insurers in India, having commenced operations in 132 cities and towns in India, stretching from Bhuj in the west to Guwahati in the east, and Jammu in the north to Trivandrum in the south.

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The company has 9 bank partnerships for distribution, having agreements with ICICI Bank, Bank of India, Federal Bank, South Indian Bank, Lord Krishna Bank, and some co-operative banks, as well as over 200 corporate agents and brokers, it has also tied up with NGOs, MFIs and corporate for the distribution of rural policies. ICICI Prudential has recruited and trained more than 72,000 insurance advisors to interface with and advise customers. Further, it leverages its state-of-the-art IT infrastructure to provide superior quality of service to customers.

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1.1 ORGANISATION CHART

ORGANISATION CHART

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1.2

SWOT ANALYSIS

SWOT ANALYSIS

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Strength
1. ICICI Prudential is the 1stlife insurance company to introduce UNITLINKED, PENSION PRODUCTS AND LIFE TIME it can get the pioneer advantage. 2. Prudential is the 156 year old company founded in 1848 so it has full fledge experience in this industries. 3. ICICI enjoys a rating with the Moodys which is higher than the severing rating.48 4. Large distribution channel with 30 branches and more than 30,000financial advisors. 5. ICICI Prudential has the best incentives which motivate and encourage the advisors to work and fulfill the commitment. 6. The financial condition of both companies is very sound. 7. Good customer has service. 8. Company has created a brand name.

Weaknesses
1. It has to do operation with in the boundary of IRDA. 2. Up till now no more option of product for middle class offered by ICICI prudential life insurance. 3. No option in rural area. 4. Yet to build a strong distribution network in the market.

Opportunity
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1. Today ICICI prudential covers 40% market so yet there is a great potentiality to increase market share. 2. Insurance plan like pension plan, child plan & investment plan of ICICI prudential go good response from the market. So in future company can take benefit for it. 3. The brand name that creates ICICI prudential and awareness level of it is comparatively quite higher than competition. So it will be helpful in future while lunching new innovation products .4.Untapped market of India.

Threats
1 . . It is a private company so there is a doubt about solvency & liquidity among the general people. 2. Change in the environmental factors may effects the company. 3. The GOVT. policies and the annual budget may effect the insurance market. 4. Large distribution network of LIC and trust of people in LIC.

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CHAPTER NO: 2 Introduction About Project Topic

INTRODUCTION OF MUTUAL FUNDS There are a lot of investment avenues available today in the financial market for an investor with an investable surplus. He can invest in Bank Deposits, Corporate

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Debentures, and Bonds where there is low risk but low return. He may invest in Stock of companies where the risk is high and the returns are also proportionately high. The recent trends in the Stock Market have shown that an average retail investor always lost with periodic bearish tends. People began opting for portfolio managers with expertise in stock markets who would invest on their behalf. Thus we had wealth management services provided by many institutions. However they proved too costly for a small investor. These investors have found a good shelter with the mutual funds.

CONCEPT OF MUTUAL FUND

A mutual fund is a common pool of money into which investors place their contributions that are to be invested in accordance with a stated objective. The ownership of the fund is thus joint or mutual; the fund belongs to all investors. A single investors ownership of the fund is in the same proportion as the amount of the contribution made by him or her bears to the total amount of the fund Mutual Funds are trusts, which accept savings from investors and invest the same in diversified financial instruments in terms of objectives set out in the trusts deed with the view to reduce the risk and maximize the income and capital appreciation for distribution for the members. A Mutual Fund is a corporation and the fund managers interest is to professionally manage the funds provided by the investors and provide a return on them after deducting reasonable management fees. The objective sought to be achieved by Mutual Fund is to provide an opportunity for lower income groups to acquire without much difficulty financial assets. They cater mainly to the needs of the individual investor whose means are small and to manage investors portfolio in a manner that provides a regular income, growth, safety, liquidity and diversification opportunities.

DEFINITION OF MUTUAL FUND

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Mutual funds are collective savings and investment vehicles where savings of small (or Sometimes big) investors are pooled together to invest for their mutual benefit and returns Distributed proportionately.A mutual fund is an investment that pools your money with the money of an unlimited number of other investors. In return, you and the other investors each own shares of the fund. The fund's assets are invested according to an investment objective into the fund's portfolio of investments. Aggressive growth funds seek long-term capital growth by investing primarily in stocks of fast-growing smaller companies or market segments. Aggressive growth funds are also called capital appreciation funds.

Why Select Mutual Fund?

The risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can expect higher returns and vice versa if he pertains to lower risk instruments, which would be satisfied by lower returns. For example, if an investors opt for bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases in the same proportion. Thus investors choose mutual funds as their primary means of investing, as Mutual funds provide professional management, diversification, convenience and liquidity. That doesnt mean mutual fund investments risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets which involves a higher risk but can expect higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives market which is considered very volatile.

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THE CYCLE OF INVESTMENT IN MUTUAL FUNDS

MOBILIZATION OF SERVICES

SAVING

INVESTMENT

RETURNS

HISTORY OF MUTUAL FUNDS IN INDIA

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The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. The history of mutual funds in India can be broadly divided into four distinct phases

FIRST PHASE
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 corers of assets under management. SECOND PHASE (ENTRY OF PUBLIC SECTOR FUNDS) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 corers. THIRD PHASE (ENTRY OF PRIVATE SECTOR FUNDS) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive a revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.

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The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 cores. The Unit Trust of India with Rs.44, 541 cores of assets under management was way ahead of other mutual funds.

FOURTH PHASE
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 corers as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 corers of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 corers under 421 schemes.

ADVANTAGES OF MUTUAL FUNDS

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If mutual funds are emerging as the favorite investment vehicle, it is because of the many advantages they have over other forms and the avenues of investing, particularly for the investor who has limited resources available in terms of capital and the ability to carry out detailed research and market monitoring. The following are the major advantages offered by mutual funds to all investors:

Portfolio Diversification
Each investor in the fund is a part owner of all the funds assets, thus enabling him to hold a diversified investment portfolio even with a small amount of investment that would otherwise require big capital.

Professional Management
Even if an investor has a big amount of capital available to him, he benefits from the Professional management skills brought in by the fund in the management of the investors portfolio. The investment management skills, along with the needed research into available investment options, ensure a much better return than what an investor can manage on his own. Few investors have the skill and resources of their own to succeed in todays fast moving, global and sophisticated markets. Reduction/Diversification of Risk When an investor invests directly, all the risk of potential loss is his own, whether he places a deposit with a company or a bank, or he buys a share or debenture on his own or in any other from. While investing in the pool of funds with investors, the potential losses are also shared with other investors. The risk reduction is one of the most important benefits of a collective investment vehicle like the mutual fund.

Reduction of Transaction Costs

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What is true of risk as also true of the transaction costs. The investor bears all the costs of Investing such as brokerage or custody of securities. When going through a fund, he has the benefit of economies of scale; the funds pay lesser costs because of larger volumes, a benefit passed on to its investors. Liquidity Often, investors hold shares or bonds they cannot directly, easily and quickly sell. When they invest in the units of a fund, they can generally cash their investments any time, by selling their units to the fund if open-ended, or selling them in the market if the fund is close-end. Liquidity of investment is clearly a big benefit. Convenience and Flexibility Mutual fund management companies offer many investor services that a direct market investor cannot get. Investors can easily transfer their holding from one scheme to the other; get updated market information and so on. Tax Benefits Any income distributed after March 31, 2002 will be subject to tax in the assessment of all Unit holders. However, as a measure of concession to Unit holders of open-ended equity oriented funds, income distributions for the year ending March 31, 2003, will be taxed at a concessional rate of 10.5%.In case of Individuals and Hindu Undivided Families a deduction up to Rs. 9,000 from the Total Income will be admissible in respect of income from investments specified in Section 80L,Wealth-Tax and Gift-Tax. Choice of Schemes Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

Well Regulated:

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All mutual funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI. Transparency: You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

DISADVANTAGES OF MUAUAL FUNDS

No Control over Costs An investor in a mutual fund has no control of the overall costs of investing. The investor pays investment management fees as long as he remains with the fund, albeit in return for the professional management and research. Fees are payable even if the value of his investments is declining. A mutual fund investor also pays fund distribution costs, which he would not in curing direct investing. However, this shortcoming only means that there is a cost to obtain the mutual fund services. No Tailor-Made Portfolio Investors who invest on their own can build their own portfolios of shares and bonds and other securities. Investing through fund means he delegates this decision to the fund managers. The very-high-net-worth individuals or large corporate investors may find this to be a constraint in achieving their objectives. However, most mutual fund managers help investors overcome this constraint by offering families of funds- a large number of different schemes- within their own management company. An investor can choose from different investment plans and constructs a portfolio to his choice. Managing a Portfolio of Funds

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Availability of a large number of funds can actually mean too much choice for the investor. He may again need advice on how to select a fund to achieve his objectives, quite similar to the situation when he has individual shares or bonds to select. The Wisdom of Professional Management That's right, this is not an advantage. The average mutual fund manager is no better at picking stocks than the average nonprofessional, but charges fees. No Control Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat of somebody else's car. Dilution Mutual funds generally have such small holdings of so many different stocks that insanely great performance by a fund's top holdings still doesn't make much of a difference in a mutual fund's total performance. Buried Costs Many mutual funds specialize in burying their costs and in hiring salesmen who do not make those costs clear to their clients.

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TYPES OF MUTUAL FUNDS SCHEMES IN INDIA

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a collection of many stocks, an investors can go for picking a mutual fund might be easy. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below:

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A). BY STRUCTURE
1. Open - Ended Schemes An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. 2. Close - Ended Schemes Closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. 3. Interval Schemes Interval Schemes are that scheme, which combines the features of open-ended and close- ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

B). BY NATURE
1. Equity Fund These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund managers outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows: Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS) 2. Debt Funds The objective of these Funds is to invest in debt papers. Government authorities, private

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Companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as: Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government. Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities. MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes. Short Term Plans (STPs) Meant for investment horizon for three to six months. These funds primarily invest in short-term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures. Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for shortterm cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds

3. Balanced Funds As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment

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objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameterize, Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly. C). BY INVESTMENT OBJECTIVE

Growth Schemes
Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.

Income Schemes
Income Schemes are also known as debt schemes. The aim of these schemes is to provide Regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.

Balanced Schemes
Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).

Money Market Schemes

Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.

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Load Funds
A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from1% to 2%. It could be worth paying the load, if the fund has a good performance history.

No-Load Funds
A No-Load Fund is one that does not charge a commission for entry or exit. That is, no Commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work.

OTHER SCHEMES Tax Saving Schemes

Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.

Index Schemes
Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weight age. And hence, the returns from such schemes would be more or less equivalent to those of the Inde

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Sector Specific Schemes

These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. MUTUAL FUND INDUSTRY An Overview The mutual fund industry in india began with the setting up of the Unit Trust of india (UTI) in 1963 by the Government of India. Till the year 2000, UTI has grown to be a dominant player in the industry with the assets of over Rs. 76,547 crores as of March 31, 2000. the UTI is governed by a special legislation, the Unit Trust of India Act, 1963. in 1987 public sector banks and insurance companies were permitted to set up mutual funds. Also the two insurance companies LIC and GIC established mutual funds. Securities Exchange Board of India (SEBI) formulated the Mutual Fund (Regulation) 1993, which for the first time established a comprehensive regulatory framework for the mutual fund industry. Since then several mutual funds have been set up by the private and the joint sectrors. Growth of Mutual Funds The Indian Mutual Fund has passed through three phases. The first phase was between 1964 and 1987 and the only player was the Unit Trust of India, which had a total assets of Rs. 6700 crores at the end of 1988. The second phase is between 1987 and 1993 in which period 8 funds were established (6 by banks and one each by LIC and GIC). The total assets under management had grown to rs. 61028 crores at the end of 1994 and the number of schemes were 167.

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INTRODUCTION The third phase began with the entry of private and foreign sectors in the Mutual Fund industry in 1993. Kothari Pioneer Mutual Fund was the first fund to be established the private sector in association with a foreign fund. At the end of financial year 2000 (31st March) funds were functioning with Rs. 113005 crores as total assets under management. As on August end 2000 there were 33 funds with 391 schemes and assets under management with Rs. 102849 crores. As you probably know, mutual funds have become extremely popular over the last 20 years. What was once just another obscure financial instrument is now a part of our daily lives. More than 80 million people, or one half of the households in America, invest in mutual funds That means that, in the United States alone, trillions (yes, with a "T") of dollars are invested in mutual funds. In fact, to many people, investing meaying mutual funds. After all, it's common knowledge 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 speak a strange language that, sounding sort of like English, is interspersed with jargon like MER, NAVPS, load/no-load, etc. Originally mutual funds were heralded as a way for the little guy to get a piece of the market. Instead of spending all your free time buried in the financial pages of the Wall Street Journal, all you have to do is buy a mutual fund and you'd be set on your way to financial freedom. As you might have guessed, it's not that easy. Mutual funds are an excellent idea in theory, but, in reality, they haven't always delivered. Not all mutual funds are created equal, and investing in mutuals isn't as easy as throwing your money at the first salesperson who solicits your business. Trend in Mutual Funds Industry The Indian Mutual 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 one-tenth size of the banking deposits in the country.

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The private sector mutual fund industry in its resent avatar is barely 7 years old. The total asset under management over the past 4 to 5 tears has almost remain stagnant around the Rs 100, 000 crore mark. This has put a question mark 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 Unit Trust Of India (UTI) in 1964 by the government of India in order to mobiles small saving. During the past 37 years, UTI has grown to be a dominant player in the industry with assets with over Rs 76,547 crore as of March2000. However, trouble hit UTI has lost its dominant position in the industry and the asset under management has slipped drastically to Rs 46,396 crore. Private sector mutual funds, which were permitted along with foreign partners in 1993, now enjoy a dominant position in the country. Kothari Pioneer Mutual fund was the first fund to be established in the private sector with foreign fund. The private sector now controls around RS 45,818 crore assets under management, almost half the size of the industry. The mutual fund industry has become a fastest growing sector in the countrys capital and financial market with an average compounded growth rate of 20 percent over the past five years. This is despite increasing competition with more than 30 asset management companies for investors money. As on June 2002, the industry has Rs 100,703 crore asset under management spread across 36 funds with more than 390 schemes. Exchange Board of India (SEBI) came out with comprehensive regulation in 1993, which defined the structure of the mutual fund and asset management, Companies for the first time. The industry is in the process of evolving into a bigger and better investment medium for all market segment, Say Kavita Hurry, CEO ING Investment Management, further, currently, ING Investments manages around Rs.364 crore as on June 2002.

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Drastic Transformation: The industry is undergoing a transformation and is witnessing large number of mergers, acquisitions and takeovers in the schemes and asset management companies. Mutual fund products are competing with the banks deposits, Reserves Banks of India (RBI) bonds, pension funds and post offices schemes that provide not only guaranteed return but also tax-free returns. However, mutual funds are unable to provide assured return since they are investing in financial markets and returns from them are, by definition, uncertain. These transformation benefiting the investor friendly open-ended schemes, increasing the range of funds to choose from, enhanced transparency and improvement regulation. Market Trends: A lone UTI with just one scheme in 1964 now competes with as many as 400 odd products and 34 players in the market. In spite of the stiff competition and losing market share, UTI still remains a formidable force to reckon with. Last 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 pass with the game shifting to performance delivery in fund management as well as service. Those directly associated with the fund management industry like 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 markets. While UTI has always been a dominant player on the bourses as well as the debt markets, the new generations of private funds, which have gained substantial mass, are now seen flexing their muscles. Fund managers by their selection criteria for stocks have forced By rewarding honest and transparent corporate governance on the industry.

management with higher valuations, a system of risk-reward has been created where the corporate sector is more transparent then before.

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Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and technology sector. Funds performances are improving. Funds collection, which averaged at less than Rs100bn per annum over five-year period spanning 199398 doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceeded Rs300bn. Total collection for the current financial year ending March 2000 is expected to reach Rs450bn. What is particularly noteworthy is that bulk of the mobilization has been by the private sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net inflow of Rs. 7819.34 crore during the first nine months of the year as against a net inflow of Rs. 604.40 crore in the case of public sector funds. Mutual funds are now also competing with commercial banks in the race for retail investors 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. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The fund mobilization 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 1999-2000 matches the whole of 1998-99.

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ASSET MANAGEMENT COMPANIES

I II

1 1 2 3 4

UTI Asset Management Co. Ltd. BANK SPONSORED BOB Asset Management Services Ltd. Canbank Investment Management Services Ltd. PNB Asset Management Co. Ltd. SBI Funds Management Ltd. INSTITUTIONS GIC Asset Management Co Ltd; Idbi Principal Asset Management Co. Ltd. IL & FS Asset Management Co. Ltd. Jeevan Bima Sahayoog Asset Management Co. Ltd. PRIVATE SECTOR Benchmark Asset Management co. Ltd. Cholamandalam Asset Management Co. Ltd. Escorts Asset Management Ltd. J.M.Capital Management Pvt. Ltd. Kotak Mahindra Asset Management Co. Ltd. Reliance Capital Asset Management Ltd. Sundaram Asset Management Company Ltd. JOINT VENTURES-PREDOMINANTLY INDIAN Birla Sun Life Asset Management Co. Ltd. Credit Capital Asset Management Co. Ltd. DSP Merrill Lynch Fund Managers Ltd. First Indian Management Private Ltd. HDFC Asset Management Co. Ltd. Tata TD Waterhouse Asset Management Private Ltd.

III 1 2 3 4 IV 1 2 3 4 5 6 7 V 1 2 3 4 5 6

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VI 1 2 3 4 5 6 7 8 9 10 11

JOINT VENTURES-PREDOMINANTLY FOREIGN Alliance Capital Asset Management (India) Pvt. Ltd. Deutsche Asset Management (India) Pvt. Ltd. Dundee Investment management & Research (Pvt.) Ltd. HSBC Asset Management (India) Pvt. Ltd. ING Investment Management (India) Pvt. Ltd. Morgan Stanley Dean Writer Investment Management Pvt. Ltd. Prudential ICICI Asset management Co. Ltd. Standard Chartered Asset Management Co. Pvt. Ltd. Sun F & C Asset Management (India) Pvt. Ltd. Templeton Asset Management (India) Pvt. Ltd. Zurich Asset Management Co. (India) Pvt. Ltd.

VALUE CHAIN

As a business organisation, a mutual fund management company or fund complex (firm) undertakes a series of activities designed to generate value ofr its customers. By arraying a firms strategically important activities, one can construct a firms value chain representation. This analytic tool has been advanced by Micheael Porter. In grouping a firms activities the analyst must consider the manner in which the economies of various activities differ and how rivals distinguish themselves on the basis of these activities. We identify five links in the value chain for a typical mutual fund, as shown in the figure (previous page). The first activity is the investment selection. Mutual funds implement their investments strategy through their selection of security holdings. Funds vary in the amount of latitude they grant to portfolio managers. Investments may be dectated completely by fund charter, as is done in an S& P 500 index fund,or security selection may be left completely to the fund managers discretion, as in a growth fund. To support this function, funds require research which may be conducted in-house or purchased from vendors either with cash or with soft-dollar payment from brokers. The next activity is trading and execution. Once the decision has been made to buy or sell a particular security, a trade must be executed in the capital markets. This

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process involves not only getting the best price for the security, but also administering backoffice functions such as custodial servies. This particular link in the chain may seem minor at first glance, trading and execution expertise are increasingly being recognised as critical activities. The third item in the chain is customer record keeping and reporting. This refers to the tasks performed by transfer agents and to the activities and resources required to produce periodic statements for funds share holders. The fourth activity, marketing and distribution, describes how the funds communicate with potential customers and sell their products. Traditionally, openended mutual funds were categorized as either no-laid funds used print and electronic media, word of mouth, and mailing to appeal to consumers directly whereas load funds hired sales people to market and sell their products. To pay the sales people, load funds charged customers one-time fees, called loads. The final activity in our value chain is investor liquidity services. By this we mean the activities funds undertake to permit investors to switch among various investment or to liquidate 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 investors needs are defined in term of risk, and the portfolio manager maximizes return for investment undertaken. Asset allocation Security selection within asset classes asset allocation can best be characterized as the blending together of major asset classes to obtain the highest long-run return at the lowest risk. Managers can make opportnistic shifts in asset class weightings in order to improve return prospects over the long-term objective. Also managers can improve return prospects by selecting securities that have above average expected return within the individual asset classes. Investment managers Multitudes of investment management organization offer portfolio management services to clients including mutual funds. Investments organization differ not only in

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size and degree of specialization but also in their approaches to investment analysis and portfolio management. On 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 organizations at the forefront in implementing systematic approaches to portfolio management have gained market share at the expense of other firms, in large part because they have been more effective in addressing client needs and achieving investment objectives.

Participants Several groups other than professional portfolio managers are important

participants in the portfolio management process. In marketing the asset allocation decision, major portfolio investors employ the service of investment management consultants. These are organizations that specialize in not only advising on asset allocation but other critical aspects, such as setting of goal and selection of investment managers. Asset classes Developing the appropriate asset allocation is a critical phase of the portfolio management process. Equities, bonds and money market instruments are major asset categories that are large, are generally highly marketable and have tradionally been used extensively by longterm portfolio investors. Asset classes for portfolio investment Corporates Common stocks Domestic equities Large-capitalization Small-capitalization International equities Major-country markets Emerging markets Bonds 47

Government and agencies AAA-rated Highly-yield (junk) bonds Mortgage-backed securities International bonds Money market instruments Treasury bills CDs and commercial paper Guaranteed investment contracts Real estate Venture capital The portfolio management industry has evolved over the last two decades into a structure with several distinct groupings of highly professional participants. Although 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 market 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. All influence the risk, returns and period of investment and involve finding a sport between the extremes that suits the fund and investors the best. Attitude: does it follow a top-down approach (first list industries or sectors for investment and then select specific companies within these industries) or a bottom-up approach (individual stocks which are likely to outperform the market are identified first and only then study the industry or macro level factors)? Intensity of management: is the scheme actively (review the portfolios regularly) or passively (less intensely managed stocks)? Distribution network: The rapid accumulation in assets of mutual funds creates more challenges, most important among them being the distribution network. For the long-term health of the industry, it is crucial that investors who come into a fund come with a full understanding of the risks involved in the investment. And distributors play an important role in dissemination of such information. At present, the majority of funds rely on branch network of banks in order to sell their products since the branch network of most fund houses is restricted to a few cities. 48

After-sales service: In India typically the distributors role comes to an end as soon as the product is sold to the investor. For subsequent transactions-redemption or switchovers-the investors often has to get back to the fund itself. An investors interface with a fund would be simpler if the whole range of services, from deciding on the right product to processing the final redemption request, is handled by a singled entity. BASIC MUTUAL FUND INVESTMENT INSTRUMENT Mutual Funds are investing in 3 types of funds: Stocks Bonds Money market instruments Broadly, Mutual Funds invest basically in 3 types of asset classes. 1. Stocks:- Stocks represent ownership or equity in a company popularly known as shares. 2. Bonds:- These represent debt from companies, financial institutions or government agencies. 3. Money Market Instruments:- These include short term dent instrument such as treasury bills, certificate of deposits, and inter bank call money. Mutual Fund can be classified based on their objectives as: Sector equity schemes:- These schemes invest in share of companies in as specific sector. Diversified equity schemes:- These schemes invest in shares and fixed income of the economy of companies across different sectors. Hybrid economy schemes:- These schemes invest in a mix shares and fixed income instruments. Income schemes:- These schemes invest in fixed income instruments such as bonds issued by corporate and financial institutions, and government securities. Money Market schemes:- These schemes invest in short term instrument such as certificate of deposits, treasury bills and short term bonds.

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ANALYSIS OF MUTUAL FUND Broadly the analysis categories in 3 types: Fundamental analysis Technical analysis Beta/Modern portfolio theory (MPT) FUNDAMENTAL ANALYSIS: The analysis of such fundamental factor general business conditions, industry outlook, earnings, dividends, quality of management etc., In this take consideration on the some following factors:1. Company net asset value. 2. Estimation of True. 3. Value of profit earning ratio. 4. Estimating the market value of current and forecasting. 5. Compare with various ratios like US, UK. 6. Estimate the future yield dividends.

Stock rating: The rating for common stock depends over the certain of dividend in take the consideration followings. 1. Ingredients of security analysis. 2. It include historical data, sales, capital etc., Economic analysis: 1. Cyclic effect 2. Economic analysis (fashions) Financial analysis: 1. EPS 2. EBIT 3. ROI 4. PAT

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 Bond rating; 1. AAA high investment grade: Debentures rated AAA are judged to offer highest safety of timely payment and interest and principles. 2. AA high safety: It is offer highest safety of timely payment and interest and principles. Investment grades 3. A adequate safety: Debentures rates A are judged offer highest safety of timely payment and interest and principles. 4. BBB moderate safety BBB are judged to offer sufficient safety of timely payment and interest and principles. Speculative grade: 5. BB Inadequate safety: Debentures rated BB are judged to offer timely payment and interest and principles. 6. B high risk 7. C substantial risk: Timely payment possible only in favorable circumstances continues. 8. D- In default

BETA / MPT ANALYSIS Analysis the responsiveness of the price of a particular company stock to change in the value some market average. TECHNICAL ANALYSIS: An analysis of market based factors such as Stock price movements, charts etc., TYPES OF MUTUAL FUND SCHEMES BY STRUCTURE: OPEN ENDED SCHEME

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 CLOSED ENDED SCHEME INTERVAL SCHEME BY INVESTMENT OBJECTIVE: GROWTH SCHEME INCOME SCHEME MONEY MARKET SCHEME OTHER SCHEMES: TAX SAVING SCHEME SPECIAL SCHEME INDEX SCHEME Mutual Fund broadly classified into TWO categories: 1. Open Ended Scheme funds 2. Closed Ended Scheme funds Now discuss details regarding above fund

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 NAV of the fund. At that point of time as specified by the funds. The NAV of fund is the current market value of their investments. Besides the Net Asset Value, certain funds take an additional charge from the investors in the form of Entry load or Exit load. Some Examples of Open Ended scheme funds are: Templeton India Growth Fund. PruICICI Discovery Fund. Kotak Opportunities Principal Dividend Yield Fund. Reliance Growth Fund.

CLOSED ENDED SCHEME FUND:

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In the care of close ended fund, the investors have to look 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 Closed Ended schemes the prices of the units are calculated in the same manner as in the case of Open Ended schemes. However these schemes do not charge an Entry/ Exit load as in the case of open ended scheme.

INTERVAL SCHEME FUND: The concept of these funds is that the investors are free to Enter/ Exit the scheme at any point of time during the fund period and the investors have to lock 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 look for growth of capital such funds invests in shorter with potential for growth and capital appreciation. They invest in well established companies where the company it self and the industry in which it operates are thought to have well long term growth potential and hence growth fund provide low current income. Growth potential generally incurred higher risks than Income Fund, in an effort to secure more pronounced growth. Some growth funds concentrate on one or more industry sectors and also invest in a Broad range of industries. Growth funds are suitable for investors who can offer to assume the risk of potential loss in value their investment in the short term in the hope of achieving substantial and risings gains. Eventually they are not suitable for investors who must conserve their principal or who must maximize current income.

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GROWTH AND INCOME FUND: Growth and Income funds seek long 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 stock and income stocks, or a combination of growth stocks paying high dividends preferred stock, convertible securities or fixed income securities such as corporate bonds and money market instruments. Growth 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 risk 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 liquidity; short- term top rated money market instruments. Money market funds are suitable for investors who want high stability of principal and current income with immediate liquidity.

LAW RELATING TO TAX SAVINGS U/S 80 B.Deductions in respect of certain payments 75[Deduction in respect of life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc. 7680C. 77(1) In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted, in accordance with and subject to the provisions of this section, the whole of the amount paid or deposited in the previous 54

year, being the aggregate of the sums referred to in sub-section (2), as does not exceed one lakh rupees. (2) The sums referred to in sub-section (1) shall be any sums paid or deposited in the previous year by the assessee (i) to effect or to keep in force an insurance on the life of persons specified in subsection (4); (ii) to effect or to keep 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 sub-section (4): 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 annuity; (iii) by way of deduction from the salary payable by or on behalf of the Government 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 making provision for his spouse or children, in so far as the sum so deducted does not exceed one-fifth of the salary; (iv) as a contribution by an individual to any provident fund to which the Provident Funds Act, 1925 (19 of 1925) applies; (v) as a contribution to any provident fund set up by the Central Government and notified78 by it in this behalf in the Official Gazette, where such contribution is to an account standing in the name of any person specified in sub-section (4); (vi) as a contribution by an employee to a recognised provident fund; (vii) as a contribution by an employee to an approved superannuation fund; (viii) as subscription to any such security of the Central Government or any such deposit scheme as that Government may, by notification in the Official Gazette, specify in this behalf; 55

(ix) as subscription to any such savings certificate as defined in clause (c) of section 279 of the Government Savings Certificates Act, 1959 (46 of 1959), as the Central Government may, by notification80 in the Official Gazette, specify in this behalf; (x) as a contribution, in the name of any person specified in sub-section (4), for participation in the Unit-linked Insurance Plan, 1971 (hereafter in this section referred to as the Unit-linked Insurance Plan) specified in Schedule II of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002); (xi) as a contribution in the name of any person specified in sub-section (4) for participation in any such unit-linked insurance plan of the LIC Mutual Fund 80a[notified under] clause (23D) of section 10, as the Central Government may, by notification81 in the Official Gazette, specify in this behalf; (xii) to effect or to keep in force a contract for such annuity plan of the Life Insurance Corporation or any other insurer as the Central Government may, by notification82 in the Official Gazette, specify; (xiii) as subscription to any units of any Mutual Fund 82a[notified under] clause (23D) of section 10 or from the Administrator or the specified company under any plan formulated in accordance with such scheme as the Central Government may, by notification83 in the Official Gazette, specify in this behalf; (xiv) as a contribution by an individual to any pension fund set up by any Mutual Fund 83a[notified under] clause (23D) of section 10 or by the Administrator or the specified company, as the Central Government may, by notification84 in the Official Gazette, specify in this behalf; (xv) as subscription to any such deposit scheme of, or as a contribution to any such pension fund set up by, the National Housing Bank established under section 3 of the National Housing Bank Act, 1987 (53 of 1987) (hereafter in this section referred to as the National Housing Bank), as the Central Government may, by notification in the Official Gazette, specify in this behalf; 56

(xvi) as subscription to any such deposit scheme of (a) a public sector company which is engaged in providing long-term finance for construction or purchase of houses in India for residential purposes; 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 Central Government may, by notification in the Official Gazette, specify in this behalf; (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 India; (b) for the purpose of full-time education of any of the persons specified in sub-section (4); (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 self-financing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis; or (b) any instalment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or 57

(c) repayment of the amount borrowed by the assessee from (1) the Central Government or any State Government, or (2) any bank, including a co-operative bank, or (3) the Life Insurance Corporation, or (4) the National Housing Bank, or (5) any public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes which is eligible for deduction under clause (viii) of subsection (1) of section 36, or (6) any company in which the public are substantially interested or any co-operative society, where such company or co-operative 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 Central or State Act, or (8) 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 co-operative society; 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 (A) the admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co-operative society has to pay for becoming such shareholder or member; or

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(B) 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 out; or (C) any expenditure in respect of which deduction is allowable under the provisions of section 24; (xix) as subscription to equity shares or debentures forming part of any eligible issue of capital approved by the Board 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 form84a. Explanation.For 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 subsection (4) of section 80-IA; (ii) public company shall have the meaning assigned to it in section 385 of the Companies Act, 1956 (1 of 1956); (iii) public financial institution shall have the meaning assigned to it in section 4A86 of the Companies Act, 1956 (1 of 1956); (xx) as subscription to any units of any mutual fund referred to in clause (23D) of section 10 and approved by the Board on an application made by such mutual fund in the prescribed form86a: 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.

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Explanation.For the purposes of this clause eligible issue of capital means an issue referred to in clause (i) of the Explanation to clause (xix) of sub-section (2). The following clause (xxi) shall be inserted after clause (xx) of sub-section (2) of section 80C by the Finance Act, 2006, w.e.f. 1-4-2007 : (xxi) as term deposit (a) for a fixed period of not less than five years with a scheduled bank; and (b) which is in accordance with a scheme framed and notified, by the Central Government, in the Official Gazette for the purposes of this clause. Explanation.For the purposes of this clause, scheduled bank means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), or a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), or a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank, being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934). (3) The provisions of sub-section (2) 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. Explanation.In calculating any such actual capital sum assured, no account shall be taken (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. (4) The persons referred to in sub-section (2) shall be the following, namely: (a) for the purposes of clauses (i), (v), (x) and (xi) of that sub-section,

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(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 Hindu undivided family, any member thereof; (b) for the purposes of clause (ii) of that sub-section, in the case of an individual, the individual, the wife or husband and any child of such individual; (c) for the purposes of clause (xvii) of that sub-section, in the case of an individual, any two children of such individual. (5) Where, in any previous year, an assessee (i) terminates his contract of insurance referred to in clause (i) of sub-section (2), 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 insurance; or (b) in any other case, before premiums have been paid for two years; or (ii) terminates his participation in any unit-linked insurance plan referred to in clause (x) or clause (xi) of sub-section (2), 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 years; or (iii) transfers the house property referred to in clause (xviii) of sub-section (2) 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 back, whether by way of refund or otherwise, any sum specified in that clause,then,

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(a) no deduction shall be allowed to the assessee under sub-section (1) with reference to any of the sums, referred to in clauses (i), (x), (xi) and (xviii) of sub-section (2), paid in such previous year; 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. (6) If any equity shares or debentures, with reference to the cost of which a deduction is allowed under sub-section (1), 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 acquisition, the aggregate amount of the deductions of income so allowed in respect of such equity shares or debentures in the previous year or years preceding the previous year in which such sale or transfer has taken 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. Explanation.A person shall be treated as having acquired 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 debenture-holders, as the case may be, of the public company. (7) For the purposes of this section, (a) the insurance, deferred annuity, provident fund and superannuation fund referred to in clauses (i) to (vii); (b) unit-linked insurance plan and annuity plan referred to in clauses (xii) to (xiiia); (c) pension fund and subscription to deposit scheme referred to in clauses (xiiic) to (xiva); (d) amount borrowed for purchase or construction of a residential house referred to in clause (xv), of sub-section (2) of section 88 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. 62

(8) In this section, (i) Administrator means the Administrator as referred to in clause (a) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002); (ii) contribution to any fund shall not include any sums in repayment of loan; (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 Hindu 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 date; (b) a policy of insurance effected by an individual or a member of a Hindu 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 behalf; (iv) Life Insurance Corporation means the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956); (v) public company shall have the same meaning as in section 387 of the Companies Act, 1956 (1 of 1956); (vi) security means a Government security as defined in clause (2) of section 288 of the Public Debt Act, 1944 (18 of 1944); (vii) specified company means a company as referred to in clause (h) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002); (viii) transfer shall be deemed to include also the transactions referred to in clause (f) of section 269UA.]

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Tax Planning: For most individuals,financial planning and tax-planning are to mutually exclusive exercises. While planning our investments we spend a considerable amount of time evaluating various options and determining which suits us the best. But when it comes to planning out investments from a tax 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. Well, in case you were not aware the guidelines governing such investments are a lot different this year and lethargy on your part to rework your investment plan could cost you dear. Why are the stakes higher this year? Until the previous,tax benefit was provided as a rebate on the investment amount, which could not exceed Rs 1,00,000 ; of this Rs 30,000 was exclusively reserved for infrastructure Bonds. Also, the rebate reduced with every rise in the income slab; individuals earning over Rs 500,000 per year were not eligible to clain any rebate.For the current financial year, the Rs 1,00,000 limit has been retained; 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 One, the rebate has been replaced by a deduction from gross total income, effectively. The higher your income slab, the greater is the tax benefit. And two, all individuals irrespective of the income bracket are eligible for this investment. For most readers, these developments will result in higher tax-savings.

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TAX SAVING SCHEME: In the care of close ended fund, the investors have to look 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 Closed Ended schemes the prices of the units are calculated in the same manner as in the case of Open Ended schemes. However these schemes do not charge an Entry/ Exit load as in the case of open 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 ended scheme but one extra feature is in this that the tax saving he can claim that under the section 80 C for this the investor has to through with the tax brackets. According to the new budget 2006 07 every body who earns an income falls under a Tax Bracket. It is important to keep in mid that your Taxable Income, or income after deductions, defines your tax bracket which could actually be lower than the amount of money you have earned over the year. The current income tax determined four main tax brackets, which are as follows: Lower Limit 0 Rs.1,00,001 Rs.1,50,001 Rs.2,50,001 Upper limit Rs.1,00,000 Rs.1,50,000 Rs.2,50,000 No Upper Limit For example, if your taxable income is Rs.2,00,000 for the year, you would fall within the Rs.1,50,001 to Rs.2,50,000 tax bracket. You would have to pay the fixed sum for this slab, which is Rs.5,000 plus 20% of the amount that exceeds Rs.1,50,000. In your case, this excess amount would be Rs.50,000. So, your total income tax for the year would be Rs.5,000 + Rs.10,000 = Rs.15,000. You can move into a lower tax bracket by investing in a tax saving instrument. How does this work? Read on. How much can you save: The government has made a host of individual savings Tax deductible under one umbrella called Section 80C and a simple new rule has emerged if you invest up Tax Payable Nil 10% of income in excess of Rs.1,00,000 Rs.5,000 + 20% of income in excess of Rs.1,50,000 Rs.25,000 + 30% of income in excess of Rs.2,50,000

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to Ra.1 lakh in a tax saving instrument or even a combination of them, you effectively reduce our taxable income by up to Rs.1 lakh. This means you could save up to Rs.30,000* (Conditions apply) in taxes. The chart below shows how this happens: Your annual Your Amount taxable applicable tax invested under income before Section 80C (Rs) investment (Rs) (Rs) 1,20,000 2,000 1,00,000 1,50,000 5,000 1,00,000 2,00,000 15,000 1,00,000 3,00,000 40,000 1,00,000 4,00,000 70,000 1,00,000 5,00,000 1,00,000 1,00,000 7,50,000 1,75,000 1,00,000 9,00,000 2,20,000 1,00,000 Your new taxable income (Rs) 20,000 50,000 1,00,000 2,00,000 3,00,000 4,00,000 6,50,000 8,00,000 Your applicable tax after investment (Rs) 0 0 0 15,000 40,000 70,000 1,45,000 1,90,000 Your Savings (Rs) 2,000 5,000 15,000 25,000 30,000 30,000 30,000 30,000

The qualities that have to be seen before investing are that, All Equity Linked Saving Schemes are eligible for tax benefits under Section 80C. While there is no set way of determining which scheme may fit your requirements, remember that by investing in an ELSS, you trust your hard earned money to the asset management company for at least three years. Ask yourself certain questions before making your decisions. Is the company respected in the investment field? Has it done well in the past? Does it have the right credentials, experience, philosophy and expertise to make your money grow in the long run? Does it have a well - defined investment process and has it demonstrated commitment to this process through good and not so good times? Above all, do you trust it to make the right decisions for you? By satisfying these questions, you can rest assured that your money is in good hands. As always, speaking to your tax and/ or your investment adviser will certainly help you make the right tax saving investment for your future. According to the new budget 2007 08 every body who earns an income falls under a Tax Bracket. It is important to keep in mind that your Taxable Income, or income after deductions, defines your tax bracket which could actually be lower than the amount of money you have earned over the year. The current income tax determined four main tax brackets, which are as follows:

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Lower Limit 0 Rs.1,10,001 Rs.1,50,001 Rs.2,50,001 RS 10,00,000

Upper limit Rs.1,10,000 Rs.1,50,000 Rs.2,50,000 Rs10,00,000 No limit

Tax Payable Nil 10% of (TI - Rs.1,10,000)+3%EC Rs.4,000 + 20% of (TI - Rs.1,50,000)+3%EC Rs.25,000 + 30% (TI - Rs.2,50,000)+3%EC Rs 2,49,000 +30%(TI Rs 10,00,000)+10%SC+3%EC

For example, if your taxable income is Rs.2,00,000 for the year, you would fall within the Rs.1,50,001 to Rs.2,50,000 tax bracket. You would have to pay the fixed sum for this slab, which is Rs.4,000 plus 20% of the amount that exceeds Rs.1,50,000. In your case, this excess amount would be Rs.50,000. So, your total income tax for the year would be Rs.4,000 + Rs.10,000 = Rs.14,000.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 deductible under one umbrella called Section 80C and a simple new rule has emerged if you invest up to Ra.1 lakh in a tax saving instrument or even a combination of them, you effectively reduce our taxable income by up to Rs.1 lakh. This means you could save up to Rs.30,000* (Conditions apply) in taxes. The chart below shows how this happens: Your annual Your Amount taxable applicable tax invested under income before Section 80C (Rs) investment (Rs) (Rs) 1,20,000 1000 1,00,000 1,50,000 4,000 1,00,000 2,00,000 14,000 1,00,000 3,00,000 39,000 1,00,000 4,00,000 69,000 1,00,000 5,00,000 99,000 1,00,000 7,50,000 1,74,000 1,00,000 9,00,000 2,19,000 1,00,000 Your new taxable income (Rs) 20,000 50,000 1,00,000 2,00,000 3,00,000 4,00,000 6,50,000 8,00,000 Your applicable tax after investment (Rs) 0 0 0 14,000 39,000 69,000 1,44,000 1,89,000 Your Savings (Rs) 1,000 4,000 14,000 25,000 30,000 30,000 30,000 30,000

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DOS AND DONTS WHILE SELECTING A MUTUAL FUND: DOS: Check the track record of the asset management company. See what is offered in terms of after-sales service. Opt for an income or growth scheme on the basis of income requirements. Consider your liquidity needs to choose between an open-or-close-ended fund. Examine redemption and re-purchase facilities. DONTS: Never judge a mutual fund by the name of the group that is floating it. Dont invest in a mutual fund when the market is on an upswing. Do not opt for a fund where the NAV independently on the sensex. Do not view NAV independently of the sensex. Never but when the unit is quoted at a premium to NAV. ADVANTAGES OF MUTUAL FUND: PROFESSIONAL MANAGEMENT: Experienced fund managers supported by research team, select appropriate securities to the fund. The forecasting of the market is done effectively. DIVERSIFICATION: Mutual Fund invests in a diverse range of securities and over many industries. Hence, all the eggs are not played in one basket. Normally an investor has to have large sump of money to achieve this objective. If he invests directly in the stock market. Through Mutual Fund, he can achieve diversification of portfolio at a fraction at of the cost. CONVINIENT ADMINISTRATION:

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For the investors there is reduction in paper work and saving in time. It is also very convenient. Mutual Fund helps in overcoming the problems relating to bad deliveries delayed payments and the like. RETURN POTENTIAL: Medium and the long term Mutual Fund have the potential to provide high return. LOW COST: The funds handle the investments of a large number of people; they are in a position to pass on relatively low brokerage and other costs. This is because the funds can take advantage of the economics of scale. LIQUIDITY: MUTUAL Fund provides liquidity in two ways. In open ended schemes, the investors can get back this money at any time by selling back the units to the fund at NAV related prices. In closed ended schemes fund, he has the option to sell the units through the stock exchange. FLEXIBILITY: Currently most funds have regular investment plans, regular withdrawal plans and divided reinvestment schemes. A great deal of flexibility is assured in the process. CHOICE OF SCHEME: Mutual Fund 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: Mutual Funds provide information on each scheme about the specific investments made there under and so on.

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SELECTION OF A FUND Objective of the fund: The Fund whether income oriented or growth oriented. Consistency of performance: a mutual fund is always intended to give steady long term returns; hence the investors should measure the performance of a fund over a period of at least three years. Historical background: The success of any fund depends upon the competence of the management, its integrity, periodicity and experience. Cost of Operation: Mutual funds seek 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. Capacity of innovation: Some companies introduced innovation schemes to meet the diverse needs of investors. Investors will look for funds which are capable of introducing innovation in the financial market.

Investor servicing: The most important factor is prompt and efficient servicing. Service like quick response to investors queries, prompt dispatch of unit certificates, quick transfer of units etc., FACILITIES AVAILABLE TO INVESTORS Re purchase facilities Reissue facilities Roll over facilities Lateral shifting facilities 70

Tax Saving Funds: Section 80c has come as a boon to investors who have an appetite for risk.Until the previous year, investment in tax saving funds (otherwise known as Equity Linked Savings Schemes) for the purpose of availing a tax benefit was restricted to Rs 10000 P.A In the current year all such restrictions have been done away with; an individual assessee now has the flexibility to invest the Rs 100000 that is allowed uncer section 80/c in any proportion that he wishes (only in PPF is there an upper limit of Rs 70000 pa) in specified instruments. Naturally, those with a risk appetite should be looking at increase their exposure to tax-saving funds. But now Tax Benefit will get up to Rs 1,00,000 .These leading tax-saving funds as on 14-11-2005.

Tax saving funds are simply equity funds that have mandatory lock-in of three years. The lock-in is one of the key strengths of such funds; 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 day-to-day basis. In case of tax-savings funds, the fund outflows are known relatively well in advance and therefore can be planned for. Before we delve further into understanding why tax-saving funds should be considered for your portfolio,let us first understand risks associated with them.

RISK FACTORS IN MUTUAL FUND Just like in any other investment, Mutual Fund investment also carry certain risks, the risks in particular scheme of a mutual fund is a basically a function of five factor. 71

 Market Risk: In generally, there are certain risks associated with every kind of investments of shares. They are called market risks. The market risks can be reduced. But cannot be completely eliminated even by good investment management. The prices of shares are subjected to wide price fluctuations depending upon market conditions. Eg, cycle boom & slump and recovery. Scheme Risks: There are certain risks inherent in the scheme itself. T all depends upon the nature of the scheme. For instance, in a pure growth scheme, risks are greater. It is obvious because if one expects more returns an in the case of a growth scheme, one has to take more risks. Investment Risks: Whether the Mutual Fund makes money in shares or loses depends upon the investment expertise of the Asset management Company (AMC). If the investment advice goes wrong, the fund has to suffer a lot. The investment expertises of various funds are different and it is reflected on the returns which they offer to investors. Business Risk: The corpus of a Mutual Fund might have been invested in companys shares. If the business of that company suffers any set back, it cannot declare any dividend. Political Risk: Successive Governments bring with them fancy new economy ideologies and policies. It is often said that many economy decisions are politically motivated. Changed in Government bring in the risk of uncertainty which every player in the financial service industry has to face. So Mutual Funds are no exception to it.

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NEED OF STUDY

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NEED OF STUDY

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OBJECTIVES

OBJECTIVES
To study the tax savings scheme on mutual funds, its performance in the market, and its exposure to stock. To study the potential of mutual funds in ICICI Prudential life insurance co.ltd. To analyse the performance of various mutual funds schemes and suggests the best one.

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CHAPTER: 5 REVIEW OF LITERATURE

1. JULY, 2012 FRAME STANGER

Tax planning may seem like a tedious exercise requiring lot of efforts that may make an ordinary investor nervous at the first glance. Equity Linked Savings Scheme (ELSS) offers a simple way to get tax benefits and at the same time get an opportunity to gain from the potential of Indian equity markets.Tax saving is important, especially when investors can save up to 30,900 in taxes! Section 80C of the Income Tax Act, 1961 provides options to save tax by reducing the taxable income by up to 1 lakh. But, wealth creation is also important. Isn't it? That's why these solutions are ideal for investors who would like to create wealth along with tax saving.

2. Thomas Walker Arnold

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3. Drummond Allison 4. Roy Apps 5. Simon Armitage 6. John Adams 7. James Allen 8. Henry Digby Beste 9. John Baret 10.John Bois

Research Methodology

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RESEARCH: Research refers to the systematic method consisting of enumerating

of problem, formulating the hypothesis, collecting the facts or data, analyzing the facts and reaching certain conclusions either in the form of solutions towards the concerned problem or in certain generalizations for some theoretical formulation.

NEED FOR RESEARCH

Every market has to be competitive in his operation to survive and also able to make more profits. To achieve their objectives they must be careful about their customers. They must know the satisfaction level of the customer. Customer is the king of the market. Todays market is directed by the customer, so it is necessary for each and every type of business to know about the varying nature of their customers, by which they can provide best services to them. By this they will be able to retain the customer for a long period. All this results in increased sales, higher market share and more profits. If a company knows about the needs and behavior of its customers, then it can develop its strategies according to their need. It is also said that the cost of attracting a new customer is five times more than as existing customer. So a company should try to satisfy its customers. So thats why Icici prudential life insurance has decided to do a research to know the buying behavior of its customers, because they want to know about the view point of its customers.

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Research is defined as the creation of new knowledge and/or the use of existing knowledge in a new and creative way so as to generate new concepts, methodologies and understandings. This could include synthesis and analysis of previous research to the extent that it leads to new and creative outcomes. Research in common parlance refers to a search for knowledge. Once can also define research as a scientific and systematic search for pertinent information on a specific topic. In fact, research is an art of scientific investigation. The Advanced Learners Dictionary of Current English lays down the meaning of research as a careful investigation or inquiry specially through search for new facts in any branch of knowledge.1 Redman and Mory define research as a systematized effort to gain new knowledge.2 Some people consider research as a movement, a movement from the known to the unknown. .

Research methodology
Meaning of Research Methodology;A research methodology defines what the activity of research is, how to proceed, how to measure progress, and what constitutes success. Methodology is defined as 1. "the analysis of the principles of methods, rules, and postulates employed by a discipline" or 2. "the development of methods, to be applied within a discipline" 3. "a particular procedure or set of procedures". Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. It is necessary for the researcher to know not only the research methods/ techniques but also the methodology. Researcher not only need to know how to develop certain indices or tests, how to calculate the mean, median, mode or the standard deviation or chi-square, how to apply a particular research technique, but they also need to know which of these methods or techniques, are relevant and which are not. Research methodology to be adopted for the study is as follows:81

Identification of the problem:The research project relates to CONSUMER BEHAVIOR TOWARDS ICICI PRU. LIFE INSURANCE In it the problem proposed is to be researched is find out; what is the behavior of the consumer towards the different policies or the investment plans of the ICICI PRU. LIFE INSURANCE. Planning the research design:A suitable design has to be planned for any market research. It is the market plan specifying the procedure for collecting & analyzing the needed information. As per objective of the study mainly there are four types of research design viz: experimental, diagnostic, descriptive & exploratory. Here exploratory research design is proposed with focus on discovering of ideas & insight about the particular problem. Planning the sample design:The target for the study was consumers of Ferozepur. Survey has been done using questionnaire method, open and close- ended questions being included in the questionnaire. The secondary data for the research study has been collected from various magazines, newspapers, journals, books and websites. Major market players in the products the relevant areas have also been consulted for the research. Sample size:The sample size of the research project has been taken 100 of the customers of Ferozepur. Data collection:The relevant data for the research project is hybrid of primary and secondary data. Primary data:Using personal interview technique, survey, questionnaire & observation method the data has been collected from targeted focus groups, which are customers. The primary data collection for judgment sampling has done. This purpose has been formatted with both open & close ended structured questions. Secondary data:In addition to the reactions of the selected consumers segments, the factual information historic background including the sales volume by various manufactures of the product

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has been collected with the help of various trade/business journals, company magazines, brochures, and company reports and concern trade association reports.

SOURCES OF DATA: Secondary data:This data has been collected from the financial reports and statements of the company.

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CHAPTER-4 DATA ANALYSIS AND INTERPRETATION

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Tax-Saving Funds

NAV (Crs) 46.98 100.6 66.89 67.57 45.46 31.54 17.94 88.24

1-yr (%) 116.8 92.6 76.8 61.2 58.9 53.1 59.9 50.0

3-yr (%) 91.7 79.9 78.5 75.0 72.0 72.3 63.5 58.3

5-yr (%) 29.5 42.2 40.3 29.3 30.4 31.5 28.0

Std Dev (%) 8.81 8.07 9.87 7.81 7.95 7.21 8.55 6.77

Sharpe Ratio (%) 0.58 0.53 0.39 0.47 0.38 0.35 0.39 0.42

MAGNUM TAX GAIN HDFC TAX SAVER (G) PRU ICICI TAX PLAN (G) HDFC LT ADVANTAGE (G) BIRLA EQUITY PLAN TATA TAX SAVING SUNDARAM TAX SAVER FRANKLIN INDIA TAX SHIELD(G)

Leading Tax-Saving funds Interpretation: MAGNUM TAX GAIN has NAV of Rs. 46.98 crs. It has standard deviation 8.81% by using sharpe ratio it has 0.58%. HDFC TAX SAVER has NAV of Rs. 100.6 crs. It has standard deviation 8.07% by using sharpe ratio it has 0.53%. PRU ICICI TAX PLAN has NAV of Rs. 66.89% crs. It has standard deviation 9.87% by using sharpe ratio it has 0.39%. HDFC LT ADVANTAGE has NAV of Rs. 67.57% crs. It has standard deviation 7.81% by using sharpe ratio it has 0.47%. BIRLA EQUITY PLAN has NAV of Rs. 45.46% crs. It has standard deviation 7.95% by using sharpe ratio it has 0.38%. TATA TAX SAVING has NAV of Rs. 31.54% crs. It has standard deviation 7.21% by using sharpe ratio it has 0.35%. SUNDARAM TAX SAVER has NAV of Rs. 17.94% crs. It has standard deviation 8.55% by using sharpe ratio it has 0.39%.

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FRANKLIN INDIA TAX SHIELD has NAV of Rs. 88.24% crs. It has standard deviation 6.77% by using sharpe ratio it has 0.42%. PruICICI Tax Plan

Snapshot: Fund Managers : Sankaran Naren Indicative Investment Horizon: 3 yrs & more Inception date: 19-08-1999 Fund Size: Rs. 242.97 crores NAV (As on 31-January-06): Growth option: Rs. 76.27 Dividend option: Rs. 29.13 NAV (As on 05-April-07): Growth option: Rs. 81.88 **Expense Ratio for the month of Jan'06: 2.36% **This is a close approximation of the number. Rs.10,000 invested at inception: Tax Plan Vs S&P CNX Nifty:

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Performance Record*: Growth Option:

Sector Allocation:

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Portfolio:Company / Issuer Auto Hero Honda Limited Auto Ancillaries Sundaram Clayton Limited Exide Industries Limited Sundaram Brake Linings Ltd Kesoram Industries Limited Rane Madras Limited Rane Holdings Limited Rane Brake Linings Ltd Banks Corporation Bank Punjab National Bank Bank of Baroda Cement Century Textiles & Industries Ltd Orient Paper & Industries Limited Pokarna Ltd Chemicals Andhra Sugars Ltd India Glycols Limited Navin Flourine International Ltd Ultramarine & Pigments Ltd. Consumer Non-Durable Mawana Sugars Ltd Pidilite Industries Limited Godrej Consumers Harrisons Malayalam Limited United Breweries Ltd Ferrous Metals Tayo Rolls Ltd Fertilizers DCM Shriram Consolidated Limited Gujarat State Fert & Chem Limited Zuari Industries Limited Finance Reliance Capital Ventures Ltd Company / Issuer Market Value ( Rs Lakh) 325.74 325.74 3016.92 946.85 787.27 283.17 262.88 250.73 250.32 235.70 769.45 374.06 279.21 116.18 1373.21 972.96 254.86 145.39 1467.74 722.10 334.76 264.32 146.56 2013.94 850.56 575.30 474.49 98.65 14.94 49.94 49.94 2023.34 842.12 724.13 457.09 19.07 19.07 Market Value % to NAV 1.34% 1.34% 12.42% 3.90% 3.24% 1.17% 1.08% 1.03% 1.03% 0.97% 3.17% 1.54% 1.15% 0.48% 5.65% 4.00% 1.05% 0.60% 6.04% 2.97% 1.38% 1.09% 0.60% 8.29% 3.50% 2.37% 1.95% 0.41% 0.06% 0.21% 0.21% 8.33% 3.47% 2.98% 1.88% 0.08% 0.08% % to 88

Hardware HCL Infosystems Ltd Hotels Taj Gvk Hotels & Resorts Ltd Oriental Hotels Limited Industrial Capital Goods Aban Lloyd Chiles Offshore Limited Numeric Power Systems Ltd Industrial Products Polyplex Corporation Limited M M Forgings Limited Supreme Industries Limited Esab India Limited Minerals/Mining Gujarat Mineral Development Corporation Ltd Non-Ferrous Metals National Aluminium Company Limited Oil Hindustan Oil Exploration Ltd Reliance Natural Resources Ltd Petroleum Products Reliance Industries Limited Pharmaceuticals Sun Pharmaceuticals Limited FDC Limited Cadila Healthcare Limited Fulford India Limited Power Gujarat Industries Power Co Limited Reliance Energy Ventures Ltd Software Subex Systems Limited KPIT Infosystems Telecom Services Reliance Communications Ventures Ltd Textiles - Cotton Precot Mills Ltd Maral Overseas Limited Textiles - Products Company / Issuer Raymond Limited

( Rs Lakh) 429.41 429.41 486.90 301.56 185.34 1011.42 759.06 252.36 1202.44 354.78 342.64 261.68 243.34 208.54 208.54 1104.80 1104.80 110.23 106.26 3.97 567.01 567.01 3298.46 1356.49 1062.67 807.91 71.39 107.66 69.77 37.89 848.21 570.01 278.20 129.37 129.37 981.22 724.40 256.82 808.97 Market Value ( Rs Lakh) 692.91

NAV 1.77% 1.77% 2.00% 1.24% 0.76% 4.16% 3.12% 1.04% 4.95% 1.46% 1.41% 1.08% 1.00% 0.86% 0.86% 4.55% 4.55% 0.45% 0.44% 0.02% 2.33% 2.33% 13.58% 5.58% 4.37% 3.33% 0.29% 0.44% 0.29% 0.16% 3.49% 2.35% 1.14% 0.53% 0.53% 4.04% 2.98% 1.06% 3.33% % to NAV 2.85%

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K. G. Denim Limited Nitin Spinners Ltd Textiles - Synthetic SRF Limited Cash, Call, CBLO & Reverse Repo Other Current Assets Total Net Assets Top Ten Holdings Quantitative Indicators: Average P/E Average P/BV Average Dividend yield : 16.50 : 2.59 : 1.26 : 2.97 times

112.25 0.46% 3.81 0.02% 828.30 3.41% 828.30 3.41% 245.06 1.01% 870.08 3.58% 24297.43 100.00%

Annual Portfolio Turnover Ratio

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.

Rs In Crs Assets held as on Jan 31, 2007 Rs 14,277 Crs Equity 59% 8,410 Debt 41% 5,867 Total 100% 14,277 Assets held by : Other than Linked policy holders Linked policy holders KOTAK ELSS Open Ended Equity Linked Saving Schemes 2,414 11,863 14,277

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About the Scheme: A diversified equity scheme that invests in equity and equity related securities and enable investors to avail the income tax rebate, as permitted from time to time. The investment strategy is to have 80 100 % in equity portion and 0 20% in one equity portion. Ideal Investment Horizon: 3 years and above. Corpus: Rs.106.73 crores Ratio: Portfolio P/E : 27.07 NAV (As on 31 January 06): o Growth option: Rs.11.586 NAV (As on 05 April 07): o Growth option: Rs.13.72

Performance:

Sector Allocation:

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Portfolio:Name of the Instrument Equity & Equity Related (Listed/ Awaiting listing) Jaiprakash Associates Ltd National Aluminium Company Ltd Areva T and D India Ltd. Television Eighteen India Ltd. Mcdowell & Company Ltd. Pantaloon Retail (india) Ltd. MRF Limited HDFC Ltd. Infosys Technologies Ltd. Alembic Ltd. Alfa Laval (India) Ltd EID Parry (India) Ltd. Andhra Sugars Ltd TajGVK Hotels & Resorts Limited Nestle India Ltd. Centurion Bank of Punjab Ltd. Hindalco Industries Ltd SKF India Ltd Punjab National Bank ICICI Bank Ltd. Nagarjuna Construction Company Ltd Amtek Auto Ltd. Industry/ Rating % to Net Assets

Construction Non-Ferrous Metals Industrial capital Goods Media & Entertainment Consumer Non Durables Retailing Auto Ancillaries Finance Software Pharmacuticals Industrial capital Goods Consumer Non Durables Chemicals Hotels Consumer Non Durables Banks Non-Ferrous Metals Industrial Products Banks Banks Construction Auto Ancillaries

3.88 3.66 3.62 3.51 3.41 3.29 2.84 2.75 2.72 2.67 2.63 2.58 2.57 2.56 2.55 2.47 2.28 2.21 2.20 2.15 2.15 2.12

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Bajaj Auto Ltd. Britannia Industries Ltd. Raymond Limited Apollo Tyres Ltd. Ugar Sugar Works Ltd Tata Chemicals Ltd. PVR Ltd. SREI Infrastructure & Finance Ltd Bharat Bijlee Ltd Nahar Industrial Enterprises Ltd. Siemens Ltd. Bharati Shipyard Ltd. KPIT Cummins Infosystems Ltd. HCL Infosystems Ltd. Name of the Instrument Celebrity Fashions Ltd. Marico Ltd. Deccan Chronicle Holdings Ltd. Indo Gulf Fertilizer Ltd. Ipca Laboratories Ltd. Texmaco Ltd. GVK Power & Infrastructure Ltd. Sadbhav Engineering Ltd. Total 91.03 Money Market Instruments Commercial Papers/Certificate of Deposits Corporate Debt / Financial Institutions Citifinancial Consumer Finance India Ltd. Total Collateral Borrowing & Lending Obligation Net Current Assets/(Liabilites) Grand Total

Auto Consumer Non Durables Products Auto Ancillaries Consumer Non Durables Fertilisers Media & Entertainment Finance Industrial capital Goods Textiles - Cotton Industrial capital Goods Industrial capital Goods Software Hardware Industry/ Rating Textile Products Consumer Non Durables Media & Entertainment Fertilisers Pharmacuticals Industrial capital Goods Power Construction

2.05 1.99 1.91 1.83 1.83 1.76 1.71 1.64 1.63 1.61 1.58 1.46 1.46 1.37 % to Net Assets 1.28 1.24 1.15 0.99 0.89 0.49 0.18 0.16 91.03

P1+

0.87 0.87 1.75 6.35 100.00

Principal Tax Saving Fund An Open Ended Equity Linked Saving Schemes

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FUND FEATURES Who should invest: The Scheme is suitable for investors seeking income tax deduction under Section 80C (2) of ITA along with long-term equity-market returns from investment in equities. Investment Objective : To provide long-term growth of capital. Liquidity: Sale and Repurchase on a continuous basis, subject to lock-in period of 3 years. Investment Options: Growth Tax Benefits: An investment by an Individual or a Hindu Undivided Family in the ELSS scheme will entitle the investor to a deduction from their Gross Total Income as provided under clause (xiii) of section 80C (2) of the Income Tax Act, 1961. The maximum deduction permissible under this section is Rs. 100,000/- in a year, subject to availability of gross total income of the assessee. No Gift Tax, no Wealth Tax. Please consult your own professional advisor concerning possible tax consequences on your investment. Fund Manager: R. Srinivasan Assets under management: Rs.135.15 core NAV (As on 31 January 06): o Growth option: Rs.24.46 NAV (As on 05 April 07): o Growth option:

Performance:

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Sector Strategy:

portfolio:95

Instrument BHEL Reliance Industries Ltd Godrej Industries Ltd Maharashtra Seamless Ltd ONGC Ltd Godrej Consumer Products Ltd United Breweries Holding Ltd Crompton Greaves Ltd Automative Axles Ltd SBI Pantaloon Retail (I) Ltd Greaves Cotton Ltd Jaiprakash Associates Ltd Goodlass Nerolac Paints Ltd HDFC Bank Ltd Mahindra and Mahindra Ltd Omax Auto Ltd Blue Star Ltd Jindal Steel & Power Ltd PVR Ltd Blue Dart Express Ltd Instrument Kirloskar Brothers Ltd Infosys Technologies Rajshree Sugars & Chemicals Ltd ABB Ltd CESC Hindustan Construction Company Ltd Spice Jet Ltd Mahavir Spinning Mills Ltd The South Indian Bank Ltd Graphite Ltd EID Parry Ltd Mid-day Multimedia Ltd Reliance Natural Resources Ltd Super Sales Ltd Bannari Amman Sugar Ltd Vardhaman Spinning & General Mills Cash, Call and Other Assets Net Assets

Industry Industrial Capital Goods Petroeum Products Chemicals Ferrous Metals Oil Consumer Non Durables Finance Industrial Capital Goods Auto Ancillaries Banks Retailing Industrial Products Construction Consumer Non Durables Banks Auto Auto Ancillaries Consume Durables Ferrous Metals Media & Entertianment Courier Industry Industrial Products Software Sugar Industrial Capital Goods Power Construction Transport Textiles - Cotton Banks Industrial Products Consumer Non Durables Media & Entertianment Gas Textiles - Cotton Consumer Non Durables Finance

% of NAV 5.32 4.95 4.24 3.99 3.36 3.28 3.26 3.16 3.14 3.10 3.05 3.03 3.01 2.90 2.83 2.81 2.79 2.63 2.58 2.51 2.29 % of NAV 2.25 2.10 2.09 2.06 1.98 1.78 1.70 1.58 1.55 1.51 1.27 1.26 1.22 1.14 1.07 0.93 6.28 100.00

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Franklin India Taxshield Investment Style: The fund manager seeks steady growth by maintaining a diversified portfolio of equities across sectors and market cap ranges. Investment Objective: Aims to provide medium to long term growth of capital along with income tax rebate. Date of Allotment: April 10, 1999 Fund Manager: Satish Ramanathan Latest NAV: (As on 31 January 06): Growth Plan Rs. 110.51 Dividend Plan Rs. 34.85 NAV (As on 05 April 07): o Growth option: Rs.118.47 Fund Size: Rs. 236.51 crores Turnover: Portfolio Turnover 71.48% Standard Deviation: 6.35 R-squared: 0.92 Beta: 0.83 Sharpe Ratio*: 0.60 * Risk-free rate assumed to be 5.03% (based on JP Morgan 3 month T-Bill Index) Expense Ratio: 2.43% Minimum Investment/ Multiples for New Investors: Rs.500/500 Additional Investment/ Multiples for Existing Investors: Rs.500/500

Tax Benefits: Investments will qualify for tax benefit under the new Section 80C as amended by the Finance Act 2005

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Fund Managers Commentary: The equity exposure of the fund has increased to 94.53% from 88.71% during the month, as we deployed the cash position. The main addition to the portfolio was Reliance Capital. Exposure to FMCG and finance sectors has gone up, while that to software and media has come down. Rs.10,000 invested at inception in FIT & S&P CNX 500:

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Sector Strategy:

Reliance Tax Saver (ELSS) Fund

FUND DATA Structure: Open-ended Equity Linked Savings Scheme Inception Date: September 22, 2005 Corpus: Rs 1,196.31 crore (March 31, 2006) Minimum Investment: Rs 500 & in multiples of Rs 500 Fund Manager: Ashwani Kumar Entry Load: <2cr - 2.25%; =2cr <5cr - 1.25%; =5cr - Nil Exit Load: Nil NAV (As on 31 January 06): o Growth option: Rs.13.51 NAV (As on 05 April 07): o Growth option: Rs.13.10

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INVESTMENT OBJECTIVE: The primary objective of the scheme is to generate long-term capital appreciation from a portfolio that is invested predominantly in equity and equity-related instruments. Sector Allocation: Industry Auto Industrial Capital Goods Software Banks Auto Ancillaries Cement Consumer Non Durables Industrial Products Pharmaceuticals Ferrous Metals Textiles Petroleum Products Chemicals Fertilisers Textile Products Power Steel Telecom Services Media & Entertainment Industry Dredging Construction Industrial Machinery Retail Engineering Oil Total PruICICI Tax Plan: Fund Size: Rs. 242.97 crores % Allocation 12.96 12.39 9.36 8.7 6.16 5.28 4.52 4.36 4.22 3.9 3.73 3.31 2.4 2.22 1.99 1.74 1.39 1.29 1.1 % Allocation 0.89 0.72 0.44 0.11 0.08 0.06 93.32

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 NAV (As on 31-January-06): Growth option: Rs. 76.27 NAV (As on 05-April-07): Growth option: Rs. 81.88 As we know that at the inception the fund value will be Rs.10 but at this stage the value of the fund is Rs.76.27. The return of the fund is 36.97% where as the bench mark of the S&P Nifty was 13.23%. According to this the fund has done better then the assumption of the market. NAV has been increased from rs 76.27 to Rs 81.88. Kotak ELSS: Fund Size: Rs.106.73 crores NAV (As on 31 January 06): o Growth option: Rs.11.586 NAV (As on 05 April 07): o Growth option: Rs.13.72 As we know that at the inception the fund value will be Rs.10 but at this stage the value of the fund is Rs.11.586. The return of the fund is 17.90% where as the bench mark of the S&P Nifty 500 was 15.60%. According to this the fund has done better then the assumption of the market. NAV has been increase from Rs.11.586 to Rs.13.72 Principal Tax Saving Fund: Fund Size: Rs.135.15 crores NAV (As on 31 January 06): o Growth option: Rs.24.46 NAV (As on 05 April 07): o Growth option: Rs.72 As we know that at the inception the fund value will be Rs.10 but at this stage the value of the fund is Rs.24.46.

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 The return of the fund is 25.02% where as the bench mark of the S&P Nifty was 13.18%. According to this the fund has done better then the assumption of the market. NAV has been increased from Rs.24.46 to Rs.72 Templeton India Taxsheild: Fund Size: Rs.236.58 crores NAV (As on 31 January 06): o Growth option: Rs.110.51 NAV (As on 05 April 07): o Growth option: Rs.118.47 As we know that at the inception the fund value will be Rs.10 but at this stage the value of the fund is Rs.110.51. The return of the fund is 71.48% where as the bench mark of the S&P Nifty 500 was 50.27%. According to this the fund has done better then the assumption of the market. NAV has been increased from Rs.110.51 to Rs Rs.118.47

Reliance Tax Saver (ELSS) Fund: Fund Size: Rs.1196.31 crores NAV (As on 31 January 06): o Growth option: Rs.13.51 NAV (As on 05 April 07): o Growth option: Rs.13.10 As we know that at the inception the fund value will be Rs.10 but at this stage the value of the fund is Rs.13.51. The return of the fund is 30.51% where as the bench mark of the S&P Nifty 500 was 21.07%. According to this the fund has done better then the assumption of the market. NAV has been decreased from Rs.13.51 to Rs.13.10

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INTERPRETATION: Mutual funds outnumber traded securities. Mutual funds have a number of objective functions which lead to observably different trading styles. These styles include: A wide variety of firms that trade on news regarding the endowment shocks of individuals. In the real world this might correspond to fundamental research about how various parts of the economy are doing. A price fund that trades only on the equilibrium price essentially a technical trading fund. A fund that simply trades a fixed amount of stock basically an index fund. Adding mutual funds to the economy increases stock price volatility. This result contrasts sharply with models where funds act like people with utility functions. In those papers additional funds reduce volatility. Since many funds have demands which are completely price inelastic, the introduction of an additional such fund does not directly affect the risk discount in the prices of risky securities. There may be such an effect, but it operates through a change in investors implied risk aversions. Generally, new funds should be endowed with trading strategies which are maximally different from those of existing funds.

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CHAPTER-5 CONCLUSION &SUGGESTIONS

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1. By this study we conclude that the minimum Tax saving of and individual is Rs 1000 and the maximum Tax saving is 30000. 2. An Individual can take an advantage of this funds and schemes to save tax by investing maximum of Rs 1,00,000 3. If an Individual pays a premium more than Rs 1,00,000 then he or she cant avail tax benefit of what he or she pays excess of Rs 1,00, a. The conclusion of this study is that the lower risk with the higher returns is the important aspet of the mutual funds. As 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 PruICICI tax plan fund had given 36.97% of return form the inception time, Kotak ELSS fund has given the return of 17.9% in one year, the Principal Tax Saving Fud has given 25.02% of returns form the inception period, Templeton India Tax sheild fund had given the returns of 71.48% from the inception period and the Reliance Tax saver (ELSS) fund had given 30.51% of return from the inception. c. According to the NAV the Principal Tax Saving Plan Fund is well,but the other and the competetor is Franklin Templeton Taxshield fund and ICICI PRUDENTIAL Tax Plan Fund. The fund is in the market for the long time but also the return of the fund are well. So, the investor can invest in the Principal Tax Saving Plan Fund or ICICI PRUDENTIAL Tax Plan Fund both. Here, the Franklin Templeton fund in the market 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 market 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 ICICI PRUDENTIAL Tax Plan Fund also the investor can invest any one of the fund.Relience Funds NAV has come

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down during this one year.So Investigate properly before investing in Relience Tax Saver d. While 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.

LIMITATIONS

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LIMITATIONS:
The study is limited to the mutual Fund of ICICI prudential life insurance. It studies about its performance and tax savings. The duration of the study is limited.

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BIBLIOGRAPHY

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BIBLIOGRAPHY

1. H.Prem Raja ,2007, Systematic Study of Income Tax. 2. Allen, F. and D. Gale, 1989, Optimal Security Design, Review of Financial Studies, 1 (3), 229263. 3. Allen, F. and G. Gorton, 1993, Churning Bubbles, Review of Economic Studies, 60 (4), 813-836. 4. Biais, B., T. Foucault, and F. Salani, 1998, Floors, Dealer Markets and Limit Order Markets, Journal of Financial Markets, 1, 253-284.

DATA SOURCES:-

5. www.pruicici.com
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6. www.kotakmutual.com 7. www.principalindia.com 8. www.templetonindia.com 9. www.reliancemutual.com 10.www.google.com 11. www.myiris.com

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