Mutual Fund

The advantages of investing in a Mutual Fund are:

• Diversification: The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. For example, economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value. When a portfolio is balanced in this way, the value of the overall portfolio should gradually increase over time, even if some securities lose value.
• Professional Management: Most mutual funds pay topflight professionals to manage their investments. These managers decide what securities the fund will buy and sell.
• Regulatory oversight: Mutual funds are subject to many government regulations that protect investors from fraud.
• Liquidity: It's easy to get your money out of a mutual fund. Write a check, make a call, and you've got the cash.
• Convenience: You can usually buy mutual fund shares by mail, phone, or over the Internet.
• Low cost: Mutual fund expenses are often no more than 1.5 percent of your investment. Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index
• Transparency
• Flexibility
• Choice of schemes
• Tax benefits

Drawbacks of Mutual Funds

• No Guarantees: No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through a mutual fund runs the risk of losing money.
• Fees and commissions: All funds charge administrative fees to cover their day-to-day expenses. Some funds also charge sales commissions or "loads" to compensate brokers, financial consultants, or financial planners. Even if you don't use a broker or other financial adviser, you will pay a sales commission if you buy shares in a Load Fund.
• Taxes: During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made.
• Management risk: When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in Index Funds, you forego management risk, because these funds do not employ managers.

Risk

As they say, forewarned is forearmed! Go ahead, get acquainted with the types of risk involved:

• Market risk
  If the overall stock or bond markets fall on account of macro economic factors, the value of stock or bond holdings in the fund's portfolio can drop, thereby impacting the NAV.
• Non-market risk
  Bad news about an individual company can pull down its stock price, which can negatively affect funds holding a large quantity of that stock. This risk can be reduced by having a diversified portfolio that consists of a wide variety of stocks drawn from different industries.
• Interest rate risk
  Bond prices and interest rates move in opposite directions. When interest rates rise, bond prices fall and this decline in underlying securities affects the NAV negatively. How bad the damage will be is dependant on factors such as maturity profile, liquidity etc.
• Credit risk
  Bonds are debt obligations. So when the funds invest in corporate bonds, they run the risk of the corporate defaulting on their interest and principal payment obligations and when that risk crystallizes, it leads to a fall in the value of the bond causing the NAV of the fund to take a beating

How to invest in stocks WITHOUT any risk

Everyone knows that investing in equity is risky. However, the risk taking abilities of investors vary. Some don't think twice before investing everything, including the kitchen sink, in equities.

And yet there are the risk averse others who cannot bear losing even a rupee of their capital. Most of us are somewhere in between.

But what if one could invest in equities with the guarantee of not losing capital? In other words, what if you could have your cake and eat it too? I know, most of you must be thinking such a thing isn't possible--- such a Utopia doesn't exist.

Through this article, I will introduce the readers to precisely such a Utopia. And I am not even talking about the capital guaranteed schemes that are soon going to be launched by various mutual funds.

These schemes apart from being close-ended will invest a large proportion of funds in fixed income instruments, thereby making the return comparable at best with a well-to-do MIP scheme.

Instead, I am referring to pure unadulterated equity pleasure without taking a single iota of risk as far as loss of capital is concerned. To know how, read on.

Here's what must you do. Invest Rs 6 lakh (Rs 600,000) in the Post Office Monthly Income Scheme (POMIS). POMIS gives interest at the rate of 8% p.a., which means per year you would receive Rs 48,000.

As it is a monthly income scheme, the interest per month works out to Rs 4,000. Now, this is fully taxable. Assuming you are in the 30% tax bracket, the net balance after tax left with you would be Rs 2,800.

Now, enter into an SIP (Systematic Investment Plan) with this amount of Rs 2,800. POMIS is a six-year scheme. So basically, you would invest Rs 2,800 per month for six years.

At the end of six years, you would receive the market value of your mutual fund investment and also the capital amount of Rs 6 lakh invested in POMIS.

Consequently, while you have kept your capital intact, you still have taken on equity with all its associated risk.

To see how this strategy can actually work out, we ran some numbers. Say, you started your POMIS account in September 2000. The monthly interest was invested in Franklin Templeton Prima Fund on an SIP basis.

By adopting this simple structure, at the end of six years, the investor would have received around Rs 9.45 lakh (Rs 945,000) just on account of the mutual fund investment. Add to it the capital amount of Rs 6 lakh of POMIS and the total investment would net a cool Rs 15 lakh (Rs 1.5 million). And this is after tax and without an iota of risk.

So who needs capital guaranteed funds?

Anyway, the point that I continuously make through my write-ups is that mutual fund investing is all about the long term.

We have seen how an SIP of Rs 2,800 per month has grown to a phenomenal Rs 9.45 lakh. However, the key here is that the investor kept up his investments for all of the six years, month after month, year after year.

How many of us have invested in a mutual fund six years back? And more importantly, how many of us still remain invested? The answer would most probably be none.

The reason in all probability is because we invest and disinvest based on what happens in the world around us. In other words, we react to world events.

Though I am not much of a crystal ball gazer, here's what I think will happen in the next six years:

The US Fed will raise interest rates. The US Fed will lower interest rates. Oil prices will rise and oil prices will fall. Commodity prices will fall. Commodity prices will rise. FIIs will intermittently pull out of Indian markets only to fall over themselves to get in once again. (Did someone say that this was smart money?) There will be terror strikes. There will be political upheavals, both nationally and internationally.

These things have taken place before our times, during our times and will take place after our times also. For, that is the way of the world. In the meanwhile, your personal net worth will solely depend upon how you react or more appropriately don't react to these events.

In another piece, we will discuss the reasons one should sell one's mutual fund. But none of the same appear in this article.

You want to win in the markets. Take the following words of Calvin Coolidge to heart: "Nothing in this world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent."

A six-year SIP was persistent enough. And look how much money it made.

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Risk management and the mutual funds

The basic objective of a mutual fund is to provide a diversified portfolio so as to reduce the risk in investments at a lower cost. The mutual fund industry worldwide is based on this premise. Investors who take up mutual fund route for investments believe that their risk is minimized at lower costs, and they get an optimum portfolio of securities that match their risk appetite. They are ignorant about the diverse techniques and hedging products that can be used for minimizing the market volatility and hence take the help of the fund managers. It is very daunting to note that the drop in the NAV of some of the schemes is higher than the erosion of value in some of the ICE stocks. The recent survey conducted by PricewaterhouseCoopers (PWC) on risk management by mutual funds has posted interesting as well as worrying results. According to the survey, as many as 50 percent of the respondent mutual funds are not managing risk properly. If this is not all, 50 percent of the respondents did not even have documented risk procedures or dedicated risk managers. The respondents included among others, some of the heavyweights of the Indian MF industry viz. Templeton, Alliance, Prudential and IDBI Principal MF.

Worrisome news it is, for the investor who still believes MFs are a route to manage one’s money in a better and safe manner. The recent wild movements in the NAVs of several equity funds have belied all expectation of a diversified portfolio from the fund managers when the basic tenet behind portfolio management is risk management. Mr. Shyam Bhat, Fund Manager-Tata asset Management Ltd. said ‘Indian Mutual fund industry is not using statistical techniques of risk management but is using diversification effectively within the market limitations. As far as use of derivatives is concerned, they are not presently used because of the low volumes, low liquidity and absence of sufficient hedging products in the market ’.

Aggression has been the key word followed by the AMCs when it comes to taking positions in stocks. With investment in volatile ICE sectors being the driver of growth last season, almost everybody had taken big exposures to them. Birla MF maintained its exposures in Infosys to almost 25 percent in all of its equity schemes throughout last year. The same is true of ING Savings Trust that has Rs. 60 crores invested in Wipro and Infosys out of the total fund size of 135 crores in its growth fund. The result of these exposures is that the fund witnessed a movement of almost 9 percent in a single day on budget when the market saw an appreciation of around 4.36 percent. In their quest for growth, many funds have seen very volatile movements in NAVs. The investor confidence may not be lost but such volatility sure dents it. The point is not whether AMCs should be chastised or not but just to question the practices as the fate of many investors is linked to it. An ordinary investor considers mutual funds as the experts in investment decisions and so naturally expects the decision of investing in mutual funds to bear fruit. However, AMCs often leave a lot to be desired as they falter on important fronts like NAV and portfolio disclosure besides posting high fluctuations and poor returns.

 

The Beta of some of the favorite stocks is shown below. The Table contains the Beta of some of the ICE scrips that constitute the top 10 holdings across various equity funds.

 

As can be seen, some of the stocks are too volatile and can cause wild movements in the NAVs of funds that have taken exposures in them. The standard deviation of the returns in some of these funds points to it. While Alliance Equity Fund has a Standard Deviation of 2.53, Birla Advantage has its Standard Deviation at 2.57. ING Growth has a standard deviation of 3.3, which is relatively high due to its exposure to two volatile ICE scrips. Birla Advantage has reduced its exposures to Infosys drastically in the last two months and taken steps to contain volatility. Similar steps are being planned by SBI Mutual Fund that is recasting its equity portfolio to reduce risks as they can scare investors.

It is unfortunate that the fund managers are not taking due care for minimizing the risk and are in a race to post higher and higher returns during the phase of bull-run. They should understand that the investors forget the high returns posted in any specific period very soon but they take hell lot of time to forget the burns they get during periods of losses. Hence for maintaining the confidence of the retail investors it is very important to control wild fluctuations in the NAVs. The basic technique of portfolio management thrusts on diversification, which preaches inclusion of negative beta, stocks in the portfolio so as to minimize the impact of fluctuation in the market. Diversification always has a cost and investors are willing to pay for it if it is properly done. The fund manager should disclose what they are doing at the hedging front. They should come up and tell their investors as to what they do at times of high fluctuations. Normally it has been seen that they outperform the broad market indices during the bull-runs and under-perform the indices during the bear-phases. The industry needs to revise their attitude and try to streamline their actions with their objectives. Some mutual fund houses are quite disciplined but every body should embrace the same spirit. There are some infrastructural problems but fund managers need to be more vigilant on the market movements. Mr. Bhupinder Sethi, Fund Manager - Dundee Mutual Fund said ‘We are actively monitoring the market movements and taking calls accordingly. Though we are presently not using derivatives for hedging of risk because of lack of depth in the market for the product, but we go into cash when we see the expectations of huge corrections coming in.’

Poor performance, poor servicing to clients and failure of third party service providers, are the three major risk factors identified in the survey by PWC. These are also going to be crucial in a rapidly growing competitive scenario. Under this setting, it is not just growth that should be the focus area but also better management of all risks and hence, AMCs would do well to keep the investor and his interest in mind before taking any decision.

How to choose the right mutual fund

Picking a mutual fund from among the thousands offered is not easy. The following is just a rough guide, with some common pitfalls.

1. Check with your tax advisor prior to investing in a tax-exempt or tax-managed fund.
2. Match the term of the investment to the time you expect to keep it invested. Money you may need right away (for example, if your car breaks down) should be in a money market account. Money you will not need until you retire in decades (or for a newborn's college education) should be in longer-term investments, such as stock or bond funds. Putting money you will need soon in stocks risks having to sell them when the market is low and missing out on the rebound.
3. Expenses matter over the long term, and of course, cheaper is usually better. You can find the expense ratio in the prospectus. Expense ratios are critical in index funds, which seek to match the market. Actively managed funds need to pay the manager, so they usually have a higher expense ratio.
4. Sector funds often make the "best fund" lists you see every year. The problem is that it is usually a different sector each year (internet funds, anyone?). Also, some sectors are vulnerable to industry-wide events (airlines do come to mind). Avoid making these a large part of your portfolio.
5. Closed-end funds often sell at a discount to the value of their holdings. You can sometimes get extra return by buying these in the market. Hedge fund managers love this trick. This also implies that buying them at the original issue is usually a bad idea, since the price will often drop immediately.
6. Mutual funds often make taxable distributions near the end of the year. If you plan to invest money in the fund in a taxable account, check the fund company's website to see when they plan to pay the dividend; you may prefer to wait until afterwards if it is coming up soon.
7. Research. Read the prospectus, or as much of it as you can stand. It should tell you what these strangers can do with your money, among other vital topics. Check the return and risk of a fund against its peers with similar investment objectives, and against the index most closely associated with it. Be sure to pay attention to performance over both the long-term and the short-term. A fund that gained 53% over a 1-yr. period (which is impressive), but only 11% over a 5-yr. period should raise some suspicion, as that would imply that the returns on four out of those five years were actually very low (if not straight losses) as 11% compounded over 5 years is only 68%.
8. Diversification can reduce risk. Most people should own some stocks, some bonds, and some cash. Some of the stocks, at least, should be foreign. You might not get as much diversification as you think if all your funds are with the same management company, since there is often a common source of research and recommendations. The same is true if you have multiple funds with the same profile or investing strategy; these will rise and fall together. Too many funds, on the other hand, will give you about the same effect as an index fund, except your expenses will be higher. Buying individual stocks exposes you to company-specific risks, and if you buy a large number of stocks the commissions may cost more than a fund will.
9. The  effect is your best friend. A little money invested for a long time equals a lot of money later.

How to invest in Mutual Fund

StepOne- IdentifyyourInvestmentneeds

Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, and level of income and expenses among many other factors. Therefore, the first step is to assess your needs.You can begin by defining your investment objectives and needs which could be regular income, buying a home or finance a wedding or educate your children or a combination of all these needs, the quantum of risk you are willing to take and your cash flow requirements.

Step Two - Choose the right Mutual Fund

The important thing is to choose the right mutual fund scheme which suits your requirements. The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed by the same Fund Manager. Some factors to evaluate before choosing a particular Mutual Fund are the track record of the performance of the fund over the last few years in relation to the appropriate yardstick and similar funds in the same category. Other factors could be the portfolio allocation, the dividend yield and the degree of transparency as reflected in the frequency and quality of their communications. For selecting the right scheme as per your specific requirements,  

Step Three - Select the ideal mix of Schemes

Investing in just one Mutual Fund scheme may not meet all your investment needs. You may consider investing in a combination of schemes to achieve your specific goals.

Step Four - Invest regularly

The best approach is to invest a fixed amount at specific intervals, say every month. By investing a fixed sum each month, you buy fewer units when the price is higher and more units when the price is low, thus bringing down your average cost per unit. This is called rupee cost averaging and is a disciplined investment strategy followed by investors all over the world. You can also avail the systematic investment plan facility offered by many open end funds.

Step Five- Start early

It is desirable to start investing early and stick to a regular investment plan. If you start now, you will make more than if you wait and invest later. The power of compounding lets you earn income on income and your money multiplies at a compounded rate of return.

Step Six - The final step

All you need to do now is to  for online application forms of various mutual fund schemes and start investing. You may reap the rewards in the years to come. Mutual Funds are suitable for every kind of investor - whether starting a career or retiring, conservative or risk taking, growth oriented or income seeking.

                               Mutual Fund Companies in India

The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry.

In the past decade, Indian mutual fund industry had seen a dramatic improvements, both quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase, the Assets Under Management (AUM) was Rs. 67bn. The private sector entry to the fund family rose the AUM to Rs. 470 bn in March 1993 and till April 2004, it reached the height of 1,540 bn.

Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry.

The main reason of its poor growth is that the mutual fund industry in India is new in the country. Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime responsibility of all mutual fund companies, to market the product correctly abreast of selling.

The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under.

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)

Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Canbank 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 in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets under management.

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

This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835 crores (as on January 2003). 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 crores of AUM 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 crores under 421 schemes.

The major players in the Indian Mutual Fund Industry are:

GROWTH IN ASSETS UNDER MANAGEMENT

Note:
Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India effective from February 2003. The Assets under management of the Specified Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from February 2003 onwards.

                                         Major Mutual Fund Companies in India



ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorporated on November 4, 2003. Deutsche Bank A G is the custodian of ABN AMRO Mutual Fund.



Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Sun Life Financial is a global organization evolved in 1871 and is being represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual Fund follows a conservative long-term approach to investment. Recently it crossed AUM of Rs. 10,000 crores.



Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the AMC of BOB Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the custodian.



HDFC Mutual Fund was setup on June 30, 2000 with two sponsorers namely Housing Development Finance Corporation Limited and Standard Life Investments Limited.

HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund.



ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It is a joint venture of Vysya and ING. The AMC, ING Investment Management (India) Pvt. Ltd. was incorporated on April 6, 1998.



The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two sponsorers, Prudential Plc. and ICICI Ltd. The Trustee Company formed is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Management Company Limited incorporated on 22nd of June, 1993.



Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. as the sponsor. Sahara Asset Management Company Private Limited incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs 25.8 crore.

State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshor fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes out of which 15 have already yielded handsome returns to investors. State Bank of India Mutual Fund has more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread over 18 schemes.



Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsorers for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset Management Limited and its Tata Trustee Company Pvt. Limited. Tata Asset Management Limited's is one of the fastest in the country with more than Rs. 7,703 crores (as on April 30, 2005) of AUM.

Kotak Mahindra Mutual Fund

Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is presently having more than 1,99,818 investors in its various schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk - return profiles. It was the first company to launch dedicated gilt scheme investing only in government securities.

Unit Trust of India Mutual Fund

UTI Asset Management Company Private Limited, established in Jan 14, 2003, manages the UTI Mutual Fund with the support of UTI Trustee Company Privete Limited. UTI Asset Management Company presently manages a corpus of over Rs.20000 Crore. The sponsorers of UTI Mutual Fund are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds, Income Funds, Asset Management Funds, Index Funds, Equity Funds and Balance Funds.

Reliance Mutual Fund

Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities.

Standard Chartered Mutual Fund

Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated with SEBI on December 20,1999.

Franklin Templeton India Mutual Fund

The group, Frnaklin Templeton Investments is a California (USA) based company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world. Investors can buy or sell the Mutual Fund through their financial advisor or through mail or through their website. They have Open end Diversified Equity schemes, Open end Sector Equity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer.

                     Performance of Mutual Funds in India

Let us start the discussion of the performance of mutual funds in India from the day the concept of mutual fund took birth in India. The year was 1963. Unit Trust of India invited investors or rather to those who believed in savings, to park their money in UTI MutualFund.
For 30 years it goaled without a single second player. Though the 1988 year saw some new mutual fund companies, but UTI remained in a monopoly position.
The performance of mutual funds in India in the initial phase was not even closer to satisfactory level. People rarely understood, and of course investing was out of question. But yes, some 24 million shareholders was accustomed with guaranteed high returns by the begining of liberalization of the industry in 1992. This good record of UTI became marketing tool for new entrants. The expectations of investors touched the sky in profitability factor. However, people were miles away from the praparedness of risks factor after the liberalization.

The Assets Under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate about the performance of mutual funds in India through figures. From Rs. 67bn. the Assets Under Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher performance by April 2004. It rose as high as Rs. 1,540bn.

The net asset value (NAV) of mutual funds in India declined when stock prices started falling in the year 1992. Those days, the market regulations did not allow portfolio shifts into alternative investments. There were rather no choice apart from holding the cash or to further continue investing in shares. One more thing to be noted, since only closed-end funds were floated in the market, the investors disinvested by selling at a loss in the secondary market.

The performance of mutual funds in India suffered qualitatively. The 1992 stock market scandal, the losses by disinvestments and of course the lack of transparent rules in the whereabout rocked confidence among the investors. Partly owing to a relatively weak stock market performance, mutual funds have not yet recovered, with funds trading at an average discount of 1020 percent of their net asset value.

The supervisory authority adopted a set of measures to create a transparent and competitve environment in mutual funds. Some of them were like relaxing investment restrictions into the market, introduction of open-ended funds, and paving the gateway for mutual funds to launch pension schemes.

The measure was taken to make mutual funds the key instrument for long-term saving. The more the variety offered, the quantitative will be investors.

At last to mention, as long as mutual fund companies are performing with lower risks and higher profitability within a short span of time, more and more people will be inclined to invest until and unless they are fully educated with the dos and donts of mutual funds.

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Future of Mutual Funds in India

By December 2004, Indian mutual fund industry reached Rs 1,50,537 crore. It is estimated that by 2010 March-end, the total assets of all scheduled commercial banks should be Rs 40,90,000 crore.

The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5 years we have seen annual growth rate of 9%. According to the current growth rate, by year 2010, mutual fund assets will be double

Let us discuss with the following table:

Some facts for the growth of mutual funds in India

• 100% growth in the last 6 years.
• Number of foreign AMC's are in the que to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide.
• Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required.
• We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion.
• 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities.
• Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products.
• SEBI allowing the MF's to launch commodity mutual funds.
• Emphasis on better corporate governance.
• Trying to curb the late trading practices.
• Introduction of Financial Planners who can provide need based advice.

Mutual Funds - Organization

There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund:

Organization of a Mutual Fund

Association of Mutual Funds in India (AMFI)

With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organization. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995.

AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors.

Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders.

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                   The objectives of Association of Mutual Funds in India

The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows:

• This mutual fund association of India maintains high professional and ethical standards in all areas of operation of the industry.
• It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association.
• AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry.
• Association of Mutual Fund of India does represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry.
• It develops a team of well qualified and trained Agent distributors. It implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry.
• AMFI undertakes all India awareness programme for investors in order to promote proper understanding of the concept and working of mutual funds.
• At last but not the least association of mutual fund of India also disseminate information’s on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies.

                             Criticism of managed mutual funds

The primary criticism of  mutual funds comes from the historical fact that, over long periods of time, most have not returned as much as an  would.

There are also other criticisms levied against mutual funds as a consequence of the first criticism. One critique covers the concept of the sales commission, an upfront or deferred fee as high as 8.5 percent of the amount invested in a fund. Critics point out high sales commissions represent a conflict of interest, as high commissions benefits the sales people, but hurt the investors. High commissions can also cause sales people to recommend funds that maximize their income.

Mutual funds are also seen by some to have a conflict of interest with regards to their size. Fund companies charge a management fee of anywhere between 0.5-2.5 percent of the funds total assets. Theoretically this could motivate the fund managers, since a well performing fund would cause the amount invested in the fund to rise and increasing the fee earned. It also could motivate the fund company to focus on advertising to attract more and more new investors, as new investors would also cause the fund assets to increase.

Many analysts believe however that the larger the pool of money one works with, the harder it is to manage actively, and harder to have good performance. Thus a fund company can be focused on attracting new customers, hurting its existing investors' performance. A great deal of the funds costs are flat and fixed costs, such as the salary for the manager. Thus it can be more profitable to the fund to try and allow it to grow as large as possible, instead of limiting its assets.

Other practices of mutual funds have been criticized from time to time, such as funds allowing . More recent criticisms have focused on the fund managers accepting extravagant gifts in exchange for trading stocks through certain investment banks, who presumably overcharge the fund compared to what another, non-gifting investment bank would charge

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Frequently ask questions by investors

How long it will take to receive the redemption cheque ?    ( General )

Your cheque will be mailed to you normally within five working days of our receiving your request.

Should all the unit holders sign for any request like, additional purchase, redemptions, change of addresss, etc?    ( General )

For all such requests the first holder or survivor can sign on behalf of all unit holders

What is the procedure for the nomination facility ?    ( General )

While applying, just tick the relevant column in the application form. The nomination form will then be mailed to you. When we receive the form, a note will be made of it in our records, with an intimation to you.

Can I trade the units in the stock exchange ?    ( General )

No, the units are not tradeable , the units have to be surrendered back to Sundaram for redemption.

What does risk control mean?    ( General )

These are measures that are worked into the design and policies of a product that define limits such as the weight given to a particular instrument in the portfolio. The objective of these measures is to ensure that the downside risk is controlled.

How do I choose the right mutual fund for myself?    ( General )

The choice of the right mutual fund depends on the investment objective of the investor.

What is the minimum amount for investment ?    ( General )

Sundaram BNP Paribas Growth Fund: Rs.2,000/-
Sundaram BNP Paribas Bond Saver: Rs.5,000/-
Sundaram BNP Paribas Balanced Fund: Rs.5,000/- and in multipes of Rs.500/- thereafter
Sundaram BNP Paribas Money Fund: Rs.50,000/- and in multiples of Rs.10,000/- thereafter
Sundaram BNP Paribas Tax Saver: Rs.500/-

What is a mutual fund?    ( General )

A mutual fund is a trust that pools together the savings of a number of investors who share a common financial goal. They buy units of a fund that best suits their needs. The Fund Manager then invests this pool of money (called a corpus) in securities, ranging from shares to debentures to money market instruments. The income earned through this investment and the capital appreciation realised by the scheme, are shared by the investors in proportion to the number of units they own.

What are the benefits of investing in mutual funds?    ( General )

You benefit in the following ways by investing in mutual funds:

Professional expertise:
A mutual fund draws on the professional skill of a team of research analysts and fund managers in investing your savings for you in a number of securities

Diversification:
Returns on investment from just one industry or sector are subject to how well or poorly the industry fares. But with mutual funds your money is invested across different sectors. This reduces the risk of low returns on investment, because rarely do different sectors decline at the same time.

Higher long-term returns:
Investing in diverse securities ensures that you receive higher returns on investment in the long-term.

Liquidity:
If you invest in an open-ended mutual fund, you can claim your money at net asset value related prices from the Mutual Fund itself.

Transparency:
You will always have access to up-to-date information on the value of your investment in addition to the investments that have been made by your scheme, the proportion allocated to different assets and the Fund Manager's investment strategy.

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SEBI regulated:
All mutual funds are registered with SEBI and function within the provisions and regulations that protect the interests of investors.

What are the different types of mutual funds?    ( General )

There are a wide variety of Mutual Fund schemes that can meet your needs. These can be classified as follows:
A) By Structure

• Open - Ended Schemes 

No fixed maturity period, schemes are available for subscription and redemption on an ongoing basis. The units are bought and sold at NAV related prices.

• Close-Ended Schemes 

Schemes that have a stipulated maturity period (ranging from 2 to 15 years) are called close-ended schemes. The investor can invest directly in the scheme at the time of the initial issue and thereafter units of the scheme can be bought or sold on the stock exchanges where the scheme is listed

The market price at the stock exchange could vary from the scheme's NAV on account of demand and supply situation, unit holders' expectations and other market factors. One of the characteristics of the close-ended schemes is that they are generally traded at a discount to NAV; but closer to maturity, the discount narrows

• Interval Schemes 

These combine the features of open-ended and close- ended schemes
They 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 Objective

• Growth Schemes 

These aim 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.
They are ideal for:

• investors in their prime earning years
• investors seeking growth over the long term

Example : Sundaram BNP Paribas Growth Fund

• Income Schemes 

These aim 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.
They are ideal for:

• retired people and others with a need for capital stability and regular income
• investors who need some income to supplement their earnings

Example :Sundaram BNP Paribas Bond Saver

• Balanced Schemes 

These 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.

They are ideal for

• Investors looking for a combination of income and moderate growth.

Example : Sundaram BNP Paribas Balanced Fund

• Liquid Schemes 

These 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.

They are ideal for

• Corporates and Individual investors as a means to park their surplus funds for short periods or awaiting a more favourable investment alternative.

Example : Sundaram BNP Paribas Money Fund

• Tax Saving Schemes 

These 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 @20% for a maximum investment on Rs. 10,000 per financial year.

Example: Sundaram BNP Paribas Tax Saver

• Offshore funds

 These funds specialise in investing in foreign companies or corporations. These funds have non-residential investors and are regulated by the provisions of the foreign countries where these are registered. These are regulated by the RBI directives.

What is entry load and exit load ?    ( General )

A load is a sales fee charged by the fund.
Entry load is charged at the time of entering into the scheme. The entry load percentage is added to the NAV at the time of allotment of units.
Exit load is charged at the time of redeeming, transfer between schemes. The exit load percentage is deducted from the NAV at the time of redemption or transfer between schemes.

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How will I receive returns on my investment?    ( General )

When you invest in mutual funds, you could receive returns in one of the two ways: capital appreciation or income distribution (dividend).

Capital Gains: Capital gains are the profits, which you earn if you sell the units at a higher NAV than the original cost.

Income Distribution (dividend): When a fund makes profit on its investments, this profit will be given to you as a dividend. You can re-invest your dividend in the fund or retain it in the form of cash.

What is Net Asset Value (NAV) ?    ( General )

Net Asset Value is the rupee value of one unit of a particular scheme of the fund.It is determined using the following formula :

{Market or Fair Value of Scheme's Investments (+) Receivables (+) Accrued Income (+) Other Assets (-) Accrued Expenses (-) Payables (-) Other Liabilities} / Number of Units Outstanding

How do I update myself regarding the latest NAV ?    ( General )

How long will it take to receive an account statement after the purchase of units or the cheque in case of sale of units ?    ( General )

The account statement will be mailed to you normally within five working days from receipt of the purchase/sale request.

How do I redeem my units?    ( General )

To redeem your units, all you have to do is to fill in and sign the brief Redemption Request attached to your account statement. Send the Request to any Investor Service Centre.

How do I purchase units of various schemes of Sundaram BNP Paribas Mutual Fund?    (General)

You will have to fill in our application form, attach the cheque/ draft payable at any of our branch locations and send it to any of our .

What is the NAV applicable for purchases/ redemptions / inter-scheme transfers ?    ( General )

For all applications received whether for purchases/ redemptions/ inter-scheme transfers received during the transaction time (10.00 a.m. to 2.00 a.m. for all schemes except for Sundaram BNP Paribas Money Fund- 10 am to 12 Noon) on any working day the NAV as on that day will be applied while calculating NAV. For all applications received after transaction time the NAV as on the next working day is applied while calculating NAV.

What is the procedure for switching over from one scheme /plan to another ?    ( General )

You will have to fill up a inter-scheme transfer/ plan request form. The request form can be obtained at any of the .

Does Sundaram BNP Paribas Mutual Fund have a nomination facility?    (General)

Nomination facility is available only to single holders. Non-individuals cannot nominate.

Can partnership firms invest in Sundaram BNP Paribas Mutual Fund, and what are the documents required ?    ( General )

Partnership firms can invest in the name of the firm, subject to the submission of:

i. Certified copy of Partnership Deed.

ii. List of authorised Signatories with specimen signatures

iii. Certified copy of Resolution

Can a corporate invest in Sundaram BNP Paribas Mutual Fund and what are the documents required ?    ( General )

Corporates can invest in the name of the firm, subject to the submission of:
i. Certified copy of Board Resolution
ii. Memorandum & Articles of Association
iii. List of authorised Signatories with specimen signatures

Whom should I contact for queries ?    ( General )

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CASE STYDY

MORGAN STANLEY: AN INTRODUCTION

Morgan Stanley, is an internationally reputed financial services company. It employs more than 7,400 people to provide a wide spectrum of financial and advisory services to many "Fortune 500" corporations, institutions, governments and individual investors. Its main activities include investment banking, financial services, merchant banking, underwriting, asset management, security sales and trading, investment research, brokerage and correspondent services, commodities and foreign exchange trading, advisory services and global custody.

Morgan Stanley’s operations span across North America, Asia, Europe and Latin America, with headquarters in New York and offices in 20 cities around the world, including its new presence in Bombay through MSAM India.

As at 31st July, 1993 the total assets of Morgan Stanley amounted to approximately US $ 90 billion (approximately Rs. 270,000 crores) and the funds under management including assets under fiduciary, advisory control, in its investment management unit, MSAM, totalled approximately US $ 44.2 billion (approximately Rs. 132,600 crores). Its net worth on such date was approximately US $ 3.6 billion (approximately Rs. 10,800 crores). Its total revenues for the six months ended 30th July, 1993 were approximately US $ 4.7 billion (approximately Rs. 14,100 crores) and its net profit for the six months then ended was approximately US $ 0.4 billion (approximately Rs. 1,200 crores).

Morgan Stanley conducts its investment management operations through MSAM. MSAM provides portfolio management and fiduciary services to institutions, international organisations and individuals investing in the world’s equity and fixed income markets. MSAM has offices in New York, London, Singapore, Tokyo, Chicago and Los Angeles and a staff of over 200 personnel. MSAM India, located in Bombay and acting as the Scheme’s asset management company, is MSAM’s newest office.

MORGAN STANLEY’S EMERGING MARKETS EXPERTISE

A major benefit of Morgan Stanley’s global research has been its identification of new growth areas in the so-called "emerging markets". These markets have a high degree of risk but MSAM’s global skills have resulted in their clients earning returns which have outperformed emerging market indices.

MSAM is one of the leading money managers in the emerging markets with over US$ 3.3 billion (approximately Rs. 9,900 crores) currently invested in developing countries. It has 23 experts specialising in different emerging markets in Europe, Latin America, Africa and Asia, including the Indian sub-continent.

MSAM’s INVESTMENTS IN INDIA

MSAM was one of the first non-Indian institutional investors to enter the Indian capital market. In 1989, MSAM sponsored The India Magnum Fund N.V. ("IMF"), anticipating that the Indian economy would integrate with the world economy, that the Indian rupee will become convertible, and that the process of economic change would be irreversible. MSAM acts as the investment manager to IMF. IMF raised US$ 156 million (approximately Rs. 250 crores at the then exchange rate) in October 1989; another US$ 49 million (approximately Rs. 100 crores at the then exchange rate) was raised in a second offering in 1990. The total net asset value of IMF has since appreciated, pre-tax, to approximately US$ 360 million (approximately Rs. 1080 crores) as of 30th September, 1993. One rupee invested initially in the IMF in October, 1989 has grown to Rs. 3.90 (pre-tax) as at 30th September, 1993. This represents a compounded annual pre-tax return of 40.5% in rupee terms.

MSAM has also obtained registration as a Foreign Institutional Investor ("FII") with SEBI on behalf of its many clients, and has invested over US$ 100 million (approximately Rs. 300 crores) in the Indian capital markets. As a result, MSAM’s direct aggregate investment, as at 30th September, 1993, in India was over US$ 500 million (approximately Rs. 1,500 crores), making it one of the largest FIIs.

In making investment decisions for the IMF and its institutional clients invested in India, MSAM has followed the same decision processes it uses all over the world. This involves reliance on extensive fundamental research. In conducting research, MSAM visits companies representing potential investments and analyses financial and other information regarding issuers of potential investment securities. In India alone, MSAM has visited over 1,000 companies and discussed their strategies, performance and prospects in great detail.

HOW THE INVESTOR WILL BENEFIT FROM GLOBAL SKILLS AND RESOURCES

Morgan Stanley believes that a global perspective will be the key to successful stock selection in India in the coming years because, as regulation of the economy liberalises, the competitive advantages of Indian companies will no longer be defined by Indian borders; rather, Indian companies will need to be viewed in a global context. Morgan Stanley further expects that there will be strong sectoral polarisation in industrial performance in coming years, as a number of sectors will undergo shrinkage and other will expand explosively. Consequently, it is Morgan Stanley’s belief that an in-depth understanding of the liberalised economic policies will be key to successful stock picking. For example, to fully analyse the long-term prospects of the Indian steel industry, Morgan Stanley believes it will be critical to understand the workings of efficient producers of steel, particularly those in neighbouring and developing countries, the global demand-supply situation, the magnitude of steel scrap dumping, the impact of new technologies, as well as the worldwide economic climate. Morgan Stanley believes that a fund manager with access to both global and local research and an experienced and professional staff – like MSAM India - therefore will be well equipped to identify suitable investment opportunities in India.

INVESTMENT OBJECTIVE, POLICIES AND LIMITATIONS

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Scheme is to provide investors a vehicle for long-term capital appreciation. The Scheme will seek to achieve this objective through investment, primarily in equity and equity-related securities of Indian companies.

It is anticipated that at least 70% of the Scheme’s total assets will be invested in equity and equity-related securities issued by Indian companies. Debt securities will be purchased when MSAM India believes that they present an opportunity for achieving the Scheme’s investment objective of long-term capital appreciation. Securities in which the Scheme may invest include those listed on the Stock Exchanges of India, including the OTC Exchange of India, as well as unlisted securities. Assets of the Scheme, however, will be invested only in transferable securities.

Investments in debt securities are generally considered to have a lower risk profile than equities. While investments made by the Scheme are expected to be mainly liquid, the proposed investment mix for the Scheme will present a medium risk profile.

The Scheme will purchase securities in public offerings and rights issues, as well as those traded in the secondary markets. It may also invest in securities placed directly by the issuer or acquired in negotiated transactions. Cash balances of the Scheme will be invested in short-term debt obligations, money market instruments and bank obligations and deposits pending investment in accordance with the Scheme’s investment objective and when MSAM India believes that a defensive posture with respect to the equity markets is warranted. When such market conditions exist, the Scheme may hold up to 100% of its assets in such investments. The Scheme may also retain such amounts in cash or cash equivalents as the Board deems appropriate for the purposes of paying the Scheme’s anticipated expenses.

MSAM India will endeavour to identify Indian companies with sound management, a good track record and technology; businesses which are internationally competitive and/or have branded products/services with significant growth potential. Given the rapidly changing economic environment, there are inherent risks in designing a long-term portfolio in India. However, MSAM India believes that good fund management can be proactive in identifying and seizing opportunities and in reducing these risks through research and analysis. This means that investments will be selected for the long-term value they possess rather than for their short-term gain or income potential. It also means that MSAM India will prefer to buy "good value" stocks for the Scheme even if they do not have the liquidity of high-priced speculative stocks. Such a strategy is facilitated because of the close-ended nature of the Scheme.

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INVESTMENT LIMITATIONS

Pursuant to the SEBI (Mutual Funds) Regulations, 1993 (the "SEBI Guidelines"), the following investment limitations are applicable to the Scheme:

1. Investments in privately placed debentures, securitised debts and other unquoted debt instruments shall not exceed 10% of the total assets of the Scheme.

2. Debt instruments should be rated as investment grade by a credit rating agency. In case a debt instrument is not rated, the specific approval of the Board shall be obtained prior to investment.

3. No term loans for any purpose will be advanced by the Scheme.

4. The Scheme shall not invest more than 5% of its total assets in any one company’s shares.

5. MSMF under all its schemes, including the Scheme, taken together will not own more than 5% of any company’s paid up capital carrying voting rights.

6. MSMF under all its schemes, including the Scheme, taken together will not invest more than 10% of its total combined assets in the shares, debentures or other securities of a single company.

7. MSMF under all its schemes, including the Scheme, taken together, except for those not specifically created for investment in one or more specified industries, shall not invest more than 15% of its total combined assets in the shares or debentures of issuers in any one industry.

8. Transfers of investments from one scheme to another scheme, including the Scheme, under MSFM shall be allowed only if :-

(a) Such transfers are made at the prevailing market price for quoted securities on spot basis;

(b) The securities so transferred shall be in conformity with the investment objective of the scheme to which such transfer has been made; and

(c) The accounting and registration of the transaction is completed and is ratified at the next meeting of the Board.

9. The Scheme shall not engage in option trading, short selling or carry-forward transactions or badla transactions, nor shall it borrow funds to finance its investments.

10. The Scheme shall not enter into any transaction which exposes it to unlimited liability or results in the encumbering of its assets in any way.

11. The Scheme shall not invest in or lend to another scheme managed by MSAM India.

 

 

 

 

  

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MANAGEMENT AND ADMINISTRATION

CONSTITUTION OF MSMF AND THE SCHEME

MSMF has been constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) and is registered as a trust under the Indian Registration Act, 1908. MSMF was registered with SEBI on 5th November, 1993.

The Registered Office of MSMF is at C/o. Morgan Stanley Asset Management India Pvt. Ltd., 86, Maker Chambers VI, Nariman Point, Bombay 400 021.

MSGF, a close-ended scheme of MSMF, is the first Scheme to be floated under MSMF.

THE SPONSOR

MSMF is sponsored by Morgan Stanley, which is an internationally reputed financial services company. Details regarding Morgan Stanley appear below under "Information regarding Morgan Stanley."

BOARD OF TRUSTEES

The Board of Trustees of MSMF (the "Board") shall manage MSMF. The members of the Board are :-

MR. BARTON M. BIGGS

1221, Avenue of the Americas, New York, NY 10020, USA.

Mr. Biggs joined Morgan Stanley as a General Partner and Managing Director in 1973. He initiated the Research Department and is currently Director of Global Research and Strategy. "Institutional Investor" magazine named him as a strategist to its All-American Team ten times. Mr. Biggs founded MSAM in 1975 and is its Chairman. He is a member of the Operating Committee and Executive Committee of Morgan Stanley Inc. and serves on its Board of Directors. Mr. Biggs also is a Managing Director of Morgan Stanley & Co., Incorporated. He is also the Chairman and Supervisory Director of the India Magnum Fund N.V., and serves as the Chairman and Director of the Latin American Discovery Fund, Inc. and Morgan Emerging Markets Fund, Inc.

DR. ABID HUSSAIN

Jawahar Nagar, Dr. Rajendra Prasad Road, New Delhi 110 001.

Dr. Abid Hussain is a renowned economist and a fiscal and monetary policy specialist. He is a member of the Indian Administrative Service and has held the following senior positions: Secretary, Department of Heavy Industries, Secretary, Ministry of Commerce; Member, Planning Commission; Ambassador to the United States of America. He has chaired important UN/ESCAP sessions and delivered key-note addresses at numerous international forums. In addition, he has negotiated trade agreements with the U.S.A., USSR, the People’s Republic of China and several other countries.

DR. LOVRAJ KUMAR

77, Sundar Nagar, New Delhi 110 003.

Dr. Lovraj Kumar has served the Government of India in various capacities, including : Advisor, Ministry of Defence and Economic Coordination; Advisor, Ministry of Petroleum and Chemicals; Chairman, Bureau of Industrial Costs and Prices; Secretary, Ministry of Industry and Secretary, Ministry of Steel. After his retirement in 1984, he has held the following posts : Advisor to the Government of India Advisory Board on Energy; Chairman of several government committees on petroleum, energy, chemical industry and others; Trustees for the World Wide Fund for Nature India; and Chairman of DCL Polyesters Ltd. Dr. Kumar is on the board of Companies such as United Carbon India Ltd., Bata India Ltd., EID Parry Ltd., among others.

MR. WARREN J. OLSEN

1221, Avenue of the Americas, New York, NY 10020, USA.

Mr. Olsen is a Principal of Morgan Stanley & Co. Incorporated and is responsible for Morgan Stanley’s mutual fund business. He also serves as Vice President of MSAM. He is President of The Malaysia Fund, Inc. and The Thai Fund Inc. Mr. Olsen is President and Director of The Brazilian Investment Fund, Inc., The Latin American Discovery Fund, Inc., Morgan Stanley Emerging Markets Fund, Inc., Morgan Stanley Fund, Inc., Morgan Stanley Institutional Fund, Inc., PCS Cash Fund, Inc. and the Turkish Investment Fund, Inc. Mr. Olsen also currently serves as a Director of The India Magnum Fund N.V., The Morgan Stanley Emerging Growth Stock Institutional Portfolio, Morgan Stanley Emerging Markets Portfolio, Morgan Stanley High Yield Institutional Portfolio, Morgan Stanley Japanese Warrant Fund N.V., Morgan Stanley SICAV and The Portuguese Investment Fund Ltd. Mr. Olsen is also a member of the New York State Bar and is a certified public accountant.

DUTIES AND POWERS OF THE BOARD

Under the SEBI Regulations, the Board has various obligations. The Board is responsible for appointing and contracting with MSMF’s investment manager, custodians and other service providers. The Board also is responsible for holding the Scheme’s properties in trusts and for providing reports and information regarding MSMF and the Scheme to SEBI and the Unit holders. It is the Board’s responsibility to ensure that MSMF is operated in accordance with the SEBI Regulations.

In addition, the Board has been granted certain powers pursuant to the Deed to Trust constituting MSMF. These powers include the ability to float schemes under MSMF and permit the Board to authorise MSAM India to engage in various transactions in managing the Scheme’s investment portfolio.

The Board may also prescribe forms and rules to give effect to the provisions of MSMF, the Scheme and the various agreements associated therewith, with the power granted to the Board to add, alter or amend all or any of such forms and rules with prior approval of SEBI. All such amendments will be in conformity with the SEBI regulations and/or guidelines or notifications issued by the Government of India. In addition, any amendments to the Scheme would be made after the prior concurrence of SEBI.

ASSET MANAGEMENT COMPANY

The Board has appointed MSAM India as the asset management company for MSMF, taking into account the requirements of the SEBI Regulations. MSAM India has entered into an Investment Management and Advisory Agreement with MSMF, pursuant to which MSAM India will supervise the operations of MSMF and manage the assets of MSMF’s schemes. MSAM India is a private limited company incorporated under the Companies Act, 1956 on 12th October, 1993 and is a subsidiary of Morgan Stanley. MSAM India was approved to act as an asset management company for MSMF by SEBI on 5th November, 1993.

The appointment of MSAM India as the asset management company can be terminated with the approval of SEBI and upon a unanimous resolution of the Board or by 75% of the Unit holders of the Scheme.

Under the Investment Management and Advisory Agreement, MSAM India will provide MSMF with a variety of services, including assisting in this offering of the Scheme’s Units, managing and trading the securities comprising the Scheme’s investment portfolio and developing and managing other schemes under MSMF. MSAM India also has agreed to do all things required for the proper and efficient management of MSMF’s business and affairs, as well as to obtain tax benefits for the unit holders of MSMF’s schemes as described under "Taxation" below.

The Registered Office of MSAM India is 86, Maker Chambers VI, Nariman Point, Bombay 400 021.

The members of the Board of Directors of MSAM India are:

MR. G. DAVID BRINTON

49, Grossett Road, Riverside, CT 06878, USA.

Mr. G. David Brinton is a senior associate in the New York law firm of Rogers & Wells and specialises in mutual fund and investment company regulations. He has over eight years of experience in this area and has worked on structuring various U.S and offshore funds.

MR. MADHAV DHAR

20, Waterside Plaza, New York, NY 10010, USA.

Mr. Madhav Dhar is a Managing Director of Morgan Stanley. He joined MSAM in 1984 to focus on global asset allocation and investment strategy. He heads MSAM’s emerging markets group, which has approximately US$3.3 billion (approximately Rs. 9,900 crores) under management as of 30th September, 1993, and serves as the principal portfolio manager of the global emerging market portfolios. Mr. Dhar also coordinates MSAM’s developing country effort and has been involved in the launching of each of Morgan Stanley’s country funds. He is a Director of the Morgan Stanley Emerging Markets Fund, Inc.

MR. LEONARD B. MACKEY, Jr.

222, Riverside Drive, New York, NY 10025, USA.

Mr. Leonard B. Mackey, Jr. is a partner in the law firm of Rogers & Wells and specialises in mutual fund and investment company regulations. He has over 15 years of experience in advising mutual funds, closed-end funds and investment advisors primarily in the United States, but also in other jurisdictions.

MR. HAROLD SCHAAFF

15, West 84th  Street, New York, NY 10024, USA.

Mr. Harold Schaaff is the General Counsel and Secretary of MSAM and is a Vice President of Morgan Stanley. Prior to joining Morgan Stanley in 1989, he was attorney with the New York law firm of Sullivan & Cromwell. As the General Counsel and Secretary of MSAM, Mr. Schaaff is responsible for all legal, compliance and corporate secretarial matters arising in connection with MSAM’s business. He is a member of the Bars of the State of California and the State of New York.

CUSTODIAN

The Board has entered into a Custody Agreement with Stock Holding Corporation of India Ltd. ("SHCIL") pursuant to which it will provide various custodial services for the Scheme’s investment portfolio securities. These services include receiving, registering and holding the Scheme’s investment portfolio securities, and releasing such securities only upon MSAM India’s authorisation in connection with a sale and receiving the proceeds thereof. In addition, SHCIL shall receive and hold all distributions made upon the Scheme’s portfolio securities. SHCIL shall also forward all information received regarding such securities to MSMF.

MSMF shall pay to SHCIL custodial fees for its services which are calculated based upon the nature of the Scheme’s investment portfolio securities and the transactions in which such securities are acquired or disposed of. While the fees vary, the maximum fee will be 0.35% of the value of the transaction involving a portfolio security. SHCIL also will be reimbursed for all reasonable out-of-pocket expenses incurred by it in the performance of its duties.

MSMF will also maintain one or more accounts with the Hong Kong and Shanghai Banking Corporation Ltd. ("HKSB") in Bombay for the custody of cash and certain cash-related assets.

MUTUAL FUND ACCOUNTING AND ADMINISTRATION

MSAM India will appoint Morgan Stanley Bank Luxembourg ("MSBL") to perform mutual fund accounting and administration services for MSMF. Such services are very specialised and responsibility is usually contracted to a service provider. MSBL performs such activities for a number of the MSAM offshore funds out of its facilities in Luxembourg. For MSMF, these services are expected to include computing the net asset value ("NAV") per Unit of the Scheme on a weekly basis, maintaining MSMF’s books and records, monitoring compliance with the Scheme’s investment limitations as well as the SEBI Regulations and other regulations, preparing and distributing reports on the Scheme to the Unit holders and SEBI and monitoring the performance of MSMF’s custodians and other service providers. MSBL currently provides some of these services to the India Magnum Fund N.V. and, as a result, has developed a good understanding of the Indian securities market and has worked closely with SHCIL and HKSB. For these services to be rendered by MSBL, MSAM India will pay a fee monthly in arrears, to MSBL computed at an annual rate of 0.2% of the Scheme’s average weekly net assets subject to an annual minimum fee of Rs. 20 lakhs and an annual maximum fee of Rs. 1 crore, plus reasonable out-of-pocket expenses. MSMF will reimburse MSAM India for any and all such fees payable to MSBL.

REGISTRAR AND TRANSFER AGENT

MSMF has entered into an agreement with Karvy Consultants Pvt. Ltd. ("Karvy") for the provision of registrar and transfer agency services on its behalf. In this connection, Karvy will be the Registrar and Transfer Agent for units of the Scheme.

 

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TERMS OF THE ISSUE

SUMMARY OF TERMS

Targeted Amount: Rs. 300 crores.

Issue Price: Rs. 10 per MSGF unit at par.

Minimum Subscription: Rs. 1000 (100 units) and multiples of Rs. 1000 (100 units) thereafter.
Marketable Lot: 100 MSGF units

Date of Opening: 6th January, 1994

Date of Closure: The issue will be kept open for a minimum of three working days and a maximum of twelve working days. The Board will proceed to close the issue by giving one day’s notice of the date of closure through advertisements in the major national daily news papers when approximately 75% of the targeted amount is collected. Only those subscriptions which are received before the expiry of the notice period will be retained.

If subscriptions for at least 18 crore Units have not been received by the closure date of the issue, the offering will terminate and the Board will return the entire amount received within 78 days from such closure date.

OFFERING OF UNITS

MSMF has engaged Enam Financial Consultants Pvt. Ltd. and DSP Financial Consultants Limited (collectively, the "Lead Managers") to act as the Lead Managers for the offering of the Units of the Scheme. The address of each Lead Manager is set forth at the end of this Offering Circular. The Lead Managers have appointed bankers to the Offer and will be responsible for the allotments and placing of the Units. The Lead Managers are not acting as underwriters or dealers, however, and have no obligation to purchase or make a market for the Units. For their services, the Lead Managers will receive a fee based upon the amount of subscriptions accepted. For an estimate of this fee, see "Fees and Expenses".

BASIS OF ALLOTMENT AND DISPATCH OF UNIT CERTIFICATES

The arrangements for closure of the issue and allotment have been designed with the objective of making allotments on a "first come first served" basis. It is hoped, however, that all applicants will receive their full allotment. Accordingly, MSMF reserves the right to accept or reject any subscription, including accepting subscriptions in excess of the targeted amount. Allotment of MSGF Units and dispatch of certificates will be made within ten weeks after the closure of date of the issue.

APPLICATIONS FOR UNITS

Who can apply

The following persons are eligible to apply for the purchase of Units:

         Adult individuals, either singly or jointly (not exceeding three), resident in India.

         Parents/lawful guardians of behalf of Minors.

         Companies, corporate bodies, trusts, associations of persons or bodies of individuals and societies registered under Societies Registration Act, 1860 (so long as the purchase of Units is permitted under their respective constitutions).

         Hindu Undivided Families.

How to Apply

Application forms complete in all respects, accompanied by the total subscription amount in cash or cheque/draft drawn locally are to be submitted to any of the bankers to the issue or their respective designated branches. The investors are requested to preserve the acknowledgement slip initialled by the collecting bank.

All cheques/drafts should be made out in favour of Bank Name - A/c. MSGF (for e.g. "Bank of Baroda A/c. MSGF") and crossed A/c Payee. Please note that Stockinvests and outstation cheques/drafts would not be accepted. For additional instructions please follow the application form carefully.

AVAILABILITY OF APPLICATION FORMS AND OFFERING CIRCULAR

Application forms and copies of Offering Circular may be obtained from the Registered Office of MSMF, lead managers, members of recognised Stock Exchanges and the collection branches of Bankers to the Offer.

REGISTRAR OF THE OFFERING

Karvy has been appointed as registrar of the offering of the Units. In this capacity, Karvy will process and verify the application received by the Bankers to the Issue and advise MSMF as to the amounts during the offering period. Karvy will also handle communications with investors, perform data entry services and will distribute Unit certificates after the allotment is finalised. In addition, Karvy will provide certain administrative services in connection with the offering with respect to the Unit Certificates for three months following dispatch of Unit Certificates to the Unit holders. For these services, Karvy will receive a fee of approximately Rs. 5.30 per allottee and approximately Rs. 3.70 per non-allottee. Other costs such as stationery printing and binding, postage and similar costs will be reimbursed by the scheme on an as incurred basis. An estimate of Karvy’s fees is set forth in the table under "Fees and Expenses".

The Board and MSMF have satisfied themselves that Karvy has adequate capacity to discharge its responsibilities with regard to procuring of applications and dispatch of Unit Certificates to Unit holders within the stipulated time period, and also has sufficient capacity to handle investor complaints.

The investor grievance compliance officer for MSMF will be:

MR. K.N. VAIDYANATHAN

Morgan Stanley Asset Management India Pvt. Ltd.

86, Maker Chambers VI, Nariman Point, Bombay 400 021.

Telephone : 022-2830200

In addition, MSMF has appointed Karvy in its role as the transfer agent to act as investor grievance compliance centres in the following locations.

MR. V.K. MOONDRA

V.K. Moondra & Co.,

201-Sarap, Opp. Navjivan Press,

Ashram Road,

Ahmedabad 380 044.

Tel. : 0272-429705

Fax : 0272-429550

MR. K.S. BOTHRA

C/o. K. Bothra & Co.,

9, Old China Bazar,

Calcutta 700 001.

Tel. : 033-2429469/ 2424071

Fax : 033-2424071

MR. S. RADHAKRISHNAN

G-1, Swathy Court,

22, Vijaya Raghava Road,

T. Nagar, Madras 600 017,

Tel. : 044-8253445 / 8258034

Fax : 044-8258034

MR. A.S.VELPANUR

M/s. Karvy Consultants Pvt. Ltd.,

7, Andheri Industrial Estate,

Off Veera Desai Road,

Andheri (W), Bombay 400 058.

Tel.: 022-6267226 / 6269044 / 6271802,

Telex : 011-78006,Fax : 022-6290882

MR. JACOB KOSHY

503, Vikram Tower,16, Rajendra Place,

New Delhi 110 008.,

Tel. : 011-5721610,Telex : 031-62733

 DESCRIPTION OF UNITS

The Units

The Scheme is proposed to be divided into 30 crore Units having a face value of Rs. 10 each, issued for cash at par and will be represented by Unit Certificates. All Units are equal as to assets, earnings and the receipt of dividends or distributions, if any, as may be declared by the Board. In the event of liquidation or winding up of the Scheme, each Unit is entitled to receive its proportion of the Scheme’s assets remaining after payment of all debts and expenses. Holders of Units are entitled to one vote per Unit held on all matters to be voted upon by Unit holders.

MSMF does not presently intend to offer additional Units of the sScheme. However, the Board may decide to make further offerings at a future date if it deems advisable.

 

DURATION OF THE SCHEME

The duration of the Scheme is 15 years from the date of allotment. However, the scheme may be liquidated any time prior to the expiration of the 15 years under the following circumstances :

         Changes in the capital market, fiscal laws, legal system or on the happening of any event which, in the opinion of the Board, requires the Scheme to be wound up.

         If seventy five per cent of the Unit holders pass a resolution that the Scheme be wound up.

         If  SEBI so directs in the interest of the Unit holders.

LISTING AND TRANSFER OF UNITS

Applications have been made to list and trade MSGF Units on the Bombay, Calcutta, Delhi, Madras and Ahmedabad Stock Exchanges, which is expected to commence not later than 10 weeks from the closure date of the offering. Units will be transferable in marketable lots of 100. The procedure for sale/transfer is similar to that for Equity Shares. The Scheme’s Units, however, will trade in the open market on such exchanges at a price which will be a function of several factors, including their NAV. Thus, the Units may trade at a premium or a discount from their NAV. See "Risk Factors and Special Considerations."

DISTRIBUTION POLICY

It is MSMF’s current intention to reinvest the Scheme’s permitted investments, and not to distribute to the Scheme’s Unit holders, the net investment income recognised and the capital gains realised from the Scheme’s operations. However, subject to applicable SEBI and Government of India regulation, the Board is entitled to declare dividends and distributions of profits and reserves in cash or in Units of the Scheme.

SCHEME TO BE BINDING

The terms of the Scheme, including any amendments thereto approved by the Board in its discretion from time to time in accordance with the SEBI Regulations, shall be binding on the Unit holders and any person/persons claiming through or under any such Unit holder as if the Unit holder and such person/persons had expressly agreed that they should be so binding.

MEETINGS OF UNIT HOLDERS

The Board shall call for a meeting of the Unit holders of the Scheme whenever the Board is required to do so in the interest of the Unit holders, upon the request of three-fourths of the Unit holders of the Scheme or of all the schemes under MSMF, or if the Board determines to wind up the Scheme.

FEES AND EXPENSES

ISSUE EXPENSES

The total issue costs of the Scheme, based upon the targeted amount of Rs. 300 crores, are estimated to be as follows:

Rs. in Crores                 % ofTargeted Amount

Lead Managers’ Fee                                 1.80                        0.60

Brokerage Fees                                 8.25                        2.75

Advertising and Marketing                        1.80                        0.60

Listing and Stamp Duty                         0.09                        0.03

Registrar’s Fees and Expenses                 2.49                        0.83

Professional Fees and Expenses                 0.03                        0.01

Printing and Dispatch                         1.20                        0.40

Bankers’ Fees                                         0.30                        0.09

Administrative Expenses                         0.10                        0.03

TOTAL                                         16.06                        5.34%

While this estimate has been made in good faith, on the basis of information known to MSMF, there can be no assurance, given the nature of offerings of Mutual Funds, that actual expenses will not be more or less than such estimate. In any event, estimated expenses of the offering of the Units shall not exceed 6% of the total amount collected under the offering. All offering expenses will be charged to the capital of the Scheme upon its commencement of operations.

BROKERAGE/ COMMISSION

The commission payable to members of the Stock Exchange will consist of brokerage and incentive as follows:

         Brokerage – 1.5% of amount collected.

         Incentive – See below.

 

Amount procured and allotted (Rs. lakhs)                         Percentage of Incentive

10 – 100                                                                0.20

101 – 500                                                                0.30

501 – 1000                                                                0.50

1001 – 1500                                                                0.75

1501 – 2500                                                                1.00

2501 and above                                                        1.25

In addition, a further amount of Rs. 150 lakhs will be shared proportionately by brokers procuring more than Rs.1500 lakhs each. It is estimated that the total amount of brokerage/commission including the incentives will not exceed Rs. 8.25 crores.

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MANAGEMENT FEES

MSMF will pay MSAM India an investment management fee pursuant to the Investment Management and Advisory Agreement as set forth below :

(a) 1.25% of the average weekly net assets of the Scheme for the first Rs. 100 crores, and
(b) 1.00% of the average weekly net assets of the Scheme in excess of Rs. 100 crores.

This fee will be payable monthly in arrears.

OTHER EXPENSES

For a discussion of the Custodian’s and the Registrar and Transfer Agent's fees, see "Management and Administration – Custodian" and "Registrar and Transfer Agent." MSMF will pay all its own other expenses, including  among others, the following: organisational expenses of MSMF; fees and expenses of MSMF’s administration service providers; freight, insurance and transport charges in connection with the shipment of MSMF’s investment securities; brokerage commissions, stamp duties and other costs associated with the maintenance of a register of Unit holders; expenses of applying for and maintaining  listings of the Units on the stock exchanges; annual  registration and other fees that may be required by SEBI; expenses of preparing reports, notices and other communications to the Board, Unit holders, regulatory authorities and others; expenses of dividends and distributions (if any) to the Unit holders; litigation expenses; legal fees and expenses of counsel to MSMF; and fees and expenses of auditors of MSMF.

The annual total of all charges and expenses of MSMF, except for brokerage commissions, stamp duties and other expenses associated with the purchase, sale and registration of transfer of MSMF’s investment securities, and except for expenses associated with the initial issue of Units of the Scheme, shall not exceed 3% of the average weekly net assets of the Scheme for any year.

 

INVESTOR RIGHTS AND SERVICES

PLEDGE OF UNITS

MSGF Units can be pledged by Unit holders as security for raising loans. MSMF will take note of such pledge/charge in its records. A standard form has been drafted for this purpose and is available on request.

INSPECTION OF DOCUMENTS

The following documents will be available for inspection to the Unit holders at the Registered Office of MSAM India :-

1. Deed of Trust.

2. Memorandum and Articles of Association of Morgan Stanley Group Inc.

3. Memorandum and Articles of Association of Morgan Stanley Asset Management India Pvt. Ltd.

4. Investment Management and Advisory Agreement.

5. Custodian Agreement.

6. Registrar and Transfer Agent Agreement.

7. Register of Unit holders.

8. Securities and Exchange Board of India (Mutual Funds) Regulations 1993.

9. Indian Trust Act, 1982.

Copies of these documents may be made by the Unit holders upon the payment of fees set by MSMF from time to time.

 

INFORMATION REGARDING THE SCHEME

MSMF will publish and distribute annually to every Unit holder of the Scheme an audited annual report setting forth the financial condition of the Scheme as on 31st March. The first audited annual report will be for the period ending on March 31, 1995. This report will disclose the Scheme’s entire portfolio in detail. Unit holders also will be provided with unaudited quarterly financial reports of the Scheme as on 30th June, 30th September and 31st December. In addition, MSMF shall publish, by means of an advertisement in one English language national daily newspaper and in a Hindi language newspaper published in Bombay, the Scheme’s unaudited financial results for the six-month periods ending 30th September and 31st March within two months of such fiscal period-ends. The Board shall also make such periodic disclosures to the Unit holders as are essential to keep them informed about any information which may have an adverse bearing on the Scheme.

COMPUTATION OF NET ASSET VALUE

Net Asset Value ("NAV") of the Units will be determined as of the close of business on the last business day of each week on which the Bombay Stock Exchange is open for trading. The NAV shall be calculated in accordance with the following formula :-

 

Net Asset Value = Market Value of Scheme's Investments + Receivables +Accrued Income+ Other Assets - Accrued Expenses  - Payables - Other Liabilities
_________________________________________________

Number of Units Outstanding

VALUATION OF ASSETS

In valuing the Scheme’s investments, all listed equity securities for which market quotations are readily available are valued at the last sale on the date of determination or, if there was no sale on such date, at the mean of highest current bid and the lowest current asked prices. Unlisted equity securities are valued at the mean between the current bid and asked prices, if any, of two reputable brokers. Short-term investments having a remaining maturity of 60 days or less are valued at amortised cost, which approximates market value. Other securities as to which market quotations are readily available are valued at their market value. All other securities and assets are taken at fair value as determined in good faith in accordance with regulations adopted by the Board. In instances where price cannot be determined in accordance with the above procedures, or in instances in which the Board determines it is impractical or inappropriate to determine price in accordance with the above procedures, the price is determined in such manner as the Board may prescribe.

PUBLICATION OF NAV AND UNIT PRICES

The NAV per Unit of the Scheme will be published weekly every Tuesday, or the next business day in case Tuesday is a holiday, in at least two national newspapers. In the event NAV cannot be calculated or published, such as because of the suspension of trading on the Bombay Stock Exchange, during the existence of a state of emergency or a breakdown in communications, the Board may suspend determination or publication of the NAV of the Units. MSMF will endeavour to notify Unit holders of any such suspension.

ACCOUNTS AND AUDIT

MSMF will maintain the books and records for the Scheme. The Board shall arrange for the financial statements of the Scheme to be audited as of every 31st March. The first such audit will be conducted on March 31st, 1995. The Board shall have the financial statements for the Scheme be audited by such Chartered Accountant(s) as it may appoint for that purpose. Price Waterhouse has been appointed in such capacity.

TAXATION

Certain tax benefits are described below that are believed to be available, under present taxation laws, to the Unit holders and to MSMF. THE INFORMATION SET FORTH BELOW IS INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. IN VIEW OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH INVESTOR IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF PARTICIPATION IN THE SCHEME.

UNIT HOLDERS

Income Tax

Under Section 80L of the Income Tax Act, 1961 in case of an individual or other specified assesses, income from Units issued under this Scheme, together with other income on specified securities/deposits, will qualify for a deduction of upto Rs. 10,000.

NB : The foregoing tax benefits under this Scheme shall be available only to the first/sole Unit holder.

Capital Gains

Units held under the Scheme for a continuous period of over three years would be treated as long-term capital assets. Under Section 112 of the Tax Act, capital gains chargeable on transfer of long-term capital assets is subject to tax @ 20% for individuals and Hindu Undivided Families, 40% for corporate entities and 30% in all other cases. The amount of income tax as computed in accordance with Section 112 will be increased by surcharge, where applicable, calculated at the rate specified for the assesses. The long-term capital gains is computed by deducting the following amount from the sale consideration :-

i) Expenditures incurred wholly and exclusively in connection with such transfer, and

ii) Costs of acquisition as adjusted by Cost Inflation Index notified by the Central Board of Direct Taxes.

Where the taxable income as reduced by long-term capital gains is below the basic exemption limit, the long term capital gains will be reduced to the extent of the shortfall and only the balance long-term capital gains balance will be subjected to the flat rate of tax.

Wealth Tax

No Wealth Tax is payable on the holding of units under the Scheme.

Tax Deduction at Source

Under Section 196A of the Tax Act, there will be no tax deduction at source from payment to the Unit holders who are resident in India, irrespective of amount.

MSMF
MSMF will apply, under Section 10(23D) of the Tax Act, to have its entire income be exempt from Income Tax. Similarly, MSMF will receive all income without any deduction of tax at source.

OTHER RIGHTS

For this purpose, the investors are further advised to refer to the relevant provisions of the Indian Trust Act, 1882.

 

 

RISK FACTORS AND SPECIAL CONSIDERATIONS

Investing in the Scheme involves certain risks and considerations associated with making investments in securities. There can be no assurance the Scheme will achieve its objective. The value of the Scheme’s investments may be affected generally by factors affecting capital markets, such as interest rates, currency exchange rates, foreign investment, changes in governmental policy, taxation and political, economic or other developments. Consequently, the net asset value of the Scheme may fluctuate, and the value of the Scheme’s Units may go down as well as up. The Units may also trade at a discount to the Scheme’s net asset value. Past performance of the sponsors is not necessarily indicative of future performance of the Scheme.

In addition, the stock markets in the past have experienced substantial price volatility and no assurance can be given that such volatility will not occur again in the future. The stock markets in the past have also been subject to closure and there can be no certainty that this will not recur. A large percentage of market capitalisation and trading value on the stock exchanges is represented by a relatively small number of issuers.

Investors therefore are urged to study the terms of offer carefully before they invest in the Scheme. MSGF is only the name of the Scheme and does not in any manner indicate either the quality of the Scheme, its future prospects or the returns.

SECURITIES AND EXCHANGE BOARD OF INDIA

SEBI INVESTOR EDUCATION PROGRAMME

(INVESTMENTS IN MUTUAL FUNDS)

 

Introduction

Different investment avenues are available to investors. Mutual funds also offer good investment opportunities to the investors. Like all investments, they also carry certain risks. The investors should compare the risks and expected yields after adjustment of tax on various instruments while taking investment decisions. The investors may seek advice from experts and consultants including agents and distributors of mutual funds schemes while making investment decisions.

With an objective to make the investors aware of functioning of mutual funds, an attempt has been made to provide information in question-answer format which may help the investors in taking investment decisions.

What is a Mutual Fund?

Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document.

Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders.

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

What is the history of Mutual Funds in India and role of SEBI in mutual funds industry?

Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds.

In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are – to protect the interest of investors in securities and to promote the development of and to regulate the securities market.

As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors.

All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type. It may be mentioned here that Unit Trust of India (UTI) is not registered with SEBI as a mutual fund (as on January 15, 2002).

 

How is a mutual fund set up?

A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund.

SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme. However, Unit Trust of India (UTI) is not registered with SEBI (as on January 15, 2002).

What is Net Asset Value (NAV) of a scheme?

The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV).

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

What are the different types of mutual fund schemes?

Schemes according to Maturity Period:

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

Open-ended Fund/ Scheme

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

Close-ended Fund/ Scheme

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

Schemes according to Investment Objective:

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

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major 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.

Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities 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.

Balanced Fund

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

Money Market or Liquid Fund

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

Gilt Fund

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

Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.

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

What are sector specific funds/schemes?

These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.

What are Tax Saving Schemes?

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

What is a Load or no-load Fund?

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

A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.

Can a mutual fund impose fresh load or increase the load beyond the level mentioned in the offer documents?

Mutual funds cannot increase the load beyond the level mentioned in the offer document. Any change in the load will be applicable only to prospective investments and not to the original investments. In case of imposition of fresh loads or increase in existing loads, the mutual funds are required to amend their offer documents so that the new investors are aware of loads at the time of investments.

What is a a sale or repurchase/redemption price?

The price or NAV a unit holder is charged while investing in an open-ended scheme is called sales price. It may include sales load, if applicable.

Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases or redeems its units from the unit holders. It may include exit load, if applicable.

What is an assured return scheme?

Assured return schemes are those schemes that assure a specific return to the unit holders irrespective of performance of the scheme.

A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document.

Investors should carefully read the offer document whether return is assured for the entire period of the scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year.

Can a mutual fund change the asset allocation while deploying funds of investors?

Considering the market trends, any prudent fund managers can change the asset allocation i.e. he can invest higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the offer document. It can be done on a short term basis on defensive considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unit holders and giving them option to exit the scheme at prevailing NAV without any load.

How to invest in a scheme of a mutual fund?

Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Forms can be deposited with mutual funds through the agents and distributors who provide such services. Now a days, the post offices and banks also distribute the units of mutual funds. However, the investors may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given by them. The only role of banks and post offices is to help in distribution of mutual funds schemes to the investors.

Investors should not be carried away by commission/gifts given by agents/distributors for investing in a particular scheme. On the other hand they must consider the track record of the mutual fund and should take objective decisions.

Can non-resident Indians (NRIs) invest in mutual funds?

Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect are given in the offer documents of the schemes.

How much should one invest in debt or equity oriented schemes?

An investor should take into account his risk taking capacity, age factor, financial position, etc. As already mentioned, the schemes invest in different type of securities as disclosed in the offer documents and offer different returns and risks. Investors may also consult financial experts before taking decisions. Agents and distributors may also help in this regard.

How to fill up the application form of a mutual fund scheme?

An investor must mention clearly his name, address, number of units applied for and such other information as required in the application form. He must give his bank account number so as to avoid any fraudulent encashment of any cheque/draft issued by the mutual fund at a later date for the purpose of dividend or repurchase. Any changes in the address, bank account number, etc at a later date should be informed to the mutual fund immediately.

What should an investor look into an offer document?

An abridged offer document, which contains very useful information, is required to be given to the prospective investor by the mutual fund. The application form for subscription to a scheme is an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer document. An investor, before investing in a scheme, should carefully read the offer document. Due care must be given to portions relating to main features of the scheme, risk factors, initial issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsor’s track record, educational qualification and work experience of key personnel including fund managers, performance of other schemes launched by the mutual fund in the past, pending litigations and penalties imposed, etc.

When will the investor get certificate or statement of account after investing in a mutual fund?

Mutual funds are required to dispatch certificates or statements of accounts within six weeks from the date of closure of the initial subscription of the scheme. In case of close-ended schemes, the investors would get either a demat account statement or unit certificates as these are traded in the stock exchanges. In case of open-ended schemes, a statement of account is issued by the mutual fund within 30 days from the date of closure of initial public offer of the scheme. The procedure of repurchase is mentioned in the offer document.

How long will it take for transfer of units after purchase from stock markets in case of close-ended schemes?

According to SEBI Regulations, transfer of units is required to be done within thirty days from the date of lodgment of certificates with the mutual fund.

As a unit holder, how much time will it take to receive dividends/repurchase proceeds?

A mutual fund is required to dispatch to the unit holders the dividend warrants within 30 days of the declaration of the dividend and the redemption or repurchase proceeds within 10 working days from the date of redemption or repurchase request made by the unit holder.

In case of failures to dispatch the redemption/repurchase proceeds within the stipulated time period, Asset Management Company is liable to pay interest as specified by SEBI from time to time (15% at present).

Can a mutual fund change the nature of the scheme from the one specified in the offer document?

Yes. However, no change in the nature or terms of the scheme, known as fundamental attributes of the scheme e.g.structure, investment pattern, etc. can be carried out unless a written communication is sent to each unit holder and an advertisement is given in one English daily having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unit holders have the right to exit the scheme at the prevailing NAV without any exit load if they do not want to continue with the scheme. The mutual funds are also required to follow similar procedure while converting the scheme form close-ended to open-ended scheme and in case of change in sponsor.

How will an investor come to know about the changes, if any, which may occur in the mutual fund?

There may be changes from time to time in a mutual fund. The mutual funds are required to inform any material changes to their unit holders. Apart from it, many mutual funds send quarterly newsletters to their investors.

At present, offer documents are required to be revised and updated at least once in two years. In the meantime, new investors are informed about the material changes by way of addendum to the offer document till the time offer document is revised and reprinted.

How to know the performance of a mutual fund scheme?

The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published in newspapers. The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI)  and thus the investors can access NAVs of all mutual funds at one place

The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format.

The mutual funds are also required to send annual report or abridged annual report to the unit holders at the end of the year.

Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds.

Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc.

On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme.

How to know where the mutual fund scheme has invested money mobilised from the investors?

The mutual funds are required to disclose full portfolios of all of their schemes on half-yearly basis which are published in the newspapers. Some mutual funds send the portfolios to their unit holders.

The scheme portfolio shows investment made in each security i.e. equity, debentures, money market instruments, government securities, etc. and their quantity, market value and % to NAV. These portfolio statements also required to disclose illiquid securities in the portfolio, investment made in rated and unrated debt securities, non-performing assets (NPAs), etc.

Some of the mutual funds send newsletters to the unit holders on quarterly basis which also contain portfolios of the schemes.

Is there any difference between investing in a mutual fund and in an initial public offering (IPO) of a company?

Yes, there is a difference. IPOs of companies may open at lower or higher price than the issue price depending on market sentiment and perception of investors. However, in the case of mutual funds, the par value of the units may not rise or fall immediately after allotment. A mutual fund scheme takes some time to make investment in securities. NAV of the scheme depends on the value of securities in which the funds have been deployed.

If schemes in the same category of different mutual funds are available, should one choose a scheme with lower NAV?

Some of the investors have the tendency to prefer a scheme that is available at lower NAV compared to the one available at higher NAV. Sometimes, they prefer a new scheme which is issuing units at Rs. 10 whereas the existing schemes in the same category are available at much higher NAVs. Investors may please note that in case of mutual funds schemes, lower or higher NAVs of similar type schemes of different mutual funds have no relevance. On the other hand, investors should choose a scheme based on its merit considering performance track record of the mutual fund, service standards, professional management, etc. This is explained in an example given below.

Suppose scheme A is available at a NAV of Rs.15 and another scheme B at Rs.90. Both schemes are diversified equity oriented schemes. Investor has put Rs. 9,000 in each of the two schemes. He would get 600 units (9000/15) in scheme A and 100 units (9000/90) in scheme B. Assuming that the markets go up by 10 per cent and both the schemes perform equally good and it is reflected in their NAVs. NAV of scheme A would go up to Rs. 16.50 and that of scheme B to Rs. 99. Thus, the market value of investments would be Rs. 9,900 (600* 16.50) in scheme A and it would be the same amount of Rs. 9900 in scheme B (100*99). The investor would get the same return of 10% on his investment in each of the schemes. Thus, lower or higher NAV of the schemes and allotment of higher or lower number of units within the amount an investor is willing to invest, should not be the factors for making investment decision. Likewise, if a new equity oriented scheme is being offered at Rs.10 and an existing scheme is available for Rs. 90, should not be a factor for decision making by the investor. Similar is the case with income or debt-oriented schemes.

On the other hand, it is likely that the better managed scheme with higher NAV may give higher returns compared to a scheme which is available at lower NAV but is not managed efficiently. Similar is the case of fall in NAVs. Efficiently managed scheme at higher NAV may not fall as much as inefficiently managed scheme with lower NAV. Therefore, the investor should give more weightage to the professional management of a scheme instead of lower NAV of any scheme. He may get much higher number of units at lower NAV, but the scheme may not give higher returns if it is not managed efficiently.

How to choose a scheme for investment from a number of schemes available?

As already mentioned, the investors must read the offer document of the mutual fund scheme very carefully. They may also look into the past track record of performance of the scheme or other schemes of the same mutual fund. They may also compare the performance with other schemes having similar investment objectives. Though past performance of a scheme is not an indicator of its future performance and good performance in the past may or may not be sustained in the future, this is one of the important factors for making investment decision. In case of debt oriented schemes, apart from looking into past returns, the investors should also see the quality of debt instruments which is reflected in their rating. A scheme with lower rate of return but having investments in better rated instruments may be safer. Similarly, in equities schemes also, investors may look for quality of portfolio. They may also seek advice of experts.

Are the companies having names like mutual benefit the same as mutual funds schemes?

Investors should not assume some companies having the name "mutual benefit" as mutual funds. These companies do not come under the purview of SEBI. On the other hand, mutual funds can mobilise funds from the investors by launching schemes only after getting registered with SEBI as mutual funds.

Is the higher net worth of the sponsor a guarantee for better returns?

In the offer document of any mutual fund scheme, financial performance including the net worth of the sponsor for a period of three years is required to be given. The only purpose is that the investors should know the track record of the company which has sponsored the mutual fund. However, higher net worth of the sponsor does not mean that the scheme would give better returns or the sponsor would compensate in case the NAV falls.

Where can an investor look out for information on mutual funds?

Almost all the mutual funds have their own web sites. Investors can also access the NAVs, half-yearly results and portfolios of all mutual funds at the web site of Association of mutual funds in India (AMFI) . AMFI has also published useful literature for the investors.

Investors can log on to the web site of SEBI  and go to "Mutual Funds" section for information on SEBI regulations and guidelines, data on mutual funds, draft offer documents filed by mutual funds, addresses of mutual funds, etc. Also, in the annual reports of SEBI available on the web site, a lot of information on mutual funds is given.

There are a number of other web sites which give a lot of information of various schemes of mutual funds including yields over a period of time. Many newspapers also publish useful information on mutual funds on daily and weekly basis. Investors may approach their agents and distributors to guide them in this regard.

If mutual fund scheme is wound up, what happens to money invested?

In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after adjustment of expenses. Unit holders are entitled to receive a report on winding up from the mutual funds which gives all necessary details.