Lal Bahadur Shastri Institute of Management and

Technology

Summer Training Project

On

A STUDY BASED ON THE PERFORMANCE OF ELSS &

VARIOUS OTHER SCHEMES ON THE BASIS OF RETURNS IN
KOTAK MUTUAL FUND

Submitted to: Submitted by:

 Acknowledgement

I would like to thank employees of Kotak Mutual Fund for giving me an

opportunity to intern with them. The training at the company was held over a
period of 45 days. During this period I was guided by the Branch Manager Mr.
Himanshu Agarwal. The project report and the learning process would not have
been possible without his inputs and guidance at critical points of the project. He
imparted to me the knowledge of mutual funds and shared with me the practical
techniques of mutual funds. Under his guidance I was able to enhance my skills
and knowledge.

During the course of the 45 days I also came across other people who put in their
time and effort towards acclimatizing me towards the working of their
organization. I express my thanks to every one of them.

These 45 days were very important to me as it helped me in going beyond the class
room and get a practical feel of how things worked.
 INTRODUCTION

In Mutual Funds, reserves of various investors are accumulated and invested in equity or equity
market in the form of fund. On the basis of money invested, investors get the number of units. It
is very easy to sell the units. Sponsor, trustees, asset management Company (AMC) and
custodian together form a trust to set up mutual fund. The sponsor contributes capital and is
responsible for listing of mutual fund with SEBI. He appoints the trustee who shields the interest
of investors. All the investments of various schemes of mutual funds are done by AMC. Its
performance is overseen by the trust. These are helped by custodian and registrar. They have to
comply with SEBI regulations. All securities of mutual funds are put under the safe custody of
custodian. They make sure about various payments, collections and deliveries of various
securities.

After the establishment of UTI in 1963, Mutual Fund came into existence. Only RBI has power
to control Mutual Funds. It instigated UTI64 as its prime scheme. Instead of RBI, IDBI was
handed over its managing and official control in 1978. Non-UTI public sector mutual funds
entered in 1987 and instigated SBI Mutual Fund and many other public sector Mutual funds
followed after that. In 1993, Indian investors got an overarching choice with the arrival of private
sector funds. The first private sector mutual Fund was Kothari Pioneer which has now merged
with Franklin Templeton. SEBI passed various regulations under which every mutual fund in
India except UTI were needed to be enrolled and governed which got revised in 1996. In Feb,
2003, UTI got estranged into Specified Undertaking of UTI and UTI Mutual Fund due to which
the spate of mergers among the private sector players in the mutual Fund industry has started a
new phase of consolidation and growth.

On August 22, 1995, Association of Mutual Funds of India (AMFI) embarked upon, as a non-
profit organization. Its members are all the 44 Asset Management Companies that are enrolled
with SEBI. Various communication practices, sales and distribution of its members are
monitored by him. Codes behavior which has to be followed in Indian Mutual Fund Industry is
developed by AMFI.

Among all investment options, mutual funds are one of the best alternatives for the people
lacking professional knowledge and time to invest in stock, bonds and other directly. Investors
can choose from large number of schemes offered by mutual funds. It improves the risk return
profile of the portfolio by reducing capital depreciation and poor dividends. It is pliable and
involves less transaction cost. Investment can be sold any time without daunting and we can get
cash. They provide array of tax benefits. Moreover mutual fund prices are shown daily so it is
more transparent.

Nowadays MFs have emerged after long years. It didn’t gained trust of investors in the beginning
that used to invest in stock directly and suffered a loss. But slowly investors realized that by
investing in mutual funds, their risks is reduced. Our industry has grown due to strong measures
introduced by SEBI, supportive tax policies, coming of new schemes, rising reserves among
people. A mutual fund has expanded his product portfolio. During the FY05 TO FY12, the Indian
Mutual fund Industry flourished at a CAGR of more than 20% in terms of assets under
management.
Mutual fund is the pool of the money, based on the trust who invests the savings of a number of
investors who shares a common financial goal, like the capital appreciation and dividend
earning. The money thus collect is then invested in capital market instruments such as shares,
debenture, and foreign market. Investors invest money and get the units as per the unit value
which we called as NAV (net assets value).

Mutual fund is the most suitable investment for the common man as it offers an opportunity to
invest in diversified portfolio management, good research team, professionally managed Indian
stock as well as the foreign market, the main aim of the fund manager is to taking the scrip that
have under value and future will rising, then fund manager sell out the stock. Fund manager
concentration on risk – return trade off, where minimize the risk and maximize the return
through diversification of the portfolio. The most common features of the mutual fund unit are
low cost.

Most open-end Mutual funds continuously offer new shares to investors. It is also known as open
ended investment company. It is different from close ended companies.

Investment in securities are spread across a wide cross section of industries and sectors thus the
risk is reduced. Diversification reduces the risk because not all stocks may move in the same
direction in same proportion at same time. Mutual funds 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 and losses are shared by the investor in proportion to their investment.
The mutual fund comes out with different schemes that varies from time to time.

Advantages of Mutual Fund

 Diversification - It can help an investor diversify their portfolio with a minimum
investment. Spreading investments across a range of securities can help to reduce risk. A
stock mutual fund, for example, invests in many stocks. This minimizes the risk
attributed to a concentrated position. If a few securities in the mutual fund lose value or
become worthless, the loss may be offset by other securities that appreciate in value.
Further diversification can be achieved by investing in multiple funds which invest in
different sectors.

 Professional Management - Mutual funds are managed and supervised by investment

professional. These managers decide what securities the fund will buy and sell. This
eliminates the investor of the difficult task of trying to time the market.
  Well regulated - Mutual funds are subject to many government regulations that protect
investors from fraud.

 Liquidity - It's easy to get money out of a mutual fund.

 Convenience - we can 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 our 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 - The mutual fund offer document provides all the information about the
fund and the scheme. This document is also called as the prospectus or the fund offer
document, and is very detailed and contains most of the relevant information that an
investor would need.

Choice of schemes - there are different schemes which an investor can choose from according to
his investment goals and risk appetite.

Tax benefits - An investor can get a tax benefit in schemes like ELSS (equity linked saving
scheme)
 Types of Mutual Funds

ON THE BASIS OF STRUCTURE

a) Open - Ended Schemes: An open-end fund is one that is available for

subscription throughout the year. These do not have a fixed maturity.
Investors can conveniently buy and sell units at Net Asset Value ("NAV")
related prices. The key feature of open-end schemes is liquidity, where
you can buy and sell the mutual fund unit at any time.
b) Close - Ended Schemes: These schemes have a pre-specified maturity
period. One can invest directly in the scheme at the time of the initial
issue. Depending on the structure of the scheme there are two exit options
available to an investor after the initial offer period closes. First, the
Investors can transact (buy or sell) the units of the scheme on the stock
exchanges where they are listed. Second, some close-ended schemes
provide an additional option of selling the units directly to the Mutual
Fund through periodic repurchase at the schemes NAV. SEBI Regulations
ensure that at least one of the two exit routes is provided to the investor.
c) Interval Schemes: Interval Schemes are that scheme in which combine
the features of open-ended and close-ended schemes. The units may be
traded on the stock exchange or may be open for sale or redemption
during pre-determined intervals at NAV related prices.

ON THE BASIS OF NATURE

a) Equity fund: These funds invest a maximum part of their Principal

amount into equities holdings. The structure of the fund may vary different
for different schemes and the fund manager’s outlook on different stocks.
Equity investments are meant for a longer term, thus Equity funds rank high
on the risk-return matrix.
b) Debt funds: The objective of these Funds is to invest in debt papers.
Government authorities, private companies, banks and financial institutions
are some of the major issuers of debt papers. By investing in debt
instruments, these funds ensure low risk and provide stable income to the
investors.
c) Balance fund: They are a mix of both equity and debt funds. They invest
in both equities and fixed income securities, which are in line with pre-
defined investment objective of the scheme. These schemes aim to provide
investors with the best of both the Funds. Equity part provides growth and the
debt part provides stability in returns.

ON THE BASIS OF INVESTMENT OBJECTIVE

a) Growth Schemes: These Schemes are also known as equity schemes. The
aim of these schemes is to provide capital appreciation over medium to long
term. These schemes normally invest a major part of their fund in equities
and are willing to bear short-term decline in value for possible future
appreciation
b) Income Schemes: These are also known as debt schemes. The aim of
these schemes is to provide regular and steady income to investors. These
schemes generally invest in fixed income securities such as bonds and
corporate debentures. Capital appreciation in such schemes may be limited
c) Money Market Schemes: These Schemes aim to provide easy liquidity,
preservation of capital and moderate income. These schemes generally invest
in safer, short-term instruments, such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money.

History of Mutual Funds

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

First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the
Reserve Bank of India and functioned under the Regulatory and administrative control of the
Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development
Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The
first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700
Crores of assets under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and
Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC).
SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Can
bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual
Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established
its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.At the end
of 1993, the mutual fund industry had assets under management of Rs.47, 004 Crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund
industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in
which the first Mutual Fund Regulations came into being, under which all mutual funds, except
UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with
Franklin Templeton) was the first private sector mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and
revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual
Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign mutual funds setting
up funds in India and also the industry has witnessed several mergers and acquisitions. As at the
end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 Crores. The
Unit Trust of India with Rs.44, 541 Crores of assets under management was way ahead of other
mutual funds

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated
into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets
under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the
assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of
Unit Trust of India, functioning under an administrator and under the rules framed by
Government of India and does not come under the purview of the Mutual Fund Regulations.
The 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 assets under management
and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund.

Regulatory Framework
  Securities and Exchange Board of India (SEBI)

The Government of India constituted Securities and Exchange Board of India, by an Act of
Parliament in 1992, the apex regulator of all entities that either raise funds in the capital markets
or invest in capital market securities such as shares and debentures listed on stock exchanges.
Mutual funds have emerged as an important institutional investor in capital market securities.
Hence they come under the purview of SEBI. SEBI requires all mutual funds to be registered
with them. It issues guidelines for all mutual fund operations including where they can invest,
what investment limits and restrictions must be complied with, how they should account for
income and expenses, how they should make disclosures of information to the investors and
generally act in the interest of investor protection. To protect the interest of the investors, SEBI
formulates policies and regulates the mutual funds. MF either promoted by public or by private
sector entities including one promoted by foreign entities are governed by these Regulations.
SEBI approved Asset Management Company (AMC) manages the funds by making investments
in various types of securities. Custodian, registered with SEBI, holds the securities of various
schemes of the fund in its custody. According to SEBI Regulations, two thirds of the directors of
Trustee Company or board of trustees must be independent.

 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 member. 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 line enhancing and maintaining standards. It follows
the principle of both protecting and promoting the interests of mutual funds as well as their unit
holders.

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.
 AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund
industry.
 Associations of Mutual Fund of India do represent the Government of India, the Reserve
Bank of India and other related bodies on matters relating to the Mutual Fund Industry.
 AMFI undertakes all India awareness program for investors in order to promote proper
understanding of the concept and working of mutual funds.

COMPANY PROFILE
Kotak Group was established in 1985 by Mr. Uday Kotak. It caters to financial needs of
individuals and the institutional investors across the globe. Kotak Group is the first Indian non-
banking financial company to be given license by the Reserve Bank of India. It got the license in
February 2003.
It has current global partners like Old Mutual Life Insurance since 2001 and Sumitomo Mitsui
Banking Corporation as the second largest shareholder.
It has 1,362 branches where it offers banking services. It has 79 branches offering mutual funds,
218 branches offering life insurance, 1,455 branches offering securities, 81 branches offering car
insurance, 12 branches offering general insurance and 2 branches offering KM Inc. It has a total
of 3,209 branches.
It has international offices in Abu Dhabi, Dubai, London, New York, Texas, California and
Singapore.
Kotak Group is one of the largest Indian financial services group. It has market cap of USD
26.98 Bn and around 46,000+ employees. Its net worth is USD 7.05 Bn. It is a constituent of
the Nifty 50. It has over 30% promoter group ownership.
It is one of the first few private firms qualified to manage pension funds in India. It has been
providing solutions for 15+ years for international clients. It offers services like banking, asset
management, investment banking, life insurance, stock broking and general insurance.
Kotak Mahindra Asset Management is a wholly owned subsidiary of Kotak Mahindra
Bank Limited (KMBL). It started operation in 1998. Currently it has an investor base of above
1.2 million investors. It has a robust distribution network with around 32,000 distributors. The
company is present in 76 cities and has 79 branches.
Kotak Mahindra is one of India's leading financial institutions, offering complete financial
solutions that encompass every sphere of life. From commercial banking, to stock broking, to
mutual funds, to life insurance, to investment banking, the group caters to the financial needs
of individuals and corporates.

The group has a net worth of Rs.7,911 crore and employs around 20,000 employees across its
various businesses, servicing around 7 million customer accounts through a distribution
network of 1,716 branches, franchisees and satellite offices across more than 470 cities and
towns in India.

Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned

subsidiary of KMBL, is the Asset Manager for Kotak Mahindra Mutual Fund (KMMF).
KMAMC started operations in December 1998 and has over 10 Lac investors in various
schemes. KMMF offers schemes catering to investors with varying risk - return profiles and
was the first fund house in the country to launch government-securities.

Established in 1985, the Kotak Mahindra group has been one of India's reputed financial
organizations. In February 2003, Kotak Mahindra Finance Ltd, the group's flagship company
was given the license to carry on banking business by the Reserve Bank of India (RBI). This
approval creates banking history since Kotak Mahindra Finance Ltd. is the first non-banking
finance company in India to convert itself in to a bank as Kotak Mahindra Bank Ltd. The
Bank offers comprehensive business solutions that include Trade Services, Cash Management
Service and Credit facilities, keeping in mind the needs of the business community. Kotak
Mahindra Bank has over 212 branches spread across 124 locations in the country offering
both traditional banking products and investment advisory services. The Bank has the
products, the experience, the infrastructure and most importantly the commitment to deliver
pragmatic, end-to-end solutions that really work.

Our vision is to be a responsible player in the Indian mutual fund space, always striving to offer
best in class products across investor lifecycle. We strive hard to deliver consistent performance
over the benchmark across all our products, thereby creating customer satisfaction. Our 12 years
of existence offering a broad range of investment products across asset classes with varying risk
parameters that cater to needs of various customer segments, have enabled us to garner trust of
over 10 lac investors.

Products offered at Kotak Mutual Fund’s

 Equity Funds

Kotak Mutual funds have a diversified bouquet of equity related mutual fund products. These funds
are generally open-ended schemes with the investment objective to create long and short term capital
appreciation from a portfolio of primarily equity and its related securities. The portfolio in which
Kotak equity funds focuses is around reputed top 50 to 59 companies.

Apart from investing in domestic market, Kotak equity mutual funds also embark their research and
investment in various overseas mutual fund schemes with a diversified portfolio of various equity
related securities. All such investments in global market are prescribed by SEBI from time to time in
global emerging markets.

Equity mutual funds are mostly of high risk category wherein there is no guaranteed assurance for
the achievement of investment objective. Under its equity scheme Kotak also brings other schemes
which have a specific exposure towards a corpus in debt and money market securities

 Kotak Debt Fund Schemes

Kotak Mahindra debt funds are generally open ended income fund with investment objective to
enhance returns over a portfolio of debt and its related instruments. The exposure is mostly
concentrated either at debt market or debt blended with a moderate coverage in equity and equity
related instruments.
The key highlight of Kotak debt mutual fund products is their knack to generate reasonable returns
with moderate risk and high level of liquidity. Kotak Mahindra debt schemes also focuses on
investments in sovereign securities issued by the Central and/or State Government(s) and / or reverse
repos in various securities. Kotak Mahindra through its intensive research based investment
methodology has been offering maximum returns through active management of various portfolios of
debt and money market securities.

 Kotak Tax saving schemes

Kotak Tax Saving mutual scheme is an open-ended equity associated saving scheme. This scheme
not only offers the investors to avail the income tax rebate, but also have a long-term capital
appreciation from a wide range of portfolio of equity and related securities.

 Kotak Balanced Funds

Kotak Balance fund is an open ended balanced fund scheme with the investment objective to attain
long term growth through investments made in equity related instruments blended appropriately with
debt and money market instruments. The Kotak balanced funds are most suited for such investors
who have a moderate risk appetite with a long term objective of income creation.

 Kotak Fund of Funds

Kotak FOF schemes are open ended scheme with the investment objective to generate long-term
capital appreciation from the portfolio created by investing in particular open-ended equity & debt
schemes of Kotak Mahindra Mutual Fund. The fund is of moderate risk category and doesn’t offer
any assurance of the accomplishment of Scheme objective.

 Exchange Traded Funds

Kotak ETF funds are open-ended traded schemes which aim to generate returns which are in line
with the return on investment in various traded commodities or exchanges such as physical gold or
the expenses which are closely correspond to the total returns of the S&P CNX Nifty. All these
returns are subject to tracking errors and are considered to be of moderate risk category.