CHAPTER 1 INTRODUCTION TO THE COMPANY

PROFILE OF THE COMPANY

Reliance Capital Ltd is a part of the Reliance - Anil Dhirubhai Ambani Group, and is ranked among the 20 most valuable private companies in India. Reliance Capital is one of India's leading and fastest growing private sector financial services companies, and ranks among the top 3 private sector financial services and banking groups, in terms of net worth. Reliance Capital has interests in asset management and mutual funds, life and general insurance, private equity and proprietary investments, stock broking, depository services, distribution of financial products, consumer finance and other activities in financial services. The Reliance Anil Dhirubhai Ambani Group is one of India's top 2 business houses, and has a market capitalization of over Rs.2,25,000 crore (US$ 53 billion), net worth in excess of Rs.58,000 crore (US$ 14 billion), cash flows of Rs. 12,000 crore (US$ 3 billion) and net profit of Rs. 8,000 crore (US$ 2 billion)

Businesses of Reliance ADAG are: > Reliance Mutual Fund > Reliance General Insurance > Reliance Life Insurance > Reliance Money > Reliance Consumer Finance > Reliance Asset Reconstruction

Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management Limited., a subsidiary of Reliance Capital Limited, which holds 93.37% of the paid-up capital of RCAM. Reliance Mutual Fund (RMF) is one of Indias leading Mutual Funds, with Average Assets Under Management (AAUM) of Rs. 1,02,179 Crores and an investor count of over 73 Lakh folios. (AAUM and investor count as of July 2010)

Vision And Mission statements

Vision Statement To be a globally respected wealth creator with an emphasis on customer care and a culture of good corporate governance. Mission Statement To create and nurture a world-class, high performance environment aimed at delighting our customers. Reliance Mutual Fund is so popular because it is investor focused. They show their dedication by continually dishing out innovative offerings and unparalleled service initiatives. It is their goal to become respected globally for helping people achieve their financial dreams through excellent organization governance and customer care. Reliance Mutual fund wants a high performance environment that is geared at making investors happy. RMF aims to do business lawfully and without stepping on other people. They want to be able to create portfolios that will ensure the liquidity of the investment of people in India as well as abroad. Reliance Mutual Fund also wants to make sure that their shareholders

realize reasonable profit, by deploying funds wisely. Taking appropriate risks to reach the company's potential is also one of Reliance Mutual Fund's objectives.

COMPANY HISTORY Reliance mutual fund, promoted by the Anil Dhirubhai Ambani (ADAG) group, is one of the fastest growing mutual funds in India having doubled its assets over the last one year. In March, 2006, the Reliance mutual fund emerged as the largest private sector fund house in the country, overtaking Prudential ICICI which has been holding that position for many years.

The sponsor of the fund is Reliance Capital Limited, the financial services arm of ADAG. Reliance Capital Asset Management Limited, a wholly owned subsidiary of Reliance Capital Limited, acts as the AMC to the fund. Directors of the company include Amitabh Jhunjhunwala, a senior executive of ADAG. Amitabh Chaturvedi is the managing director of the AMC.

As of end August 2006, Reliance mutual fund has Rs 28,753 crore of assets under management. Reliance Equity Fund, launched by Reliance MF in early 2006, is the largest mutual find scheme in the country with a fund size of over Rs 5,500 crore.

Reliance Mutual Fund has launched a new fund named as Reliance Fixed Horizon Fund - XV - Series 4, a close ended income scheme. The New Fund Offer (NFO) price for the scheme is Rs 10 per unit. The new issue is open for subscription from 26 April and closes on 27 April 2010.

The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio of Central, State Government securities and other fixed income/ debt securities normally maturing in line with the time profile of the scheme with the objective of limiting interest rate volatility.

The duration of the scheme is 371 days from the date of allotment.The scheme offers two options viz. growth and dividend payout option.The scheme will allocate up-to 70% of assets in money market instruments and it would allocate 30% to 100% of assets in Government Securities issued by Central & or State Government & other fixed income/ debt securities including but not limited to Corporate bonds and securitized debt with low to medium risk profile. Debt Securities will also include securitised debt, which may go up to 75% of the portfolio. Average maturity of the securities will be in line with the maturity profile of the scheme. The minimum application amount is Rs 5000 and in multiples of Re 1 thereafter. The fund seeks to collect a minimum subscription (minimum target) amount of Rs 20 crore under the scheme during the NFO periodEntry and exit load charge will be nil for the scheme. Benchmark Index for the scheme is CRISIL Short Term Bond Fund Index.

Reliance Mutual Fund is one of the fastest growing fund houses in the industry

Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is one of the fastest growing mutual funds in the country. Reliance Mutual Fund offers investors a well-rounded portfolio of products to meet varying investor requirements and has presence in 159 cities across the country. Reliance Mutual Fund constantly endeavors to launch innovative products and customer service initiatives to increase value to investors. Reliance Mutual Fund is the largest player among asset management companies that is making an attempt to direct a portion of Indias large domestic savings into the fund industry. It is the first asset management company to cross the Rs 1 lakh crore-mark in assets under management and has 72 lakh customers out of the total 3 crore customers in the entire MF industry in India. Besides, it has the distinction of being the most trusted asset management company for three years back to back by AC Neilson. Reliance Mutual Fund has grown to be the leader in the mutual fund industry in a short span of less than five years, beating established players in the field. With Assets Under Management (AUM) of 1, 18,251 crore, the fund house is a clear leader with a 20% lead over its nearest competition. With more than 90% of the applicants having less than Rs 50,000 worth of investments and over 1 million SIP investors, Reliance Mutual Fund proves that it is truly a retailfocused fund house. Reliance Capital Asset Management Ltd acts as the investment manager of Reliance Mutual Fund. Reliance Capital Asset Management is a subsidiary of Reliance Capital which holds 93.37% of the paid up capital of Reliance Capital Asset Management. The mutual fund is the fastest growing mutual fund in the country and offers investors a well-rounded portfolio of products to meet varying requirements of customers.

The growth path

The fund house has been able to earn the repute of being one of the fastest growing fund houses in the industry owing to its aggressive strategies, especially in its flagship fund Reliance Vision Fund and is offering five year returns of 25.14% as compared to the category average of 21.87%. Another category outperformer in the equity diversified fund from the house of Reliance Mutual Fund is Reliance Growth Fund that has given five year returns of 30.17% against the category average of 25%. The fund house is also a leader in sector-specific funds and is running five sector funds Reliance Banking Fund, Reliance Diversified Power Sector Fund, Reliance Pharma Fund, Reliance Media and Entertainment Fund and the recently launched Reliance Fund and the recently launched Reliance Infrastructure Fund - the highest number of sectoral funds in the industry. Also, Reliance Diversified Power Sector Fund (with an NAV of Rs 78) is the best performing fund among the top 10 funds in the five year category having yielded returns of 44.04% over the last five years.

Corporate Governance
Corporate Governance Policy: Reliance Capital Asset Management Ltd. has a vision of being a leading player in the Mutual Fund business and has achieved significant success and visibility in the market. However, an imperative part of growth and visibility is adherence to Good Conduct in the marketplace. At Reliance Capital Asset Management Ltd., the implementation and observance of ethical processes and policies has helped us in standing up to the scrutiny of our domestic and international investors.

Management: The management at Reliance Capital Asset Management Ltd. is committed to good Corporate Governance, which includes transparency and timely dissemination of information to its investors and unit holders. The Board of Directors of RCAM is a professional body, including well-experienced and knowledgeable Independent Members. Regular Audit Committee meetings are conducted to review the operations and performance of the company. Employees: Reliance Capital Asset Management Ltd. has at present, a code of conduct for all its officers. It has a clearly defined prohibition on insider trading policy and regulations. The management believes in the principles of propriety and utmost care is taken while handling public money, making proper and adequate disclosures. All personnel at Reliance Capital Asset Management Ltd are made aware of their rights, obligations and duties as part of the Dealing Policy laid down in terms of SEBI guidelines. They are taken through a well-designed HR program, conducted to impart work ethics, the Code of Conduct, information security, Internet and e-mail usage and a host of other issues. One of the core objectives of Reliance Capital Asset Management Ltd. is to identify issues considered sensitive by global corporate standards, and implement policies/guidelines in conformity with the best practices as an ongoing process. Reliance Capital Asset Management Ltd. gives top priority to compliance in true letter and spirit, fully understanding its fiduciary responsibilities.

The Management Team

Board of Directors Mr. Soumen Ghosh Mr. Kanu Doshi Mr. Manu Chadha Mr. Sushil Tripathi Management Team CEO Mr. Sundeep Sikka Head Equity Investments Mr. Madhusudan Kela Head Fixed Income Mr. Amitabh Mohanty Equity Fund Managers Mr. Sunil B. Singhania Mr. Shailesh Raj Bhan Mr. Krishan Daga Mr. Omprakash S. Kuckian Debt Fund Managers Mr. Amit Tripathi Mr. Prashant Pimple Commodities Ms. Anju Chhajer Mr. Arpit Malaviya Mr. Ashwani Kumar Mr. Shiv Chanani Mr. Govind Agrawal

Fund Manager

Mr. Hiren Chandaria

Head Of Departments

Infrastructure & Admin Finance and Accounts Human Resource Development Information Technology Service Delivery & Operations Excellence Operations & Settlement R&T Operations & Investor Relations Head - Sales & Distribution, Product Management, Customer Service Compliance Legal & Secretarial Zonal Heads Northern Zone Head Western Zone Head Southern Zone Head Eastern Zone Head

Mr. Pradeep Andrade Mr. Milind Gandhi Mr. Rajesh Derhgawen Mr. Vinay Nigudkar Mr. Bhalchandra Joshi Ms. Geeta Chandran Mr. Milind Nesarikar Mr. Himanshu Vyapak Mr. Suresh Viswanathan Mr. Muneesh Sud

Mr. Gurbir Chopra Mr. Aashwin Dugal Mr. Gopal Khaitan Mr. Vikas Rathie

Product range of the Company

Reliance mutual fund offers the following products

Equity/Growth Schemes
The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Reliance Natural Resources Fund: (An Open Ended Equity Scheme) The primary investment objective of the scheme is to seek to generate capital appreciation & provide long-term growth opportunities by investing in companies principally engaged in the discovery, development, production, or distribution of natural resources and the secondary objective is to generate consistent returns by investing in debt and money market securities. Reliance Equity Fund: (An open-ended diversified Equity Scheme.) The primary investment objective of the scheme is to seek to generate capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity & equity related securities of top 100 companies by market capitalization & of companies which are available in the derivatives segment from time to time and the secondary objective is to generate consistent returns by investing in debt and money market securities. Reliance Tax Saver (ELSS) Fund:

(An Open-ended Equity Linked Savings Scheme.) 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. Reliance Equity Opportunities Fund: (An Open-Ended Diversified Equity Scheme.) The primary investment objective of the scheme is to seek to generate capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity securities & equity related securities and the secondary objective is to generate consistent returns by investing in debt and money market securities. Reliance Vision Fund : (An Open-ended Equity Growth Scheme.) The primary investment objective of the Scheme is to achieve long term growth of capital by investment in equity and equity related securities through a research based investment approach. Reliance Growth Fund : (An Open-ended Equity Growth Scheme.) The primary investment objective of the Scheme is to achieve long term growth of capital by investment in equity and equity related securities through a research based investment approach. Reliance NRI Equity Fund : (An open-ended Diversified Equity Scheme.) The Primary investment objective of the scheme is to generate optimal returns by investing in equity or equity related instruments primarily drawn from the Companies in the BSE 200 Index. Reliance Regular Savings Fund:

(An Open-ended Scheme.) Equity Option : The primary investment objective of this option is to seek capital appreciation and/or to generate consistent returns by actively investing in Equity &Equity-related Securities. Balanced Option : The primary investment objective of this option is to generate consistent returns and appreciation of capital by investing in mix of securities comprising of equity, equity related instruments & fixed income instruments. Reliance Long Term Equity Fund: (An close-ended Diversified Equity Scheme.) The primary investment objective of the scheme is to seek to generate long term capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity & equity related securities and Derivatives and the secondary objective is to generate consistent returns by investing in debt and money market securities. Reliance Equity Advantage Fund: (An open-ended Diversified Equity Scheme.) The primary investment objective of the scheme is to seek to generate capital appreciation & provide long-term growth opportunities by investing in a portfolio predominantly of equity & equity related instruments with investments generally in S & P CNX Nifty stocks and the secondary objective is to generate consistent returns by investing in debt and money market securities

DEBT/INCOME SCHEMES
The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such

funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations. Reliance Monthly Income Plan: (An Open Ended Fund. Monthly Income is not assured & is subject to the availability of distributable surplus ) The Primary investment objective of the Scheme is to generate regular income in order to make regular dividend payments to unit holders and the secondary objective is growth of capital. Reliance Gilt Securities Fund - Short Term Gilt Plan & Long Term Gilt Plan: Open-ended Government Securities Scheme) the primary objective of the Scheme is to generate optimal credit risk-free returns by investing in a portfolio of securities issued and guaranteed by the central Government and State Government Reliance Income Fund: (An Open-ended Income Scheme) The primary objective of the scheme is to generate optimal returns consistent with moderate levels of risk. This income may be complemented by capital appreciation of the portfolio. Accordingly, investments shall predominantly be made in Debt & Money market Instruments.

Reliance Medium Term Fund: (An Open End Income Scheme with no assured returns.) The primary investment objective of the Scheme is to generate regular income in order to make regular dividend payments to unit holders and the secondary objective is growth of capital Reliance Short Term Fund:

(An Open End Income Scheme) The primary investment objective of the scheme is to generate stable returns for investors with a short investment horizon by investing in Fixed Income Securities of short term maturity. Reliance Liquid Fund: (Open-ended Liquid Scheme). The primary investment objective of the Scheme is to generate optimal returns consistent with moderate levels of risk and high liquidity. Accordingly, investments shall predominantly be made in Debt and Money Market Instruments. Reliance Floating Rate Fund: (An Open End Liquid Scheme) The primary objective of the scheme is to generate regular income through investment in a portfolio comprising substantially of Floating Rate Debt Securities (including floating rate securitized debt and Money Market Instruments and Fixed Rate Debt Instruments swapped for floating rate returns). The scheme shall also invest in Fixed rate debt Securities (including fixed rate securitized debt, Money Market Instruments and Floating Rate Debt Instruments swapped for fixed returns Reliance NRI Income Fund : (An Open-ended Income scheme) The primary investment objective of the Scheme is to generate optimal returns consistent with moderate levels of risks. This income may be complimented by capital appreciation of the portfolio. Accordingly, investments shall predominantly be made in debt Instruments. Reliance Liquidity Fund: (An Open - ended Liquid Scheme) The investment objective of the Scheme is to generate optimal returns consistent with moderate levels of risk and high liquidity. Accordingly, investments shall predominantly be made in Debt and Money Market Instruments. Reliance Interval Fund

(A Debt Oriented Interval Scheme) The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio Reliance Liquid plus Fund (An Open-ended Income Scheme.) The investment objective of the Scheme is to generate optimal returns consistent with moderate levels of risk and liquidity by investing in debt securities and money market securities.

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. They may also seek advice of an expert. Sector Funds are specialty funds that invest in stocks falling into a certain sector of the economy. Here the portfolio is dispersed or spread across the stocks in that particular sector. This type of scheme is ideal for investors who have already made up their mind to confine risk and return to a particular sector. Reliance Banking Fund Reliance Mutual Fund has an Open-Ended Banking Sector Scheme which has the primary investment objective to generate continuous returns by actively investing in equity / equity related or fixed income securities of banks.

Reliance Diversified Power Sector Fund

Reliance Diversified Power Sector Scheme is an Open-ended Power Sector Scheme. The primary investment objective of the Scheme is to seek to generate consistent returns by actively investing in equity / equity related or fixed income securities of Power and other associated companies. Reliance Media & Entertainment Fund Reliance Media & Entertainment Fund is an Open-ended Media & Entertainment sector scheme. The primary investment objective of the Scheme is to generate consistent returns by investing in equity / equity related or fixed income securities of media & entertainment and other associated companies.

CHAPTER 2 INTRODUCTION TO THE PROJECT

INTRODUCTION TO MUTUAL FUNDS

Mutual fund is a trust that pools money from a group of investors (sharing common financial goals) and invest the money thus collected into asset classes that match the stated investment objectives of the scheme. Since the stated investment objectives of a mutual fund scheme generally form the basis for an investor's decision to contribute money to the pool, a mutual fund can not deviate from its stated objectives at any point of time. Every Mutual Fund is managed by a fund manager, who using his investment management skills and necessary research works ensures much better return than what an investor can manage on his own. The capital appreciation and other incomes earned from these investments are passed on to the investors (also known as unit holders) in proportion of the number of units they own.

When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as mutual fund

shareholder or a unit holder. Any change in the value of the investments made into capital market instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Funds scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors.

The investors, in proportion to their investments, share the profits or losses. The mutual funds normally come out with a number of schemes with different investment objectives, which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI), which regulates securities markets before it can collect funds from the public.

An investor could make money from a mutual fund in three ways:

 Income is earned from dividends declared by mutual fund schemes from time to time. If the fund sells securities that have increased in price, the fund has a capital gain. This is reflected in the price of each unit. When investors sell these units at prices higher than their purchase price, they stand to make a gain. If fund holdings increase in price but are not sold by the fund manager, the fund's unit price increases. You can then sell your mutual fund units for a profit. This is tantamount to a valuation gain.

Organization of a Mutual Fund

The structure of mutual funds in India is governed by SEBI (Mutual Fund) Regulations, 1996. In India, is mandatory to have a three tier structure of Management Company. Sponsor Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. The sponsor establishes the mutual fund and registers the same with SEBI. Sponsor appoints the Trustees, custodians and the AMC with prior approval of SEBI and in accordance with SEBI Regulations. Sponsor must have a 5-year track record of business interest in the financial markets. Sponsor must have been profit making in at least 3 of the above 5 years. Sponsor must contribute at least 40% of the net worth of the Investment Managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund. Trust Sponsor-Trustee-Asset

The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.

Trustee Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and inter alia ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manner.

Asset Management Company (AMC)

The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. At least 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 crore at all times. Registrar and Transfer Agent The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records. Custodian A custodian is an agent, bank, trust company, or other organization which holds and safeguards an individual's, mutual fund's, or investment company's assets for them.

ADVANTAGES OF MUTUAL FUNDS 1. Professional Management. The major advantage of investing in a mutual fund is that you get a professional money manager to manage your investments for a small fee. You can leave the investment decisions to him and only have to monitor the performance of the fund at regular intervals.

2. Diversification.

Considered the essential tool in risk management, mutual funds make it possible for even small investors to diversify their portfolio. A mutual fund can effectively diversify its portfolio because of the large corpus. However, a small investor cannot have a welldiversified portfolio because it calls for large investment. For example, a modest portfolio of 10 stocks calls for a few a few thousands.

3. Convenient Administration. Mutual funds offer tailor-made solutions like systematic investment plans and systematic withdrawal plans to investors, which is very convenient to investors. Investors also do not have to worry about investment decisions, they do not have to deal with brokerage or depository, etc. for buying or selling of securities. Mutual funds also offer specialized schemes like retirement plans, childrens plans, industry specific schemes, etc. to suit personal preference of investors. These schemes also help small investors with asset allocation of their corpus. It also saves a lot of paper work. 4. Costs Effectiveness

A small investor will find that the mutual fund route is a cost-effective method (the AMC fee is normally 2.5%) and it also saves a lot of transaction cost as mutual funds get concession from brokerages. Also, the investor gets the service of a financial professional for a very small fee. If he were to seek a financial advisor's help directly, he will end up paying significantly more for investment advice. Also, he will need to have a sizeable corpus to offer for investment management to be eligible for an investment advisers services. 5. Liquidity. You can liquidate your investments within 3 to 5 working days (mutual funds dispatch redemption cheques speedily and also offer direct credit facility into your bank account i.e. Electronic Clearing Services). 6. Transparency. Mutual funds offer daily NAVs of schemes, which help you to monitor your investments on a regular basis. They also send quarterly newsletters, which give details of the portfolio, performance of schemes against various benchmarks, etc. They are also well regulated and Sebi monitors their actions closely. 7. Tax benefits. You do not have to pay any taxes on dividends issued by mutual funds. You also have the advantage of capital gains taxation. Tax-saving schemes and pension schemes give you the added advantage of benefits under section 88. 8. Affordability Mutual funds allow you to invest small sums. For instance, if you want to buy a portfolio of blue chips of modest size, you should at least have a few lakhs of rupees. A mutual fund gives you the same portfolio for meager investment of Rs.1,000-5,000. A mutual fund can do that because it collects money from many people and it has a large corpus. DISADVANTAGES OF MUTUAL FUNDS:

Professional Management Some funds doesnt perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor himself, for picking up stocks. Costs The biggest source of AMC income is generally from the entry & exit load which they charge from investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. Taxes - when making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

HISTORY OF INDIAN MUTUAL FUND 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 of India. The history of mutual funds in India can be broadly divided into four distinct phases

First Phase 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up

by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.

Second Phase 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by 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 crores.

Third Phase 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds. Fourth Phase since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 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 graph indicates the growth of assets over the years. GROWTH IN ASSETS UNDER MANAGEMENT

CLASSIFICATION OF MUTUAL FUNDS

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.

Mutual funds can be classified as follow: I. Based on their structure: 1. Open-ended funds: Investors can buy and sell the units from the fund, at any point of time. 2. Close-ended funds: These funds raise money from investors only once. Therefore, after the offer period, fresh investments can not be made into the fund. If the fund is listed on a stocks exchange the units can be traded like stocks (E.g., Morgan Stanley Growth Fund). Recently, most of the New Fund Offers of close-ended funds provided liquidity window on a periodic basis such as monthly or weekly. Redemption of units can be made during specified intervals. Therefore, such funds have relatively low liquidity. II. Based on their investment objective: 1. Equity funds: These funds invest in equities and equity related instruments. With fluctuating share prices, such funds show volatile performance, even losses. However, short term fluctuations in the market, generally smoothens out in the long term, thereby offering higher returns at relatively lower volatility. At the same time, such funds can yield great capital appreciation as, historically, equities have outperformed all asset classes in the long term. Hence, investment in equity funds should be considered for a period of at least 3-5 years. It can be further classified as:I) Index funds- In this case a key stock market index, like BSE Sensex or Nifty is tracked. Their portfolio mirrors the benchmark index both in terms of composition and individual stock weightages. ii) Equity diversified funds- 100% of the capital is invested in equities spreading across different sectors and stocks. iii) Dividend yield funds- it is similar to the equity diversified funds except that they invest in companies offering high dividend yields.

iv) Thematic funds- Invest 100% of the assets in sectors which are related through some theme e.g. -An infrastructure fund invests in power, construction, cements sectors etc. v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector fund will invest in banking stocks. vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors. 2. Balanced fund: Their investment portfolio includes both debt and equity. As a result, on the risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual funds vehicle for investors who prefer spreading their risk across various instruments. Following are balanced funds classes: 3. Debt fund: They invest only in debt instruments, and are a good option for investors averse to idea of taking risk associated with equities. Therefore, they invest exclusively in fixed-income instruments like bonds, debentures, Government of India securities; and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. Put your money into any of these debt funds depending on your investment horizon and needs. I) Liquid funds- These funds invest 100% in money market instruments, a large portion being invested in call money market. II) Gilt funds ST- They invest 100% of their portfolio in government securities of and Tbills. III) Floating rate funds - Invest in short-term debt papers. Floaters invest in debt instruments which have variable coupon rate. IV) Arbitrage fund- They generate income through arbitrage opportunities due to mispricing between cash market and derivatives market. Funds are allocated to equities, derivatives and money markets. Higher proportion (around 75%) is put in money markets, in the absence of arbitrage opportunities. V) Gilt funds LT- They invest 100% of their portfolio in long-term government securities. Debt-oriented funds -Investment below 65% in equities. Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

vi) Income funds LT- Typically; such funds invest a major portion of the portfolio in long-term debt papers. VII) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure of 10%-30% to equities. VIII) FMPs- Fixed monthly plans invest in debt papers whose maturity is in line with that of the fund 3. BY INVESTMENT OBJECTIVE: Further the mutual funds can be broadly classified on the basis of investment parameter viz, 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 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.

INVESTMENT STRATEGIES
1. Systematic Investment Plan (SIP): under this a fixed sum is invested each month on a fixed date of a month. Payment is made through post dated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA) 2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund. 3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he can withdraw a fixed amount each month.

SOME IMPORTANT ASPECTS OF MUTUAL FUND

NET PRESENT VALUE Net Asset Value (NAV) is the actual value of one unit of a given scheme on any given business day. The NAV reflects the liquidation value of the fund's investments on that particular day after accounting for all expenses. It is calculated by deducting all liabilities (except unit capital) of the fund from the realisable value of all assets and dividing it by number of units outstanding.

Sale Price Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load. Repurchase Price Is the price at which units under open-ended schemes are repurchased by the Mutual Fund. Such prices are NAV related. Redemption Price Is the price at which close-ended schemes redeem their units on maturity. Such prices are NAV related. Sales Load Is a charge collected by a scheme when it sells the units. Also called, Front-end load. Schemes that do not charge a load are called No Load schemes.

RISKS ASSOCIATED WITH MUTUAL FUNDS

Investing in Mutual Funds, as with any security, does not come without risk. One of the most basic economic principles is that risk and reward are directly correlated. In other words, the greater the potential risk the greater the potential return. The types of risk commonly associated with Mutual Funds are: MARKET RISK: Market risk relates to the market value of a security in the future. Market prices fluctuate and are susceptible to economic and financial

trends, supply and demand, and many other factors that cannot be precisely predicted or controlled. POLITICAL RISK: Changes in the tax laws, trade regulations, administered prices, etc are some of the many political factors that create market risk. Although collectively, as citizens, we have indirect control through the power of our vote individually, as investors, we have virtually no control. INFLATION RISK: Interest rate risk relates to future changes in interest rates. For instance, if an investor invests in a long-term debt Mutual Fund scheme and interest rates increase, the NAV of the scheme will fall because the scheme will be end up holding debt offering lower interest rates. BUSINESS RISK: Business risk is the uncertainty concerning the future existence, stability, and profitability of the issuer of the security. Business risk is inherent in all business ventures. The future financial stability of a company cannot be predicted or guaranteed, nor can the price of its securities. Adverse changes in business circumstances will reduce the market price of the companys equity resulting in proportionate fall in the NAV of the Mutual Fund scheme, which has invested in the equity of such a company. ECONOMIC RISK: Economic risk involves uncertainty in the economy,

which, in turn, can have an adverse effect on a companys business. For instance, if monsoons fail in a year, equity stocks of agriculture-based companies will fall and NAVs of Mutual Funds, which have invested in such stocks, will fall proportionately.

Mutual funds also carry a risk profile with them. Some of the tools available to assess a schemes riskiness areBeta

This common measure compares a mutual fund's volatility with that of a benchmark and is supposed to give some sense of how far you can expect a fund to fall when the market takes a dive, or how high it might climb if the bull is running hard. A fund with a beta greater than 1 is considered more volatile than the market; less than 1 means less volatile. So say your fund gets a beta of 1.15 -- it has a history of fluctuating 15% more than the benchmark If the market is up, the fund should outperform by 15%. If the market heads lower, the fund should fall by 15% more. But beta, though a useful guide, is far from perfect, especially when used as a proxy for "risk." The problem here, as with many risk measures, is the benchmark. The benchmark has to be a correct measure of comparison only then will the beta hold any indicative value. Alpha Alpha was designed to take beta one step further. It looks at the relationship between a fund's historical beta and its current performance, or the difference between the return beta would lead you to expect and the return a fund actually gets. An alpha of 0 simply means that the fund did as well as expected, considering the risks it took. So if that fund with the beta of 1.15 beat the market by 15% (or underperformed it by 15% when the market was down), it would have a 0 alpha. If your fund has a positive alpha, that means it returned more than its beta predicted. A negative alpha means it returned less. The trouble with alpha is that it's only as good as its beta. If the benchmark isn't appropriate to a fund in deriving its beta, then alpha, too, will be imprecise. Standard Deviation Standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility. Standard deviation is a statistical measurement that sheds light on historical volatility. For example, a volatile stock will have a high standard deviation while the deviation of a stable blue chip stock will be lower. A large dispersion tells us how much the return on the fund is deviating from the expected normal returns. Sharpe Ratio The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been.

Treynors performance index: A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless investment per each unit of market risks. In other words, the Treynor ratio is a risk-adjusted measure of return based on systematic risk. It is similar to the Sharpe ratio, with the difference being that the Treynor ratio uses beta as the measurement of volatility. :

The idea of the study is to project Mutual Fund as a better avenue for investment on a long-term or short-term basis. Mutual Fund is a productive package for a lay-investor with limited finances, this project creates an awareness that the Mutual Fund is a worthy investment practice. Mutual Fund is a globally proven instrument. Mutual Funds are Unit Trust as it is called in some parts of the world has a long and successful history, of late Mutual Funds have become a hot favorite of millions of people all over the world. The driving force of Mutual Funds is the safety of the principal guaranteed, plus the added advantage of capital appreciation together with the income earned in the form of interest or dividend. The various schemes of Mutual Funds provide the investor with a wide range of investment options according to his risk bearing capacities and interest besides; they also give handy return to the investor. Mutual Funds offers an investor to invest even a small amount of money, each Mutual Fund has a defined investment objective and strategy. Mutual Funds schemes are managed by respective asset managed companies sponsored by financial institutions, banks, private companies or international firms. A Mutual Fund is the ideal investment vehicle for todays complex and modern financial scenario. The study is basically made to analyze the various open-ended equity schemes of different Asset Management Companies to highlight the diversity of investment that Mutual Fund offer. Thus, through the study one would understand how a common man could fruitfully convert a pittance into great penny by wisely investing into the right scheme according to his risk taking abilities.

BACKGROUND AND NEED FOR THE STUDY- MF is a retail product designed to

target small investors, salaried people and others who are intimidated by the stock market but, nevertheless, like to reap the benefits of stock market investing. At the retail level, investors are unique and are a highly heterogeneous group. Hence, designing a general product and expecting a good response will be futile except the case of UTI monopoly during 1964-1987. But with the entry of public sector banks and financial institutions in the field and

the globalization and liberalization measures announced by the government led to a paradigm shift in the mind set of investors and the capital market environment became more unfriendly to retail investors. They had no other choice but to turn to MFs to reap the benefits of stock market investing. Hence, the need to be innovative in designing the product was not felt and investors had to choose from among the limited schemes offered. After the entry of private sector companies into the industry the competition started growing in the industry

Currently (as on 31/8/2009) there are 3756 schemes running with 36 AMCs (Source: Mutualfundsindia.com) with varied objectives and AMCs compete against one another by launching new products or repositioning old ones. The investors are having a lot of options to choose from so he is confused in his selection of the product. The choice of investors is affected by the different features of the scheme, the reputation of the AMCs, various services provided by the companies to the investors. Unless the MF schemes are tailored to his changing needs, and unless the AMCs understand the fund selection/switching behavior of the investors, survival of funds will be difficult in future. With this background an attempt is made in this paper to study the factors influencing the fund/scheme selection behaviour of Retail Investors

Over the last few years mutual funds are giving impressive returns, especially Equity Funds. There is a need to know the returns provided by the individual schemes and the risk levels at which they are delivered in comparison with the market and the risk free rates. The aim is also to identify the out-performers. There is a need to evaluate the performance of Indian Mutual Fund Schemes. (6) STATEMENT OF PROBLEM- The expectations of investors influence

the price of the securities, the volume traded and various other financial operations in actual practice. These expectations of investors are influenced by their perception and humans generally relate perception to action. The evidence of prevalence of such a psychological state is seen among MF investors in India.

For instance, UTI, which is synonymous to mutual funds in India, had a glorious past and perceived as a safe, high yield investment vehicle with the added tax benefit. Many UTI account holders have justified their beliefs by staying invested in UTI schemes even after the 1999 bail out and the July 2001 episode of repurchase freeze on US 64 for 6 months. People also believe that something they own is better than something they do not own. For instance, the existence of many poor performing funds with investors staying invested with them? In general, rules for investment, the analysis of investment and discussion of financial behaviour tend to assume behaviour, which is logical and internally consistent in various ways. Investor behaviour does not; however, always appear to conform to such expectational norms. Much of economic and financial theory is based on the notion that individuals act rationally and consider all available information in the decision making process. However, in the
financial literature, there are no clear models, which explain the influence of perception and beliefs on expectations and decision making. No doubt, reality is so complex that trying to fit individual investors behaviour into a model is impossible. Investors behaviour may change

from period to period even if the other variables influencing the behaviour are held constant. However, to a certain extent, the concepts can be borrowed from social psychology where behavioural patterns, rational and irrational are observed and empirically tested. On the same lines certain models can be developed to identify the financial behaviour, to the extent of the availability of the explanatory variables. Such models can help to understand the
why and how? aspect of investor behaviour, which can have managerial implications for policy makers.

The fund managers manage the portfolio of the mutual funds by undertaking the risk so they are expected to perform better than the market. The investment strategy and management style are qualitative but the fund return is the only quantitative indicator to judge the performance of mutual funds. Return alone should not be considered as the basis of measurement of the performance of a Mutual Fund scheme, it should also include the risk taken by the fund manager because different funds will have different levels of risk attached

to them. There must be some performance indicator that will reveal the quality of stock selection of various AMCs. Hence, with this background, this study attempts to evaluate the behavioural aspects of fund selection techniques of individual investors during the period, May 2009 to August 2009 and also attempts to judge the performance of mutual funds using traditional measures.

DATA ANALYSIS AND INTERPRETATION

I. The first objective of my project is To study the effect of demographic factors on investment decisions. Analysis of question 1-5 related to 1st objective is Q.No.1 Age of the respondents

It shows that a majority of the sample were from the 31-40 age(36%) group followed by the 41-50 age group (30%). The sample contained a minimum number of investors in the below 30 age group.

Q.No.2 Gender of the Respondents

It shows that a majority of respondents (68%) are male and females are only 32%

Q.No.3 Occupation of the respondents A majority of the people surveyed were from the salaried class (60%). The business class (26%) includes those people who are self employed.

Q No.4 Marital status of respondents Out of 100 respondents 60% are Married.

Q No. 5 Annual income of the respondents Most of the people surveyed belonged to the 150000 to 300000 annual income category. Only 14% respondents fall in below 150000 category.

FINDINGS II. Second objective is to understand the effect of investment objective on investment
Analysis of question 6-7 related to 2nd objective is Q No.6 What is your investment objective?

A majority of respondents (45%) invest for the safety of their capital where as only 12% want capital appreciation.

Q No 7.How much risk you want to take?

32% respondent want high return, 12% take high risk where as 12% of the respondent prefer liquidity. FINDINGS

III. The third objective is to understand the Fund sponsor qualities affecting the selection Mutual funds Analysis of Q.no.8 related to this objective is: Q No 8. While making a investment decision which quality of AMCs you consider the most?

FINDINGS
38% people consider reputation of the company while investing. 24% people prefer those sponsors who provide different schemes and qualities. Only 18% people consider public/private sector ownership of the sponsors.

IV. The fourth objective of the project is to identify the factors that influences the investors fund/scheme Selection. Analysis of Q.no.9 related to this objective is: Q No 9. Which factor influence most while choosing a scheme?

FINDINGS It shows that 45% people consider safety of capital first while investing in a scheme. 27% investors consider past performance 12% consider portfolio constituents where as only 10% respondents consider reputation of Fund manager.

V. The fifth objective of my project is to know about the satisfaction level of investors in Reliance Mutual Fund Analysis of question 10-11 related to 5th objective is Q No 10 Are you satisfied with Reliance Mutual Funds fund performance and Reliance services?

75% respondents are satisfied and only 2% respondents are dissatisfied

Q No. 11 Do you wish to attend any investment awareness program organized by Reliance Mutual Fund in future?

FINDINGS
Majority of respondents are satisfied with services and fund performance of Reliance Mutual Fund. Due to lack of time and interest they dont wish to attend any investor awareness program organized by it.