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AComparative Study
ON
MUTUAL FUND COMPANIES IN INDIA AND ANALYSISOF INVESTMENT BEHAVIOR OF CONSUMERS
BYPANKAJ PATEL
CHANDRAKANT GOHEL
GRAND PROJECT REPORT SUBMITTED
To
Dr Chinnam Reddy( Director MBA)
UNDER THE GUIDANCE OFProf. Pratima Prakash
On
15th
February 2006
AsPartial Fulfillment of the requirement for the
MBA
S.K.PATEL INSTITUTE OF MANAGEMENT AND COMPUTERSTUDIES
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Acknowledgment
We are indebted to Prof. Chinnam Reddy, Director of S.K.P.I.M.C.S., for providing an
opportunity of preparing A Comparative Study on Mutual Fund Companies in India
and Analysis of Investment Behavior of Consumers. and allowing us to use the
resources of the institution during this project.
We are extremely thankful to our Project Guide Prof. Pratima Prakash for her precious
guidance regarding the preparation format of the project report. Her guidance has proved
to be very useful and without which the preparation of this report might not had been
possible.
We are also thankful to the other faculty members of the S.K.P.I.M.C.S. for extending
their valuable support for this project.
Finally we would also like to thank our family members, who are always a source for
inspiration for us, for showing their understanding, patience and for all their possible help
for the preparation of this project.
PANKAJ PATELCHANDRAKANT GOHEL
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Preface
India is one of the fastest growing economies in the world due to which the income level
of people in India is increasing and along with it the savings and investments are also
growing. Due to liberalization and deregulation which was announced in New Industrial
Policy 1991, has dismantled barriers in the financial market, allowed the entry of new
players and created environment for efficient allocation of resources. One of the
important industries in emerging financial market is the mutual fund industry.
The mutual fund industry has played a significant role in the development of capital
market, growth of corporate sectors and financial intermediation. As mutual fund
industry in India is relatively new, the level of awareness among the people is less but
with the increase in level of awareness the mutual fund industry is also growing. The
government has also announced the regulatory measures for the growth of mutual fund
industry and protection of investors in mutual funds. Here we have attempted to study
mutual fund industry in India, comparison of mutual fund companies and schemes
offered by them and investment behavior of consumers.
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EXECUTIVE SUMMARY
The Indian mutual fund industry came into existence with the establishment of Unit Trust
of India in 1964. Unit Trust of India was not efficient enough to expand the mutual fund
market. In late 1980s nationalized bank sponsored mutual funds came into existence
which helped mutual fund industry to expand its market.
The private sector mutual fund entered the industry during early 1990s with greater
variety of products and better services. They introduced different kinds of products
satisfying the needs of the different classes of investors.
The major limitation of mutual fund industry in India is the lack of awareness among the
investors. Most of the investors are not at all aware about what is mutual fund? How it
functions? How money collected from investors are invested, etc against which in
America more than eighty million people or one half of the households invest in mutual
funds. That means that, in the United States alone, trillions of dollars are invested in
mutual funds.
Mutual fund industry depends on gaining the trust of investors. Once the investors trust is
gained it is easy to convince them to invest in mutual funds. The investors are attracted
based on the performance of the mutual funds rather than winning the trust of investors.
The performance of mutual funds is variable, sometimes it may go up and sometimes it
may come down. It is also not sure that the past performance will be repeated in the
current period. Still the investors are attracted based on the past performance of mutual
funds. The Indian mutual fund industry should come out of this limitation. They should
try to attract the investors by gaining their trust rather than showing the past performance
of mutual funds.
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Most of the investors are not aware about the professional fund managers of the mutual
funds. They invest in the mutual funds based of the returns which mutual fund yields.
The investors are not aware that the fund managers of mutual funds do systematic
analysis of the companies in which they are going to invest; they give suggestions to the
companies which are not performing well. Therefore the mutual fund industry should try
to promote about their professional fund managers, which would help the industry to
attract the investors and expand its market.
The mutual fund industry in India is still in the developing stage. Many of the mutual
fund companies are presently functioning in the urban area, but in country like India
where the substantial part of total population lives in the rural area, also the mutual fund
companies needs to expand their business in the unexplored rural areas which will lead to
the substantial increase in the total amount which is invested in mutual funds.
The basic functioning of mutual fund depends on the equity and debt market. The
portfolio of different mutual funds companies constitutes of the investments in any of
these markets depending upon the type and scheme of mutual fund.
Whenever any of the above mentioned market goes down the respective fund is affected.
For example if the market has gone down by 30% but the mutual funds NAV has gone
down only by 10% than the investor should understand that the fund manager of such
scheme is really efficient. But rather than having such a long view the investors thought
is limited to short run and they think that the scheme in which they have invested is not
good and they withdraw their money by incurring losses which is one of the major
limitation of the investors investing in mutual funds, which the mutual fund company
must try to overcome by increasing the awareness regarding the basic functioning of
mutual funds and making the customers aware regarding the difference between the
absolute and relative returns.
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Table of Contents
Sr.
No.
CONTENTS Page
No.
1 Research Proposal 1-2
2 Mutual Funds: An Overview 5-34
2.1 Introduction 52.2 History of Mutual Funds in India 7
2.3 The Definition 10
2.4 Concept 11
2.5 Structure of Indian Mutual Fund Industry 12
2.6 Recent Trends in Mutual Fund industry 14
2.7 Market Trends 15
2.8 Bank V/S Mutual Funds 17
2.9 Global Scenario 18
2.10 Types of Mutual Funds 21
2.11 Merits of Mutual Fund Investments 24
2.12 Demerits of Mutual Fund Investments 262.13 How to overcome demerits of Mutual Funds? 28
2.14 Net Asset Value (NAV) 29
2.15 Regulatory Aspects 31
3 Comparison and Analysis of Mutual Fund Companies 35-63
3.1 Comparison of top ten Equity Schemes 35
3.2 Comparison of top ten Debt Schemes 36
3.3 Analysis of top three Open Ended Equity Schemes 37
3.4 Analysis of top three Close Ended Equity Schemes 45
3.5 Analysis of top three Open Ended Debt Schemes 51
3.6 Analysis of top three Close Ended Debt Schemes 594 Survey Findings and Analysis 64-72
5 Analysis of porters Five force model and SWOT
Analysis
6 Future Scenario 73
7 Conclusion 74-77
Glossary
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Annexure
Bibliography
RESEARCH PROPOSAL
Title of the study:
A Comparative Study of Mutual Fund Companies in India and Analysis of Investment
Behavior of Consumers.
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Research Objectives:
- To study mutual fund industry and understand its functioning.
- To study the legal structure of mutual fund industry.
- To understand the distribution channels and marketing of mutual funds.
- To study the management of mutual funds.
- To analyze and compare the performance of various mutual funds companies.
- To study the problem and prospects of mutual fund industry.
- To know the awareness level regarding mutual funds.
- To know investment behavior of people in mutual funds.
Research Type:
Descriptive research.
It will be a descriptive study and will aim at finding out the above objectives.
Sample Size:
100.
Random Sampling.
Sample Size Determination:
A reason for sampling is to infer something about population. Sampling distribution is theprobability distribution of a specified sample statistics. For all possible random sample ofa given size n drawn from population N.
In this case the calculation for the sample size can be as follows:
n = Z2 2
e2
Here Z = value determined from Z table for a confidence level
2 = Variance
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e2 = Error specification
In the research it was decided to have a confidence level of 97.5% thus from the Z-table
its value was noted down which is 1.96.
Variance, which is square of Standard Deviation for 5 options, is 2.24.
Standard error was kept +0.293 lakhs.
Putting these in the formula we get,
n = (1.96)2(2.24)
(0.293)2
n = 3.8416 * 2.24 = 100.29.0858
Thus sample size required for survey is 100.
Research Methodology:
a.) Primary Source:
Questionnaire.
b.) Secondary Sources:
- Books.
- Websites.
- Magazines.
- Newspapers.
Mutual Funds: An overview
Introduction
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A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is invested by the fund manager in
different types of securities depending upon the objective of the scheme. These could
range from shares to debentures to money market instruments. The income earned
through these investments and the capital appreciations realized by the scheme are shared
by its unit holders in proportion to the number of units owned by them (pro rata). Thus a
Mutual Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed portfolio at a relatively low
cost. Anybody with an investible surplus of as little as a few thousand rupees can invest
in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and
strategy.
A mutual fund is the ideal investment vehicle for todays complex and modern financial
scenario. Markets for equity shares, bonds and other fixed income instruments, real
estate, derivatives and other assets have become mature and information driven. Price
changes in these assets are driven by global events occurring in faraway places. A typical
individual is unlikely to have the knowledge, skills, inclination and time to keep track of
events, understand their implications and act speedily. An individual also finds it difficult
to keep track of ownership of his assets, investments, brokerage dues and bank
transactions etc.
A mutual fund is the answer to all these situations. It appoints professionally qualified
and experienced staff that manages each of these functions on a full time basis. The large
pool of money collected in the fund allows it to hire such staff at a very low cost to each
investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas -
research, investments and transaction processing. While the concept of individuals
coming together to invest money collectively is not new, the mutual fund in its present
form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the
Second World War. Globally, there are thousands of firms offering tens of thousands of
mutual funds with different investment objectives. Today, mutual funds collectively
manage almost as much as or more money as compared to banks.
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A draft offer document is to be prepared at the time of launching the fund. Typically, it
pre specifies the investment objectives of the fund, the risk associated, the costs involved
in the process and the broad rules for entry into and exit from the fund and other areas of
operation. In India, as in most countries, these sponsors need approval from a regulator,
SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the
sponsor and its financial strength in granting approval to the fund for commencing
operations.
A sponsor then hires an asset management company to invest the funds according to the
investment objective. It also hires another entity to be the custodian of the assets of the
fund and perhaps a third one to handle registry work for the unit holders (subscribers) of
the fund.
In the Indian context, the sponsors promote the Asset Management Company also, in
which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the
Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor of the
Birla Sun Life Asset Management Company Ltd., which has floated different mutual
funds schemes and also acts as an asset manager for the funds collected under the
schemes.
History of Mutual Funds in India
The end of millennium marks 36 years of existence of mutual funds in this country. The
ride through these 36 years is not been smooth. Investor opinion is still divided. While
some are for mutual funds others are against it.
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UTI commenced its operations from July 1964 .The impetus for establishing a formal
institution came from the desire to increase the propensity of the middle and lower groups
to save and to invest. UTI came into existence during a period marked by great political
and economic uncertainty in India. With war on the borders and economic turmoil that
depressed the financial market, entrepreneurs were hesitant to enter capital market.
The already existing companies found it difficult to raise fresh capital, as investors did
not respond adequately to new issues. Earnest efforts were required to canalize savings of
the community into productive uses in order to speed up the process of industrial growth.
The then Finance Minister, T.T. Krishnamachari set up the idea of a unit trust that would
be "open to any person or institution to purchase the units offered by the trust. However,
this institution as we see it, is intended to cater to the needs of individual investors, and
even among them as far as possible, to those whose means are small."
His ideas took the form of the Unit Trust of India, an intermediary that would help fulfill
the twin objectives of mobilizing retail savings and investing those savings in the capital
market and passing on the benefits so accrued to the small investors.
UTI commenced its operations from July 1964 "with a view to encouraging savings and
investment and participation in the income, profits and gains accruing to the
Corporation from the acquisition, holding, management and disposal of securities."
Different provisions of the UTI Act laid down the structure of management, scope of
business, powers and functions of the Trust as well as accounting, disclosures and
regulatory requirements for the Trust.
One thing is certain the fund industry is here to stay. The industry was one-entity show
till 1986 when the UTI monopoly was broken when SBI and Canbank mutual fund
entered the arena. This was followed by the entry of others like BOI, LIC, GIC, etc.
sponsored by public sector banks. Starting with an asset base of Rs0.25bn in 1964 the
industry has grown at a compounded average growth rate of 26.34% to its current size of
Rs1130bn.
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The period 1986-1993 can be termed as the period of public sector mutual funds (PMFs).
From one player in 1985 the number increased to 8 in 1993. The party did not last long.
When the private sector made its debut in 1993-94, the stock market was booming.
The openings up of the asset management business to private sector in 1993 saw
international players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros
and Capital International along with the host of domestic players join the party. But for
the equity funds, the period of 1994-96 was one of the worst in the history of Indian
Mutual Funds.
1999-2000 Year of the funds
Mutual funds have been around for a long period of time to be precise for 36 yrs but the
year 1999 saw immense future potential and developments in this sector. This year
signaled the year of resurgence of mutual funds and the regaining of investor confidence
in these MFs. This time around all the participants are involved in the revival of the
funds ----- the AMCs, the unit holders, the other related parties. However the sole factor
that gave life to the revival of the funds was the Union Budget. The budget brought about
a large number of changes in one stroke. An insight of the Union Budget on mutual funds
taxation benefits is provided later.
It provided centre stage to the mutual funds, made them more attractive and provides
acceptability among the investors. The Union Budget exempted mutual fund dividend
given out by equity-oriented schemes from tax, both at the hands of the investor as well
as the mutual fund. No longer were the mutual funds interested in selling the concept of
mutual funds they wanted to talk business which would mean to increase asset base, and
to get asset base and investor base they had to be fully armed with a whole lot of schemes
for every investor .So new schemes for new IPOs were inevitable. The quest to attract
investors extended beyond just new schemes. The funds started to regulate themselves
and were all out on winning the trust and confidence of the investors under the aegis of
the Association of Mutual Funds of India (AMFI)
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One can say that the industry is moving from infancy to adolescence, the industry is
maturing and the investors and funds are frankly and openly discussing difficulties
opportunities and compulsions.
The Definition
A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of
a mutual fund as a company that brings together a group of people and invests their
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money in stocks, bonds, and other securities. Each investor owns shares, which represent
a portion of the holdings of the fund.
You can make money from a mutual fund in three ways:
1) Income is earned from dividends on stocks and interest on bonds. A fund pays out
nearly all income it receives over the year to fund owners in the form of a distribution.
2) If the fund sells securities that have increased in price, the fund has a capital gain.
Most funds also pass on these gains to investors in a distribution.
3) If fund holdings increase in price but are not sold by the fund manager, the fund's
shares increase in price. You can then sell your mutual fund shares for a profit. Fundswill also usually give you a choice either to receive a check for distributions or to reinvest
the earnings and get more shares.
CONCEPT
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
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instruments such as shares, debentures and other securities. The income earned through
these investments and the capital appreciations realized are shared by its unit holders in
proportion to the number of units owned by them. Thus a Mutual Fund is the most
suitable investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low cost. The flow
chart below describes broadly the working of a mutual fund:
Mutual Fund Operation Flow Chart
ORGANISATION OF A MUTUAL FUND
Structure of the Indian mutual fund industry
The Indian mutual fund industry is dominated by the Unit Trust of India which has a total
corpus of Rs700bn collected from more than 20 million investors. The UTI has many
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funds/schemes in all categories ie equity, balanced, income etc with some being open-
ended and some being closed-ended. The Unit Scheme 1964 commonly referred to as US
64, which is a balanced fund, is the biggest scheme with a corpus of about Rs200bn. UTI
was floated by financial institutions and is governed by a special act of Parliament. Most
of its investors believe that the UTI is government owned and controlled, which, while
legally incorrect, is true for all practical purposes.
The second largest categories of mutual funds are the ones floated by nationalized banks.
Canbank Asset Management floated by Canara Bank and SBI Funds Management floated
by the State Bank of India are the largest of these. GIC AMC floated by General
Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of
the other prominent ones. The aggregate corpus of funds managed by this category ofAMCs is about Rs150bn.
The third largest categories of mutual funds are the ones floated by the private sector and
by foreign asset management companies. The largest of these are Prudential ICICI AMC
and Birla Sun Life AMC. The aggregate corpus of assets managed by this category of
AMCs is in excess of Rs250bn
Some of the AMCs operating currently are:
Name of the AMC Nature of ownership
Alliance Capital Asset Management (I) Private Limited Private foreign
Birla Sun Life Asset Management Company Limited Private Indian
Bank of Baroda Asset Management Company Limited Banks
Bank of India Asset Management Company Limited Banks
Canbank Investment Management Services Limited Banks
Cholamandalam Cazenove Asset Management Company Limited Private foreign
Dundee Asset Management Company Limited Private foreign
DSP Merrill Lynch Asset Management Company Limited Private foreign
Escorts Asset Management Limited Private Indian
First India Asset Management Limited Private Indian
GIC Asset Management Company Limited Institutions
IDBI Investment Management Company Limited Institutions
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Indfund Management Limited Banks
ING Investment Asset Management Company Private Limited Private foreign
J M Capital Management Limited Private Indian
Jardine Fleming (I) Asset Management Limited Private foreign
Kotak Mahindra Asset Management Company Limited Private Indian
Kothari Pioneer Asset Management Company Limited Private Indian
Jeevan Bima Sahayog Asset Management Company Limited Institutions
Morgan Stanley Asset Management Company Private Limited Private foreign
Punjab National Bank Asset Management Company Limited Banks
Reliance Capital Asset Management Company Limited Private Indian
State Bank of India Funds Management Limited Banks
Shriram Asset Management Company Limited Private Indian
Sun F and C Asset Management (I) Private Limited Private foreign
Sundaram Newton Asset Management Company Limited Private foreign
Tata Asset Management Company Limited Private Indian
Credit Capital Asset Management Company Limited Private Indian
Templeton Asset Management (India) Private Limited Private foreign
Unit Trust of India Institutions
Zurich Asset Management Company (I) Limited Private foreign
Recent trends in mutual fund industry
The most important trend in the mutual fund industry is the aggressive expansion of the
foreign owned mutual fund companies and the decline of the companies floated by
nationalized banks and smaller private sector players.
Many nationalized banks got into the mutual fund business in the early nineties and got
off to a good start due to the stock market boom prevailing then. These banks did not
really understand the mutual fund business and they just viewed it as another kind of
banking activity. Few hired specialized staff and generally chose to transfer staff from the
parent organizations. The performance of most of the schemes floated by these funds was
not good. Some schemes had offered guaranteed returns and their parent organizations
had to bail out these AMCs by paying large amounts of money as the difference between
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the guaranteed and actual returns. The service levels were also very bad. Most of these
AMCs have not been able to retain staff, float new schemes etc. and it is doubtful
whether, barring a few exceptions, they have serious plans of continuing the activity in a
major way.
The experience of some of the AMCs floated by private sector Indian companies was also
very similar. They quickly realized that the AMC business is a business, which makes
money in the long term and requires deep-pocketed support in the intermediate years.
Some have sold out to foreign owned companies, some have merged with others and
there is general restructuring going on.
The foreign owned companies have deep pockets and have come in here with the
expectation of a long haul. They can be credited with introducing many new practices
such as new product innovation, sharp improvement in service standards and disclosure,
usage of technology, broker education and support etc. In fact, they have forced the
industry to upgrade itself and service levels of organizations like UTI have improved
dramatically in the last few years in response to the competition provided by these.
Market Trends
A lone UTI with just one scheme in 1964 now competes with as many as 400 odd
products and 34 players in the market. In spite of the stiff competition and losing market
share, UTI still remains a formidable force to reckon with.
Last six years have been the most turbulent as well as exiting ones for the industry. New
players have come in, while others have decided to close shop by either selling off or
merging with others. Product innovation is now pass with the game shifting to
performance delivery in fund management as well as service. Those directly associated
with the fund management industry like distributors, registrars and transfer agents, and
even the regulators have become more mature and responsible.
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The industry is also having a profound impact on financial markets. While UTI has
always been a dominant player on the bourses as well as the debt markets, the new
generation of private funds which have gained substantial mass are now seen flexing their
muscles. Fund managers, by their selection criteria for stocks have forced corporate
governance on the industry. By rewarding honest and transparent management with
higher valuations, a system of risk-reward has been created where the corporate sector is
more transparent then before.
Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG
and technology sector. Funds performances are improving. Funds collection, which
averaged at less than Rs100bn per annum over five-year period spanning 1993-98
doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceededRs300bn. Total collection for the current financial year ending March 2000 is expected to
reach Rs450bn.
What is particularly noteworthy is that bulk of the mobilization has been by the private
sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net
inflow of Rs. 7819.34 crore during the first nine months of the year as against a net
inflow of Rs.604.40 crore in the case of public sector funds.
Mutual funds are now also competing with commercial banks in the race for retail
investors savings and corporate float money. The power shift towards mutual funds has
become obvious. The coming few years will show that the traditional saving avenues are
losing out in the current scenario. Many investors are realizing that investments in
savings accounts are as good as locking up their deposits in a closet. The fund
mobilization trend by mutual funds in the current year indicates that money is going to
mutual funds in a big way. The collection in the first half of the financial year 1999-2000
matches the whole of 1998-99.
India is at the first stage of a revolution that has already peaked in the U.S. The U.S.
boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund
assets are not even 10% of the bank deposits, but this trend is beginning to change.
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Recent figures indicate that in the first quarter of the current fiscal year mutual fund
assets went up by 115% whereas bank deposits rose by only 17%. This is forcing a large
number of banks to adopt the concept of narrow banking wherein the deposits are kept in
Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies
that banks cannot be ignored and they will not close down completely. Their role as
intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way
banks do business in the future.
Banks v/s Mutual Funds
BANKS MUTUAL FUNDS
Returns Low Better
Administrative exp. High Low
Risk Low Moderate
Investment options Less More
Network High penetration Low but improving
Liquidity At a cost Better
Quality of assets Not transparent Transparent
Interest calculation Minimum balance between 10th. & 30th. Of every month Everyday
Guarantee Maximum Rs.1 lakh on deposits None
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Global Scenario
Some basic facts-
The money market mutual fund segment has a total corpus of $ 1.48 trillion in the
U.S. against a corpus of $ 100 million in India.
Out of the top 10 mutual funds worldwide, eight are bank- sponsored. Only
Fidelity and Capital are non-bank mutual funds in this group.
In the U.S. the total number of schemes is higher than that of the listed companies
while in India we have just 277 schemes
Internationally, mutual funds are allowed to go short. In India fund managers do
not have such leeway.
On- line trading is a great idea to reduce management expenses from the current 2
% of total assets to about 0.75 % of the total assets.
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Internationally, on- line investing continues its meteoric rise. Many have debated about
the success of e- commerce and its breakthroughs, but it is true that this aspect of
technology could and will change the way financial sectors function. However, mutual
funds cannot be left far behind. They have realized the potential of the Internet and are
equipping themselves to perform better.
In fact in advanced countries like the U.S.A, mutual funds buy- sell transactions have
already begun on the net, while in India the Net is used as a source of Information.
Such changes could facilitate easy access, lower intermediation costs and better services
for all. A research agency that specializes in internet technology estimates that over the
next four years Mutual Fund Assets traded on- line will grow ten folds from $ 128 billion
to $ 1,227 billion; whereas equity assets traded on-line will increase during the period
from $ 246 billion to $ 1,561 billion. This will increase the share of mutual funds from
34% to 40% during the period.
Such increases in volumes are expected to bring about large changes in the way Mutual
Funds conduct their business.
Here are some of the basic changes that have taken place since the advent of the Net.
Lower Costs:
Mutual funds could bring down their administrative costs to 0.75% if trading is done
on- line. As per SEBI regulations, bond funds can charge a maximum of 2.25% and
equity funds can charge 2.5% as administrative fees. Therefore if the administrative
costs are low, the benefits are passed down and hence Mutual Funds are able to attract
mire investors and increase their asset base.
Better advice:
Mutual funds could provide better advice to their investors through the Net rather
than through the traditional investment routes where there is an additional channel to
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deal with the Brokers. Direct dealing with the fund could help the investor with their
financial planning.
In India, brokers could get more Net savvy than investors and could help the
investors with the knowledge through get from the Net.
New investors would prefer online :
Mutual funds can target investors who are young individuals and who are Net savvy,
since servicing them would be easier on the Net.
India has around 1.6 million net users who are prime target for these funds and
this could just be the beginning. The Internet users are going to increasesdramatically and mutual funds are going to be the best beneficiary. With smaller
administrative costs more funds would be mobilized .A fund manager must be
ready to tackle the volatility and will have to maintain sufficient amount of
investments which are high liquidity and low yielding investments to honor
redemption.
Net based advertisements:
There will be more sites involved in ads and promotion of mutual funds. In the U.S. sites
like AOL offer detailed research and financial details about the functioning of different
funds and their performance statistics. A is witnessing a genesis in this area . There are
many sites such as indiainfoline.com and indiafn.com that are doing something similar
and providing advice to investors regarding their investments.
In the U.S. most mutual funds concentrate only on financial funds like equity and debt.
Some like real estate funds and commodity funds also take an exposure to physical
assets. The latter type of funds are preferred by corporate who want to hedge their
exposure to the commodities they deal with.
For instance, a cable manufacturer who needs 100 tons of Copper in the month of January
could buy an equivalent amount of copper by investing in a copper fund. For Example,
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Permanent Portfolio Fund, a conservative U.S. based fund invests a fixed percentage of
its corpus in Gold, Silver, Swiss francs, specific stocks on various bourses around the
world, short term and long-term U.S. treasuries etc.
In U.S.A. apart from bullion funds there are copper funds, precious metal funds and real
estate funds (investing in real estate and other related assets as well.).In India, the Canada
based Dundee mutual fund is planning to launch a gold and a real estate fund before the
year-end.
In developed countries like the U.S.A there are funds to satisfy everybodys requirement,
but in India only the tip of the iceberg has been explored. In the near future India too will
concentrate on financial as well as physical funds.
Types of Mutual Funds
Mutual fund schemes may be classified on the basis of its structure and its investment
objective.
By Structure:
Open-ended Funds
An open-end fund is one that is available for subscription all through the year. These do
not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset
Value ("NAV") related prices. The key feature of open-end schemes is liquidity.
Closed-ended Funds
A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15
years. The fund is open for subscription only during a specified period. Investors can
invest in the scheme at the time of the initial public issue and thereafter they can buy or
sell the units of the scheme on the stock exchanges where they are listed. In order to
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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.
Interval Funds
Interval funds combine the features of open-ended and close-ended schemes. They are
open for sale or redemption during pre-determined intervals at NAV related prices.
By Investment Objective:
Growth Funds
The aim of growth funds is to provide capital appreciation over the medium to long-
term. Such schemes normally invest a majority of their corpus in equities. It has been
proven that returns from stocks, have outperformed most other kind of investments held
over the long term. Growth schemes are ideal for investors having a long-term outlook
seeking growth over a period of time.
Income Funds
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
and Government securities. Income Funds are ideal for capital stability and regular
income.
Balanced Funds
The aim of balanced funds is to provide both growth and regular income. Such schemes
periodically distribute a part of their earning and invest both in equities and fixed incomesecurities in the proportion indicated in their offer documents. In a rising stock market,
the NAV of these schemes may not normally keep pace, or fall equally when the market
falls. These are ideal for investors looking for a combination of income and moderate
growth.
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Money Market Funds
The aim of money market funds is 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.Returns on these schemes may fluctuate depending upon the interest rates prevailing in
the market. These are ideal for Corporate and individual investors as a means to park
their surplus funds for short periods.
Load Funds
A Load Fund is one that charges a commission for entry or exit. That is, each time you
buy or sell units in the fund, a commission will be payable. Typically entry and exit loads
range from 1% to 2%. It could be worth paying the load, if the fund has a good
performance history.
No-Load Funds
A No-Load Fund is one that does not charge a commission for entry or exit. That is, no
commission is payable on purchase or sale of units in the fund. The advantage of a no
load fund is that the entire corpus is put to work.
Other Schemes:
Tax Saving Schemes
These schemes offer tax rebates to the investors under specific provisions of the Indian
Income Tax laws as the Government offers tax incentives for investment in specified
avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension
Schemes are allowed as deduction under Income Tax Act, 1961.
Special Schemes
Industry Specific Schemes
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Industry Specific Schemes invest only in the industries specified in the offer document.
The investment of these funds is limited to specific industries like InfoTech, FMCG,
Pharmaceuticals etc.
Index Schemes
Index Funds attempt to replicate the performance of a particular index such as the BSE
Sensex or the NSE 50.
Sectoral Schemes
Sectoral Funds are those, which invest exclusively in a specified industry or a group of
industries or various segments such as 'A' Group shares or initial public offerings.
Merits of Mutual Fund investment
Professional Management
Mutual Funds provide the services of experienced and skilled professionals, backed by a
dedicated investment research team that analyses the performance and prospects of
companies and selects suitable investments to achieve the objectives of the scheme.
Diversification
Mutual Funds invest in a number of companies across a broad cross-section of industries
and sectors. This diversification reduces the risk because seldom do all stocks decline at
the same time and in the same proportion. You achieve this diversification through a
Mutual Fund with far less money than you can do on your own.
Convenient Administration
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Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such
as bad deliveries, delayed payments and follow up with brokers and companies. Mutual
Funds save your time and make investing easy and convenient.
Return Potential
Over a medium to long-term, Mutual Funds have the potential to provide a higher return
as they invest in a diversified basket of selected securities.
Low Costs
Mutual Funds are a relatively less expensive way to invest compared to directly investing
in the capital markets because the benefits of scale in brokerage, custodial and other fees
translate into lower costs for investors.
Liquidity
In open-end schemes, the investor gets the money back promptly at net asset value
related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a
stock exchange at the prevailing market price or the investor can avail of the facility of
direct repurchase at NAV related prices by the Mutual Fund.
Transparency
One can get regular information on the value of his investment in addition to disclosure
on the specific investments made by his scheme, the proportion invested in each class of
assets and the fund manager's investment strategy and outlook.
Flexibility
Through features such as regular investment plans, regular withdrawal plans and dividend
reinvestment plans, you can systematically invest or withdraw funds according to your
needs and convenience.
Affordability
Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual
fund because of its large corpus allows even a small investor to take the benefit of its
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investment strategy. Mutual Funds offer a family of schemes to suit your varying needs
over a lifetime.
Well Regulated
All Mutual Funds are registered with SEBI and they function within the provisions of
strict regulations designed to protect the interests of investors. The operations of Mutual
Funds are regularly monitored by SEBI.
Demerits of Mutual Fund investment:
Professional Management
Many investors debate over whether or not the so-calledprofessionals are any better than
you or I at picking stocks. Management is by no means infallible, and, even if the fundloses money, the manager still takes his/her cut.
Dilution
It's possible to have too much diversification. Because funds have small holdings in so
many different companies, high returns from a few investments often don't make much
difference on the overall return. Dilution is also the result of a successful fund getting too
big. When money pours into funds that have had strong success, the manager often hastrouble finding a good investment for all the new money.
Entry and exit costs
Mutual funds are a victim of their own success. When a large body like a fund invests in
shares, the concentrated buying or selling often results in adverse price movements ie at
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the time of buying, the fund ends up paying a higher price and while selling it realizes a
lower price. This problem is especially severe in emerging markets like India, where,
excluding a few stocks, even the stocks in the Sensex are not liquid, let alone stocks in
the NSE 50 or the CRISIL 500. So, there is simply no way that a fund can beat the
Sensex or any other index, if it blindly invests in the same stocks as those in the Sensex
and in the same proportion. For obvious reasons, this problem is even more severe for
funds investing in small capitalization stocks. However, given the large size of the debt
market, excluding UTI, most debt funds do not face this problem.
Wait time before investment
It takes time for a mutual fund to invest money. Unfortunately, most mutual funds
receive money when markets are in a boom phase and investors are willing to try out
mutual funds. Since it is difficult to invest all funds in one day, there is some money
waiting to be invested. Further, there may be a time lag before investment opportunities
are identified. This ensures that the fund underperforms the index. For open-ended funds,
there is the added problem of perpetually keeping some money in liquid assets to meet
redemptions. The problem of impracticability of quick investments is likely to be reduced
to some extent with the introduction of index futures.
Fund management costs
The costs of the fund management process are deducted from the fund. This includes
marketing and initial costs deducted at the time of entry itself, called "load". Then there is
the annual asset management fee and expenses, together called the expense ratio.
Usually, the former is not counted while measuring performance, while the latter is. A
standard 2% expense ratio means that, everything else being equal, the fund manager
underperforms the benchmark index by an equal amount.
Cost of churn
The portfolio of a fund does not remain constant. The extent to which the portfolio
changes is a function of the style of the individual fund manager i.e. whether he is a buy
and hold type of manager or one who aggressively churns the fund. It is also dependent
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on the volatility of the fund size i.e. whether the fund constantly receives fresh
subscriptions and redemptions. Such portfolio changes have associated costs of
brokerage, custody fees, registration fees etc. which lowers the portfolio return
commensurately.
Change of index composition
World over, the indices keep changing to reflect changing market conditions. There is an
inherent survivorship bias in this process, with the bad stocks weeded out and replaced by
emerging blue chips. This is a severe problem in India with the Sensex having been
changed twice in the last 5 years, with each change being quite substantial. Another
reason for change index composition is Mergers & Acquisitions. The weightages of the
shares of a particular company in the index changes if it acquires a large company not a
part of the index.
How to overcome demerits of the mutual funds?
Tendency to take conformist decisions
From the above points, it is quite clear that the only way a fund can beat the index is
through investment of some part of its portfolio in some shares where it gets excellent
returns, much more than the index. This will pull up the overall average return. In order
to obtain such exceptional returns, the fund manager has to take a strong view and invest
in some uncommon or unfancied investment options. Most people are unwilling to do
that. They follow the principle "No fund manager ever got fired for investing in
Hindustan Lever" i.e. if something goes wrong with an unusual investment, the fund
manager will be questioned but if anything goes wrong with the blue chip, then you can
always blame it on the "environment" or "uncontrollable factors" knowing fully well that
there are many other fund managers who have made the same decision. Unfortunately, if
the fund manager does the same thing as several others of his class, chances are that he
will produce average results. This does not mean that if a fund manager takes "active"
views and invests in heavily researched "uncommon" ideas, the fund will necessarily
outperform the index. If the idea does not work, it will result in poor fund performance.
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But if no such view is taken, there is absolutely no chance that the fund will outperform
the index.
Net Asset Value (NAV)
The net asset value of the fund is the cumulative market value of the assets fund net of its
liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the
assets in the fund, this is the amount that the shareholders would collectively own. This
gives rise to the concept of net asset value per unit, which is the value, represented by the
ownership of one unit in the fund. It is calculated simply by dividing the net asset value
of the fund by the number of units. However, most people refer loosely to the NAV per
unit as NAV, ignoring the "per unit". We also abide by the same convention.
Calculation of NAV
The most important part of the calculation is the valuation of the assets owned by the
fund. Once it is calculated, the NAV is simply the net value of assets divided by the
number of units outstanding. The detailed methodology for the calculation of the asset
value is given below.
Asset value is equal to
Sum of market value of shares/debentures
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+ Liquid assets/cash held, if any
+ Dividends/interest accrued
Amount due on unpaid assets
Expenses accrued but not paid
Details on the above items
For liquid shares/debentures, valuation is done on the basis of the last or closing market
price on the principal exchange where the security is traded.
For illiquid and unlisted and/or thinly traded shares/debentures, the value has to be
estimated. For shares, this could be the book value per share or an estimated market price
if suitable benchmarks are available. For debentures and bonds, value is estimated on the
basis of yields of comparable liquid securities after adjusting for illiquidity. The value of
fixed interest bearing securities moves in a direction opposite to interest rate changes
Valuation of debentures and bonds is a big problem since most of them are unlisted and
thinly traded. This gives considerable leeway to the AMCs on valuation and some of the
AMCs are believed to take advantage of this and adopt flexible valuation policies
depending on the situation.
Interest is payable on debentures/bonds on a periodic basis say every 6 months. But, with
every passing day, interest is said to be accrued, at the daily interest rate, which is
calculated by dividing the periodic interest payment with the number of days in each
period. Thus, accrued interest on a particular day is equal to the daily interest rate
multiplied by the number of days since the last interest payment date.
Usually, dividends are proposed at the time of the Annual General meeting and become
due on the record date. There is a gap between the dates on which it becomes due and the
actual payment date. In the intermediate period, it is deemed to be "accrued".
Expenses including management fees, custody charges etc. are calculated on a daily
basis.
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Regulatory Aspects
Schemes of a Mutual Fund
The asset management company shall launch no scheme unless the trustees
approve such scheme and a copy of the offer document has been filed with the
Board.
Every mutual fund shall along with the offer document of each scheme pay filing
fees.
The offer document shall contain disclosures which are adequate in order to
enable the investors to make informed investment decision including the
disclosure on maximum investments proposed to be made by the scheme in the
listed securities of the group companies of the sponsor A close-ended scheme
shall be fully redeemed at the end of the maturity period. "Unless a majority of
the unit holders otherwise decide for its rollover by passing a resolution".
The mutual fund and asset management company shall be liable to refund the
application money to the applicants,-
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(i) If the mutual fund fails to receive the minimum
subscription amount referred to in clause (a) of sub-
regulation (1);
(ii) If the moneys received from the applicants for units are
in excess of subscription as referred to in clause (b) of sub-
regulation (1).
The asset management company shall issue to the applicant whose application has
been accepted, unit certificates or a statement of accounts specifying the number
of units allotted to the applicant as soon as possible but not later than six weeks
from the date of closure of the initial subscription list and or from the date of
receipt of the request from the unit holders in any open ended scheme.
Rules Regarding Advertisement:
The offer document and advertisement materials shall not be misleading or
contain any statement or opinion, which are incorrect or false.
Investment Objectives and Valuation Policies:
The price at which the units may be subscribed or sold and the price at which such
units may at any time be repurchased by the mutual fund shall be made available
to the investors.
General Obligations:
Every asset management company for each scheme shall keep and maintain
proper books of accounts, records and documents, for each scheme so as toexplain its transactions and to disclose at any point of time the financial position
of each scheme and in particular give a true and fair view of the state of affairs of
the fund and intimate to the Board the place where such books of accounts,
records and documents are maintained.
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The financial year for all the schemes shall end as of March 31 of each year.
Every mutual fund or the asset management company shall prepare in respect of
each financial year an annual report and annual statement of accounts of the
schemes and the fund as specified in Eleventh Schedule.
Every mutual fund shall have the annual statement of accounts audited by an
auditor who is not in any way associated with the auditor of the asset management
company.
Procedure for Action In Case Of Default:
On and from the date of the suspension of the certificate or the approval, as the
case may be, the mutual fund, trustees or asset management company, shall cease
to carry on any activity as a mutual fund, trustee or asset management company,
during the period of suspension, and shall be subject to the directions of the Board
with regard to any records, documents, or securities that may be in its custody or
control, relating to its activities as mutual fund, trustees or asset management
company.
Restrictions on Investments:
A mutual fund scheme shall not invest more than 15% of its NAV in debt
instruments issued by a single issuer, which are rated not below investment grade
by a credit rating agency authorized to carry out such activity under the Act. Such
investment limit may be extended to 20% of the NAV of the scheme with the
prior approval of the Board of Trustees and the Board of asset Management
Company.
A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt
instruments issued by a single issuer and the total investment in such instruments
shall not exceed 25% of the NAV of the scheme. All such investments shall be
made with the prior approval of the Board of Trustees and the Board of asset
Management Company.
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No mutual fund under all its schemes should own more than ten per cent of any
company's paid up capital carrying voting rights.
Such transfers are done at the prevailing market price for quoted instruments on
spot basis. The securities so transferred shall be in conformity with the investment
objective of the scheme to which such transfer has been made.
A scheme may invest in another scheme under the same asset management
company or any other mutual fund without charging any fees, provided that
aggregate interscheme investment made by all schemes under the same
management or in schemes under the management of any other asset management
company shall not exceed 5% of the net asset value of the mutual fund.
The initial issue expenses in respect of any scheme may not exceed six per cent of
the funds raised under that scheme.
Every mutual fund shall buy and sell securities on the basis of deliveries and shall
in all cases of purchases, take delivery of relative securities and in all cases of
sale, deliver the securities and shall in no case put itself in a position whereby it
has to make short sale or carry forward transaction or engage in badla finance.
Every mutual fund shall, get the securities purchased or transferred in the name of
the mutual fund on account of the concerned scheme, wherever investments are
intended to be of long-term nature.
Pending deployment of funds of a scheme in securities in terms of investment
objectives of the scheme a mutual fund can invest the funds of the scheme in short
term deposits of scheduled commercial banks.
No mutual fund scheme shall make any investment in;
i. Any unlisted security of an associate or group company of
the sponsor; or
ii. Any security issued by way of private placement by an
associate or group company of the sponsor; or
The listed securities of group companies of the
sponsor which is in excess of 30% of the net assets
[of all the schemes of a mutual fund]
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No mutual fund scheme shall invest more than 10 per cent of its NAV in the
equity shares or equity related instruments of any company. Provided that, the
limit of 10 per cent shall not be applicable for investments in index fund or sector
or industry specific scheme.
A mutual fund scheme shall not invest more than 5% of its NAV in the equity
shares or equity related investments in case of open-ended scheme and 10% of its
NAV in case of close-ended scheme.
Comparison and Analysis of Mutual Fund companies
Comparison of top ten Equity schemes
Open Ended - Equity: Diversified - Since Launch Return
Fund NAV (Date) Returns(%)
Return as
on
Magnum Emerging Businesses 25.21 (10-Feb) 93.57 2/10/2006
Tata Equity Opportunities 46.95 (10-Feb) 89.19 2/10/2006
Prudential ICICI Emerging STAR 22.28 (10-Feb) 80.96 2/10/2006
Kotak Opportunities 23.05 (10-Feb) 76.94 2/10/2006
Sundaram India Leadership 24.62 (10-Feb) 72.68 2/10/2006
Chola Midcap Fund 22.85 (10-Feb) 70.23 2/10/2006
HSBC Equity 54.42 (10-Feb) 70.02 2/10/2006
Magnum Midcap 16.97 (10-Feb) 69.70 2/10/2006
ABN AMRO Equity 21.38 (10-Feb) 69.60 2/10/2006
Prudential ICICI Discovery
22.49 (10-Feb) 69.60 2/10/2006
Closed Ended - Equity: Tax Planning - Since Launch Return
Fund NAV (Date) Returns(%)
Return as
on
UTI MEPUS 34.30 (10-Feb) 62.00 2/10/2006
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Birla Taxplan '98 163.03 (10-Feb) 42.56 2/10/2006
Franklin India Taxshield '98 94.32 (10-Feb) 32.99 2/10/2006
Franklin India Taxshield '97 96.06 (10-Feb) 29.05 2/10/2006
Franklin India Taxshield '99 56.16 (10-Feb) 28.55 2/10/2006
Sundaram Taxsaver '98 56.71 (10-Feb) 24.67 2/10/2006
Franklin India Taxshield '96 80.01 (10-Feb) 23.45 2/10/2006Sundaram Taxsaver '97 29.80 (10-Feb) 23.36 2/10/2006
BoB ELSS '97 39.15 (8-Feb) 18.37 2/8/2006
Morgan Stanley Growth 42.57 (10-Feb) 15.44 2/10/2006
Comparison of top ten Debt schemes
Open Ended - Gilt: Medium & Long-term - Since Launch Return
Fund NAV (Date)
Returns
(%)
Return as
on
Templeton India GSF Composite 23.12 (10-Feb) 13.44 2/10/2006
DSPML GSF Longer Duration 22.24 (10-Feb) 13.32 2/10/2006
Birla Gilt Plus Regular 21.78 (10-Feb) 13.07 2/10/2006
Tata GSF 22.16 (10-Feb) 12.96 2/10/2006
JM G-Sec PF Plan 21.24 (10-Feb) 12.55 2/10/2006
Kotak Gilt Investment Regular 22.55 (10-Feb) 12.05 2/10/2006
Prudential ICICI Gilt Investment 20.84 (10-Feb) 11.93 2/10/2006
JM G-Sec Regular Plan 20.39 (10-Feb) 11.83 2/10/2006
Birla Gilt Plus PF 19.68 (10-Feb) 11.27 2/10/2006
Templeton IGSF Long-term 15.60 (10-Feb) 11.21 2/10/2006
Closed Ended - Debt: Speciality - Since Launch Return
Fund NAV (Date)
Return
(%)
Return as
on
Birla FMP Annual Series3 10.83 (10-Feb) 6.80 2/10/2006
Birla FTP Series A 10.64 (8-Feb) 6.32 2/8/2006
ING Vysya Fixed Maturity Series 2 10.63 (10-Feb) 6.17 2/10/2006
Magnum Debt Series 15 Months-1 10.65 (8-Feb) 6.12 2/8/2006
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Asset Allocation
As on 31/01/06 % Net Assets
Equity 91.41
Debt 0.00
Others 8.59
Sector Weightings As on 31/01/06
% Net
Assets
Services 13.88Basic/Engineering 12.33Textiles 10.79Diversified 9.02Chemicals 7.60Construction 7.31FMCG 6.36Technology 5.42
Financial Services 5.30Automobile 5.15Health Care 4.38Metals & Metal Products 3.89
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Tata Equity Opportunities-G
Current Stats & Profile
Latest NAV 46.9483 (10/02/06)
52-Week High 46.9483 (10/02/06)
52-Week Low 27.5115 (29/03/05)Fund Category Equity: Diversified
Type Open End
Launch Date March 2003
Risk Grade Not Rated
Return Grade Not Rated
Net Assets (Cr) 375.04 (31/01/06)
Benchmark Sensex
Trailing Returns
As on 10 Feb 2006 Fund Category
Year to Date 11.52 8.85
1-Month 7.59 6.183-Month 26.42 22.43
1-Year 63.71 56.51
3-Year -- 62.37
5-Year -- 29.90
Return Since Launch 89.19 --
Returns upto 1 year are absolute and over1 year are annualised.
Relative Performance (Fund Vs Category Average)
Asset Allocation
As on 31/01/06 % Net Assets
Equity 98.85
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Latest NAV 22.28 (10/02/06)
52-Week High 22.28 (10/02/06)
52-Week Low 11.35 (29/03/05)
Fund Category Equity: Diversified
Type Open End
Launch Date October 2004Risk Grade Not Rated
Return Grade Not Rated
Net Assets (Cr) 462.21 (31/01/06)
Benchmark Nifty Junior
As on 10 Feb 2006 Fund Category
Year to Date 10.02 8.85
1-Month 5.69 6.18
3-Month 26.88 22.43
1-Year 86.13 56.51
3-Year -- 62.375-Year -- 29.90
Return Since Launch 80.96 --
Returns upto 1 year are absolute and over1 year are annualised.
Relative Performance (Fund Vs Category Average)
Asset Allocation As on 31/01/06 % Net Assets
Equity 89.69
Debt 8.73
Others 1.58
Sector Weightings As on 31/01/06 % Net AssetsTechnology 13.15Metals & Metal Products 10.46FMCG 9.37Textiles 9.00Basic/Engineering 8.49Construction 7.56
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Automobile 6.63Financial Services 4.94Diversified 3.81Services 3.21Consumer Durable 2.18
Chemicals 2.11Health Care 1.40
Analysis of top three Closed Ended Equity Schemes
UTI MEPUS
Current Stats & Profile
Latest NAV 34.3 (10/02/06)
52-Week High 34.3 (10/02/06)
52-Week Low 20.62 (20/04/05)
Fund CategoryEquity: TaxPlanning
Type Close End
Launch Date March 2003
Risk Grade Not RatedReturn Grade Not Rated
Net Assets (Cr) 1,213.41(31/01/06)
Benchmark Sensex
Trailing Returns
As on 10 Feb 2006 Fund Category
Year to Date 10.65 8.52
1-Month 8.13 6.09
3-Month 24.73 22.68
1-Year 57.41 51.34
3-Year -- 54.12
5-Year -- 27.01
Return Since Launch 62.00 --Returns upto 1 year are absolute and over1 year are annualised.
Relative Performance (Fund Vs Category Average)
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Asset Allocation
As on 31/01/06 % Net Assets
Equity 95.21
Debt 0.00Others 4.79
Sector Weightings
As on 31/01/06 % Net AssetsConstruction 18.01Financial Services 17.71Technology 13.48Health Care 10.43FMCG 9.89Diversified 6.01Automobile 5.54Chemicals 4.74Basic/Engineering 4.38Energy 4.26Services 0.74
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Birla Taxplan '98
Current Stats & Profile
Latest NAV 163.03 (10/02/06)52-Week High 163.08 (27/01/06)
52-Week Low 99.63 (11/02/05)
Fund CategoryEquity: TaxPlanning
Type Close End
Launch Date March 1998
Risk Grade Below Average
Return Grade High
Net Assets (Cr) 6.78 (31/01/06)
Benchmark Sensex
Trailing Returns
As on 10 Feb 2006 Fund CategoryYear to Date 5.95 8.52
1-Month 3.67 6.09
3-Month 19.93 22.68
1-Year 64.15 51.34
3-Year 74.67 54.12
5-Year 39.59 27.01
Return Since Launch 42.56 --
Returns upto 1 year are absolute and over1 year are annualised.
Relative Performance (Fund Vs Category Average)
Asset Allocation
As on 31/01/06 % Net Assets
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Equity 93.13
Debt 0.00
Others 6.87
Sector Weightings
As on 31/01/06 % Net AssetsTechnology 21.38FMCG 13.26Diversified 10.57
Financial Services 10.56Health Care 9.50Services 8.88Basic/Engineering 6.08Automobile 4.28
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Franklin India Taxshield '98
Current Stats & Profile
Latest NAV 94.32 (10/02/06)52-Week High 94.32 (10/02/06)
52-Week Low 61.01 (19/04/05)
Fund CategoryEquity: TaxPlanning
Type Close End
Launch Date March 1998
Risk Grade Above Average
Return Grade Average
Net Assets (Cr) 1.36 (31/01/06)
Benchmark S&P CNX 500
Trailing Returns
As on 10 Feb 2006 Fund CategoryYear to Date 10.15 8.52
1-Month 8.07 6.09
3-Month 23.25 22.68
1-Year 47.67 51.34
3-Year 51.55 54.12
5-Year 25.24 27.01
Return Since Launch 32.99 --
Returns upto 1 year are absolute and over1 year are annualised.
Relative Performance (Fund Vs Category Average)
Asset Allocation
As on 30/09/05 % Net Assets
Equity 89.32
Debt 0.00
Others 10.68
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Sector Weightings
As on 30/09/05 % Net AssetsTechnology 13.23Diversified 12.85Financial Services 11.70FMCG 10.23Health Care 9.90Metals & Metal Products 7.50Energy 6.67Chemicals 5.34Automobile 4.82Basic/Engineering 2.83Services 2.21Construction 1.75
Analysis of top three Open Ended Debt Scheme
Templeton IGSF Composite-G
Current Stats & Profile
Latest NAV 23.1181 (10/02/06)
52-Week High 23.223 (23/01/06)
52-Week Low 22.2757 (01/03/05)
Fund Category Gilt: Medium &
Trailing Returns
As on 10 Feb 2006 Fund Category
Year to Date -0.15 -0.08
1-Month -0.34 -0.27
3-Month 0.58 0.69
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Long-term
Type Open End
Launch Date June 1999
Risk Grade Above Average
Return Grade Above Average
Net Assets (Cr) 308.05 (31/01/06)Benchmark I-Sec Com Index
1-Year 3.29 3.62
3-Year 6.09 5.26
5-Year 12.39 10.61
Return Since Launch 13.44 --
Returns upto 1 year are absolute and over
1 year are annualised.
Relative Performance (Fund Vs Category Average)
Asset Allocation
As on31/01/06 % Net AssetsEquity 0.00
Debt 76.09
Others 23.91
Credit Rating Breakup
Rating As on 31/01/06 % Net AssetsGOI Securities 63.87Cash & Money Market 23.91Treasury Bills 12.21
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DSPML GSF Longer Duration-G
Current Stats & Profile
Latest NAV 22.2365 (10/02/06)
52-Week High 22.2687 (23/01/06)
52-Week Low 21.138 (01/03/05)
Fund CategoryGilt: Medium &Long-term
Type Open End
Launch Date September 1999
Risk Grade Above AverageReturn Grade Above Average
Net Assets (Cr) 36.23 (31/01/06)
Benchmark I-Sec Li-BEX
Trailing Returns
As on 10 Feb 2006 Fund Category
Year to Date 0.23 -0.08
1-Month -0.01 -0.27
3-Month 1.37 0.69
1-Year 4.82 3.62
3-Year 6.51 5.26
5-Year 12.55 10.61
Return Since Launch 13.32 --Returns upto 1 year are absolute and over1 year are annualised.
Relative Performance (Fund Vs Category Average)
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Asset Allocation
As on 31/01/06 % Net Assets
Equity 0.00
Debt 28.14Others 71.86
Credit Rating Breakup
Rating As on 31/01/06 % Net Assets
Cash & Money Market70.6
5
GOI Securities 14.52
Treasury Bills13.6
2Net Receivables 1.22
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Birla Gilt Plus Regular-G
Current Stats & Profile
Latest NAV 21.7818 (10/02/06)
52-Week High 21.9142 (23/01/06)
52-Week Low 20.7296 (02/05/05)Fund Category
Gilt: Medium &Long-term
Type Open End
Launch Date October 1999
Risk Grade High
Return Grade Above Average
Net Assets (Cr) 136.40 (31/01/06)
Benchmark I-Sec Com Index
Trailing Returns
As on 10 Feb 2006 Fund Category
Year to Date -0.34 -0.08
1-Month -0.54 -0.273-Month 0.54 0.69
1-Year 3.91 3.62
3-Year 6.01 5.26
5-Year 12.28 10.61
Return Since Launch 13.07 --
Returns upto 1 year are absolute and over1 year are annualised.
Relative Performance (Fund Vs Category Average)
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Asset Allocation
As on 31/01/06 % Net Assets
Equity 0.00
Debt 70.61
Others 29.39
Credit Rating Breakup
Rating As on 31/01/06 % Net AssetsGOI Securities 63.57Cash & Money Market 29.39Treasury Bills 7.04
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Analysis of top three Closed Ended Debt Schemes
Birla FMP Annual Series-G
Current Stats & Profile
Latest NAV 10.8346 (10/02/06)52-Week High 10.8346 (10/02/06)
52-Week Low 10.1486 (11/02/05)
Fund Category Debt: Speciality
Type Close End
Launch Date November 2004
Risk Grade Not Rated
Return Grade Not Rated
Net Assets (Cr) 95.69 (31/01/06)
Benchmark Crisil Liquid
Trailing Returns
As on 10 Feb 2006 Fund CategoryYear to Date 0.70 0.44
1-Month 0.52 0.23
3-Month 2.23 0.96
1-Year 6.78 4.38
3-Year -- --
5-Year -- --
Return Since Launch 6.80 --
Returns upto 1 year are absolute and over1 year are annualised.
Relative Performance (Fund Vs Category Average)
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Asset Allocation
As on 31/01/06 % Net Assets
Equity 0.00
Debt 99.45
Others 0.55
Credit Rating Breakup
Rating As on 31/01/06 % Net Assets
P1+59.6
6
AAA20.9
2
AA
18.8
7Cash & Money Market 0.55
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Birla FTP Series A-G
Current Stats & Profile
Latest NAV 10.6351 (08/02/06)
52-Week High 10.6351 (08/02/06)
52-Week Low 10.0113 (16/02/05)
Fund Category Debt: Speciality
Type Close End
Launch Date February 2005
Risk Grade Not Rated
Return Grade Not Rated
Net Assets (Cr) 860.24 (31/01/06)
Benchmark Crisil Comp BFI
Trailing Returns
As on 08 Feb 2006 Fund Category
Year to Date 0.69 0.44
1-Month 0.57 0.23
3-Month 1.51 0.96
1-Year -- 4.38
3-Year -- --
5-Year -- --
Return Since Launch 6.32 --
Returns upto 1 year are absolute and over1 year are annualised.
Relative Performance (Fund Vs Category Average)
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Asset Allocation
As on 31/01/06 % Net Assets
Equity 0.00
Debt 99.00
Others 1.00
Credit Rating Breakup
Rating As on 31/01/06 % Net Assets
AAA77.2
0P1+
21.10
Cash & Money Market 1.00AA+ 0.69
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ING Vysya FM Series 2-G
Current Stats & Profile
Latest NAV 10.6291 (10/02/06)
52-Week High 10.6291 (10/02/06)
52-Week Low 10.0195 (14/02/05)
Fund Category Debt: Speciality
Type Close End
Launch Date February 2005
Risk Grade Not Rated
Return Grade Not Rated
Net Assets (Cr) 86.29 (31/01/06)
Benchmark Crisil Liquid
Trailing Returns
As on 10 Feb 2006 Fund Category
Year to Date 0.66 0.44
1-Month 0.48 0.23
3-Month 1.44 0.96
1-Year -- 4.38
3-Year -- --
5-Year -- --
Return Since Launch 6.17 --
Returns upto 1 year are absolute and over1 year are annualised.
Relative Performance (Fund Vs Category Average)
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Asset Allocation
As on 30/09/05 % Net AssetsEquity 0.00
Debt 98.96
Others 1.04
Credit Rating Breakup
Rating As on 31/03/05 % Net Assets
AAA 98.75
Net Receivables 0.93Cash & Money Market 0.32
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PORTER FIVE FORCES MODELS
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Threat from new entrants
With the opening up of the MF sector there has been invasion from many foreign playersand even national players. Still now more and more new player are coming into thissector and trying to make a market share for them. So, there is a constant threat from newplayers who are coming up with innovative schemes and trying to bite the market shareof the existing players.
SubstituteProducts
RivalryamongCompeting
Sellers
Suppliers
Potential NewEntrants
Buyers
Competitive pressure coming from the market attemptsof outsiders to win buyers over to their products
Competitive pressure coming from the threat ofentry of new rivals
SupplierSe
ller
collaboration
&
bargainin
g
Se
llerBuy
er
collaboration
&
bargaining
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Threat from existing players
The competition is heating up. With this all the existing competitor want to increase theirinvestor base and are willing to capture more and more market share. Even these players
are coming up with more and more customized schemes to suit specific investors. Now asa result there is consolidation among the existing players.
Threat of substitutes
The substitutes of mutual fund are Bank deposit, Post office, Saving schemes, Securities,Bonds etc. So there is a considerable threat from these substitutes. The main threat is thatof regarding the return that these substitutes offer vis--vis that of the mutual fund.
Bargaining power of customers
The customers of mutual fund are individual investors and corporate investor. Thebargaining power of these customers is very high because they influence the working ofmutual funds. In order to exert pressure on the mutual funds the investors always demandfor some new customized schemes.
Bargaining power of suppliers
The supplier of the mutual fund is the sponsor. The sponsor can also exert considerableamount of power to the mutual funds. They can either raise their investment limit ofreduce it.
SWOT ANALYSIS
SWOT Analysis of any industry means analsing that industrys strength, weakness andopportunities and threats of that industry.
STRENGTH
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Professional Management :- Mutual fund provides the services ofexperienced and skilled professionals backed by a dedicated investment researchteam that analysis the performance and prospects of companies and select suitableinvestments to achieve the objectives of the scheme.
Diversification :- Mutual fund invest in a number of companies across a broadcross sector of industry and sectors. It reduces the risk
Convenient administration :- Investing in a mutual fund reduce paperworkand helps you to avoid many problems such as bad delivery, delayed paymentsand follow up with brokers and companies. Mutual fund save time and manyinvesting easy and convenient.
Return potential :- Over medium to long term mutual fund have the potential to
provide a higher return as they invest in a diversified basket of selected securities.
Low costs :- Mutual fund are relatively less expensive way to invest comparedto directly investing in the capital market because the benefits of scale inbrokerage, custodian and other fees translate into lower costs for investor.
Liquidity :- In open ended mutual fund you can take your money back whenyou want. So there is good liquidity facility.
Transparency :- Regular information the valued your investment in addition to
disclosure on the specific investment made by your scheme.
WEAKNESS
Lesser return compared to equity :- When compared with equity the returnearned on mutual fund s are less. This is because of the various changes that themutual funds have to deduct.
Conservative approach :- Mutual fund manager are more conservative in theirapproach rather then being practical. Whenever they take any decision oninvestment they follow the conservative approach. Many a time due to this, it
becomes difficult for them to capitalize on certain occasions.
Lack of proper marketing :- The marketing efforts carried out by variousplayers in the mutual fund industry are often very poor. Still there is not muchpeople aware of what exactly is a mutual fund.
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OPPORTUNITIES
Governed policy and tax concessions :- Mutual funds take the benefits ofvarious government policy and come out with new schemes. Moreover certainschemes can be formulated taking in considered the new tax policies.
Changes in capital market :- With the changes in the capital market now themutual fund can try to increase the popularity of the equity linked schemes withthe successful results of many of the blue chip firms ,the stock market has startedrejuvenating again. So stock market can be a good option this year.
New technology:- Mutual fund can take benefits of new technology intransactions. Already they have started making the use of internet in fillingapplication forms and sending the NAV results directly on mobile phones.
THREATS
Arrival of more and more private and foreign players in the market will intensifycompetition and will reduce the margin for existing players. This will result in reduceddividends for the investors. The low entry barrier existing in the industry will lead tomore and more players to enter into the market. The failure of some these players maylead to loss of credibility among the creditors. The introduction of bonds and debenturesand assured returns might cause investors to quit the mutual fund and invest in the capitalmarket.
Survey Findings and Analysis
1. How many members are there in your family?
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Businessman Professional Salaried Retired Others
48 7 36 9 0
Occupation
48%
7%
36%
9% 0% Businessman
Professional
Salaried
Retired
Others
Out of the sample size of 100, 48% were businessmen, 7% were professionals, 36% were
salaried and 9% were retired.
3. What proportion of total income do you save? (In %)
Ans. () below 10 () 11-30 () 31-50 () above 50
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below 10 11 to 30 31 to 50 above 50
31 43 17 9
Savings
31%
43%
17%
9%
below 10
11 to 30
31 to 50
above 50
Out of the sample size of 100, 31% of the people saved income below 10% of their total
income, 43% of the people saved income between11% to 31% of their total income, 17%
of the people saved income between 31% to 50% of their total income and 9% of the
people saved income above 50% of their total income.
4. Where do you most prefer to invest your money?
Ans. a. () Government securities
b. () Fixed Deposits
c. () Mutual Funds
d. () Equity Market
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Financial Consultant
23%
77%
Yes
No
Out of the sample size of 100, 23% of respondents were having financial consultants and
77% of respondents were not having access to any financial consultant.
6. Are your aware about the functioning of the mutual fund?
Ans. () Yes () No
Yes No
14 86
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Awareness about mutual fund functioning
14%
86%
Yes
No
Out of the sample size of 100, only 14% of the respondents were aware about the
functioning of the mutual funds while 86% of the respondents were not aware about the
functioning of the mutual funds.
7. Which companies do you prefer for investing in mutual fund?
Ans.
Out of the respondents surveyed the customers who preferred to invest in mutual
funds invested in Tata M.F, HDFC M.F, ICICI M.F, Franklin M.F, Reliance M.F,
DSP M.F and SBI M.F.
8. What level of risk you are willing to take for investing in above mentioned mutual
funds?
Ans. () Low risk () Medium risk () High risk
Low
risk
Medium
risk
High
risk
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24 56 20
Willingness to take risk
24%
56%
20%
Low risk
Medium risk
High risk
Out of 100 respondents, 24% of the respondents preferred to invest in mutual funds with
low risk even if the returns were low, 56% preferred to invest in mutual funds with
medium risk and medium return while 20% of them preferred to invest in mutual funds
with high returns even if the risk was high.
9. What proportion of total savings do you invest in mutual funds? (In %)
Ans. () nil () below 10 () 11-30 () 31-50 () above 50
nil below 10 11 to 30 31 to 50 above 50
79 16 5 0 0
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investments in mutual funds
79%
16%
5% 0%
0%nil
below 10
11 to 30
31 to 50
above 50
Out of 100 respondents, 79% of the respondents didnt at all invested in mutual funds
out of their savings, 16% of the respondents invested up to 10% of their total savings in
mutual funds while the rest 5% of the respondents invested between 11-30% of their total
savings in mutual funds.
10. Which type of mutual fund would you prefer to invest?
Ans. () Equity () Balanced () Debt () not prefer
Equity Balanced Debt not prefer
37 21 0 42
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Type of mutual fund for investing
37%
21%0%
42%Equity
Balanced
Debt
not prefer
Out of the 100 respondents, 37% of the respondents preferred to invest in equity scheme
of mutual funds, 21% of the respondents preferred to invest in balanced scheme of
mutual funds ,42% of the respondents did not preferred to invest in mutual funds and no
one preferred to invest in debt mutual funds.
Future Scenario
The asset base will continue to grow at an annual rate of about 30 to 35 % over the next
few years as investors shift their assets from banks and other traditional avenues. Some
of the older public and private sector players will either close shop or be taken over.
Out of ten public sector players five will sell out, close down or merge with stronger
players in three to four years. In the private sector this trend has already started with two
mergers and one takeover. Here too some of them will down their shutters in the near
future to come.
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But this does not mean there is no room for other players. The market will witness a
flurry of new players entering the arena. There will be a large number of offers from
various asset management companies in the time to come. Some big names like Fidelity,
Principal, Old Mutual etc. are loo