Analysis of Mutual Fund Industries in India

8/12/2019 Analysis of Mutual Fund Industries in India

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A

Project Report

On

Analysis of Mutual Fund Industries inIndia

Project Guide Submitted By

Prof.HARJIT SINGH NANDINI

CHOPRA

(0!SII!""#$


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INSTITUTE OF MARKETING & MANAGEMENT

B-11, Marketing Tower, Qutu In!titutiona" Area,

New #e"$i-11%%1


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PREFACEThe significant outcome of the government policy of liberalization in industrial and financialsector has been the development of new financial instruments. These new instruments areepected to impart greater competitiveness fleibility and efficiency to the financial sector.!rowth and development of various mutual fund products in "ndian capital mar#et has

proved to be one of the most catalytic instruments in generating momentous investmentgrowth in the capital mar#et. There is a substantial growth in the mutual fund mar#et due to ahigh level of precision in the design and mar#eting of varietyof mutual fund products by ban#s and other financial institutions$ thereby$ providing growth$li%uidity and fast & good returns.

"n this contet$ prioritization$ preference building and close monitoring of mutual funds areessentials for fund managers to ma#e this the strongest and most preferred instrument in"ndian capital mar#et for the coming years. 'ith the decline in the ban# interest rates$fre%uent fluctuations in the secondary mar#et and the inherent attitude of "ndian smallinvestors to avoid ris#$ it is important on the part of fund managers and mutual fund productdesigners to combine various elements of li%uidity$ return and security in ma#ing mutual fund

products the best possible alternative for the small investors in "ndian mar#et.

This pro(ect thus aims at studying and analyzing the mutual fund industry of the country."t aims at studying the various mutual fund schemes offered by "C"C" )an# and thenComparing it with the other schemes available in the current mar#et.

"t also aims to study various needs and epectations of small investors from different types ofmutual funds available in "ndian mar#et and identify the ris# return perception with the

purchase of mutual funds.


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AC*+',E-!EE*T

Any research$ report or presentation visible is not the effort of presenter only$ but there aremany others behind the camera who play a very important role and my research and report isnot an eception to this. /o$ in the process of recognizing the efforts of those behind the

scene$ " would li#e to than# director of academics#r' (ra)o* Ku)ar .First of all " wish to epress my great restitutes to my institute INSTITUTE OFMARKETING & MANAGEMENT and ICICI Bank01ana#puri )ranch$ *ew -elhi 2 tohave e%uipped me with the re%uisite s#ill and #nowledge to complete the pro(ect.

'e would li#e to epress our deepest sense of gratitude to our revered guide and mentor Mr.

ar!it Sin"# & Director of research and Placement Consultancy, #r' A' agfor his valuable guidance$ inspiration and encouragement.

+ur efforts in accomplishing this pro(ect are a result of constant motivation and patientlistening support by him. The #nowledge provided by him has been a great value addition forus and will go a long way in shaping our promising careers.

NAN$INI CO%RA

'(SII())*


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E4ECUTI5E SUMMAR6

Presently "ndian economy is fast moving towards being a service economy with an insurancesector leading from front. The present government policies of increasing F-" in Financialsector have opened door for various multinational companies$ the resultant being increasedcompetition and multiple option in front of "ndian public.

This summer pro(ect is aimed to perform a comparative analysis of utual fund schemes sothat it become easier to analyze ones financial re%uirements and opt a suitable policy to achievefinancial security. The utual Fund /chemes of the companies are scrutinized and the cru has

been highlighted.

After a prolong consultation of my guide$ we come to consensus on the topic related to the

performance of mutual fund industries in "ndia. The research was thus been designed so as tocover all the aspects of the complete study. For this purpose the data was collected from theunstructured interview of the "C"C" ban#s personnel and the ma(or source for the re%uisite datawas the companies3 fact sheets$ various publication and magazines were also considered for there%uired data.


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COM%AN6 %ROFI+E

OVERVIEW

"C"C" )an# is "ndia4s second5largest ban# with total assets of about Rs.6$ 787.9: bn andprofit after ta of Rs. ;


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"C"C" provides a wide range of products and services aimed at fulfilling the ban#ing andfinancial needs of "ndia4s corporate and retail sectors. "C"C"4s business today consists

primarily of corporate ban#ing activities$ including pro(ect finance$ corporate finance and

wor#ing capital finance. "n the last five years$ it has been offering retail ban#ing services$including ta#ing retail deposits and offering retail bonds.

"t started offering retail credit products in fiscal 6::: and now offers retail credit productssuch as home and automobile loans and other consumer finance products and services. "talso engages in a number of advisory$ investment and other financial activities.

"t has consistently used technology to differentiate the products and services from those ofits competitors. For eample$ it4s commercial ban#ing subsidiary$ "C"C" )an# was the first

ban# in "ndia to offer "nternet ban#ing. +ther technology5driven products include electroniccommerce5based business5to business and business5to5consumer ban#ing solutions$ web

bro#ering$ cash management services and mobile phone ban#ing services.. To support thesetechnology initiatives$ it has set up online real time transaction processing systems. "tremains its focus on changes in customer needs and technological advances and see#s toremain at the forefront of electronic ban#ing in "ndia.

HISTORY

"C"C" was formed in 6:99 at the initiative of the 'orld )an#$ the government of "ndia and

representatives of "ndian industry. The principal ob(ective was to create a developmentfinancial institution for providing medium5term and long5term pro(ect financing to "ndian

businesses. Dntil the late 6:


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notes of /C"C" into e%uity shares on -ecember 69$ 6::72$ to eliminate overlapping businessactivities and to create operational efficiencies. "n 6::8$ "C"C" ac%uired "TC Classic Finance,imited$ a non5ban# finance company focused on retail deposit ta#ing and corporate financewith Rs. 6.< billion 0D/H =;6 million2 in assets$ to create a deposit distribution networ#$

primarily in the eastern part of "ndia. "n 6::$ "C"C" ac%uired Anagram Finance ,imited$ a

non5ban# finance company primarily in the automobile financing sector$ which had an assetbase of Rs. :.7 billion 0D/H ;;< million2. This was done to support our entry into the retailasset financing mar#et.

"n ay 6::$ when "C"C" obtained its commercial ban#ing license to establish "C"C" )an#$the Reserve )an# of "ndia imposed a condition that "C"C" reduce its ownership interest in"C"C" )an# in stages$ first to not more than 89.


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"nsurance Corporation of "ndia$ the !eneral "nsurance Corporation of "ndia and "tssubsidiaries and the Dnit Trust of "ndia. There is no /hareholders agreement or voting trustrelating to the ownership of the shares owned by the government controlled shareholders.

The composition of "C"C"4s board of directors reflects the principal shareholdings held bythe government5controlled institutions$ the terms of the "ndian government4s credit andguarantee facilities and the wide public ownership in "ndia. Dnder the terms of the loan andguarantee facilities provided to "C"C"$ the government of "ndia is entitled to appoint and hasappointed one representative to "C"C"4s board. "n addition to the government5nominateddirector$ "C"C" has traditionally invited a representative of the inistry of "ndustry to be oneof its directors. The government5controlled insurance companies that are "C"C"4s largestshareholders$ !eneral "nsurance Corporation of "ndia and its subsidiaries and ,ife "nsuranceCorporation of "ndia$ also each have a representative on "C"C"4s board. +f the remaining 66

directors$ the Chairman is the former eecutive chairman of "C"C"$ three are eecutivedirectors$ si are from a broad range of industrial companies and one is a professor. /eeIanagement5-irectors and Eecutive +fficersI.

"C"C" raised D/H =69 million through an offering of =;.6 million A-/s in /eptember6:::. "C"C"$ li#e some other "ndian companies$ must obtain the inistry of Finance4sapproval to raise e%uity in the international mar#ets. "t was a condition of the inistry ofFinance4s approval for the A-/ offering in /eptember 6::: that the total foreign e%uityshareholding in "C"C"$ by all possible routes$ may not eceed :.


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Strategy of the bank

The liberalization and rapid growth of the "ndian economy has provided us with significantopportunities to provide superior financial products and services to "ndian companies and theretail sector.

+ur ob(ective is to enhance our position as "ndia4s premier provider of financial services.

The #ey elements of our business strategy are toB

o focus on %uality growth opportunities byB

- maintaining and enhancing our strengths in corporate- ban#ing and

- building a strong retail franchise

o emphasize conservative ris# management practices and

- enhance asset %uality

o use technology for competitive advantages and

o Attract and retain talented professionals.

Maintainin" and En#ancin" o-r Stren"t#s in Cor0orate Bankin"'e have a trac# record of more than < years of providing financial products and services to"ndian companies. 'e en(oy a strong mar#et position in a number of profitable businesssegments$ and will continue to see# to gain mar#et share in growth areas such as theinfrastructure and the oil$ gas and petrochemicals sectors. 'e have also built up a significant

presence in the mar#et for shorter5term lending including wor#ing capital finance$ to be ableto offer a more complete range of credit products across varying maturities. +ur focus has

been on structured finance including securitization and customized financing structuresbased on capturing the cash flows generated from the borrower4s business. 'e believe thisstrategy will help us create a diverse asset base$ achieve stable revenues and lower the ris# to

shareholder returns. 'e continue to develop our epertise in providing value5added advisoryservices$ such as pro(ect structuring$ loan and e%uity syndication$ and merger and ac%uisitionservices. +ur goal is to provide a comprehensive and integrated service to corporatetreasurers through our relationship managers. 'e aim to increase the cross5selling of our

products and services and maimize the value of our corporate relationships.


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Building a Strong Retail

Franchise

"ndia has a large and growing retail customer base estimated at = million middle andupper income households$ of which we have identified about si million households asour target segment based on a certain level of monthly income and residence in selectedurban areas. 'e believe our established brand name$ strong corporate relationships andretail investor base$ together with the absence of strong mass mar#et players in retailassets$ provide us with a uni%ue opportunity to build a profitable retail franchise. -uringfiscal ;


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Em0#asi7e Conseratie Risk Mana"ement %ractices and En#ance Asset 8-a1it/

'e believe that conservative ris# management policies$ processes and controls arecritical for long5term sustainable competitive advantages in our business. "C"Cl4s Ris#anagement !roup is an independent$ centralized group responsible for establishingand implementing company5wide ris# management policies$ with an increasing focus onenhancing asset %uality. 'e will continue to build on our credit ris# managementprocedures$ credit evaluation and rating methodology$ credit ris# pricing models$proprietary analytics and monitoring and control mechanisms. 'e epect to enter newproduct mar#ets only after conducting detailed ris# analysis and pilot testing programs.

To reduce ris#$ we are in the process of diversifying our loan portfolio towards shorter5term loans to highly5rated corporate customers$ structured pro(ect finance and retaillending. "n addition$ we see# to lower the credit ris# profile of the loan portfolio throughthe increased use of financing structures based on a security interest in the cash flows

generated from the business of the borrower and increased collateral$ includingadditional security in the form of li%uid assets$ such as investment securities and readilymar#etable real property. 'e also mitigate pro(ect ris# through the allocation of ris# tovarious pro(ect counterparties$ such as construction contractors$ operations andmaintenance contractors and raw material and fuel suppliers$ by entering into rigorouspro(ect contracts with those counterparties. 'e intend to continue to see# to obtainconservative collateral positions on productive assets$ such as property$ plant ande%uipment$ over which we would typically secure first lien status.

anagement has placed great emphasis on asset %uality and this focus has been

institutionalized across the organization$ with asset %uality parameters being a #eyfactor in employee performance evaluation. 'e believe that our adoption of D/ !AAP$including its associated provisioning re%uirements$ embodies a more conservativeapproach to %uantifying credit losses. 'e believe we are the mar#et drivers in "ndia inachieving early settlements with troubled borrowers$ thus maimizing our cash flowsfrom these loans. +ur /pecial Asset anagement !roup$ which was created to ta#e careof large non5performing loans and problem loans$ has spearheaded our efforts in thisdirection.

Use Technology for Competitive Advantages

'e will continue with our policy of ma#ing substantial investments in technology toachieve a significant competitive advantage. +ur subsidiary$ "C"C" "nfotech$ willmanage all #ey technology pro(ects.


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+ur management team is committed to enhancing shareholder value and all ourperformance targets see# to meet this primary ob(ective. 'e believe we have created theright balance of performance bonus$ stoc# option and other economic incentives for ouremployees so that they will be challenged to aggressively develop business$ achieve

profitability and asset %uality targets and control ris#. "n the last two years$ we haveconducted a comprehensive review of our organizational structure and procedures$wor#ing with internationally recognized consulting firms. 'e intend to continue to re5engineer our management and organizational structure to allow us to respond effectivelyto changes in the business environment and enhance our overall profitability.


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INTRO$UCTION OF MUTUA+ FUN$

OVERVIEW

A utual Fund is a trust that pools the savings of a number of investors who share a commonfinancial goal. The money thus collected is then invested in capital mar#et instruments such asshares$ debentures and other securities. The income earned through these investments and thecapital appreciation realized are shared by its unit holders in proportion to the number of unitsowned by them. Thus a utual Fund is the most suitable investment for the common man as itoffers an opportunity to invest in a diversified$ professionally managed bas#et of securities at arelatively low cost. The flow chart below describes broadly the wor#ing of a mutual fundB

MUTUA+ FUN$ O%ERATION F+O: CART

CONSTITUENTS OF MUTUAL FUND

T#ere are man/ entities ino1ed and t#e dia"ram 3e1o2 i11-strates t#e or"ani7ationa1 set

-0 of a m-t-a1 f-nd;

TheSEBI0ut ual Funds2

Regulations 6::= define a mutual fund 0F2 as a fund established in the form of a trust by asponsor to raise money by the trustees through the sale of units to the public under one or more

schemes for investing in securities in accordance with these regulations.
http://www.sebi.gov.in/HomePage.jsphttp://www.sebi.gov.in/HomePage.jsp


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These regulations have since been replaced by the /E)" 0utual Funds2 Regulations$ 6::7. Thestructure indicated by the new regulations is indicated as under.

A mutual fund comprises four separate entities. These areB /ponsor$ utual Fund Trust$ ACand Custodian.

The sponsor establishes the mutual fund and gets it registered with /E)". The mutual fundneeds to be constituted in the form of a trust and the instrument of the trust should be in the formof a deed registered under the provisions of the "ndian Registration Act$ 6:


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bn. Putting the AD of the "ndian utual Funds "ndustry into comparison$ the total of it is lessthan the deposits of /)" alone$ constitute less than 66G of the total deposits held by the "ndian

ban#ing industry. The main reason of its poor growth is that the mutual fund industry in "ndia isnew in the country. ,arge sections of "ndian investors are yet to be intellectuated with theconcept. Kence$ it is the prime responsibility of all mutual fund companies$ to mar#et the

product correctly abreast of selling.

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

First %#ase ( >*'?(@

The Dnit Trust of "ndia 0DT"2 was established in 6:7= by an Act of Parliament. "t was set up bythe Reserve )an# of "ndia and functioned under the Regulatory and administrative control of theReserve )an# of "ndia. "n 6:8 DT" was de5lin#ed from the R)" and the "ndustrial -evelopment)an# of "ndia 0"-)"2 too# over the regulatory and administrative control in place of R)". The

first scheme launched by DT" was Dnit /cheme 6:7. At the end of 6: DT" had Rs.7$ 8*@(>**< Entr/ of %-31ic Sector F-nds

This was mar#ed by the entry of non5DT" mutual funds. /)" utual Fund was the first followedby Can ban# utual Fund 0-ec 82$ Pun(ab *ational )an# utual Fund 0Aug :2$ "ndian )an#utual Fund 0*ov :2$ )an# of "ndia 01un :


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entered its current phase of consolidation and growth. As at the end of /eptember ;


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FIG DB LAR"+D/ /CKEE/ +F DTDA, FD*-/

Open-Ended Schemes

These funds are sold at the *AL based prices$ generally calculated on every business day. Theseschemes have unlimited capitalization$ open5ended schemes do not have a fied maturity 5 i.e.there is no cap on the amount you can buy from the fund and the unit capital can #eep growing.These funds are not generally listed on any echange.

These funds have a no. of benefits. These areB

a2 Any time eit optionb2 Ta advantage

c2 Any time entry option


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Close Ended Schemes

/chemes that have a stipulated maturity period$ limited capitalization and the units are listed onthe stoc# echange are called close5ended schemes. These schemes have historically seen a lotof subscription. This popularity is estimated to be on account of firstly$ public sector Fshaving floated a lot of close5ended income schemes with guaranteed returns and secondly easy

li%uidity on account of listing on the stoc# echanges.

Groth Funds

These funds see# to provide growth of capital with secondary emphasis on dividend. They investin shares with a potential for growth and capital appreciation. )ecause they invest in well5established companies where the company itself and the industry in which it operates arethought to have good long5term growth potential$ growth funds provide low current income.

Groth and !ncome Funds

!rowth and income funds see# long5term growth of capital as well as current income. Theinvestment strategies used to reach these goals vary among funds. /ome invest in a dual

portfolio consisting of growth stoc#s and income stoc#s$ or a combination of growth stoc#s$stoc#s paying high dividends$ preferred stoc#s$ convertible securities or fied5income securitiessuch as corporate bonds and money mar#et instruments.

Fi"ed#!ncome Funds

The goal of fied income funds is to provide current income consistent with the preservation ofcapital. These funds invest in corporate bonds or government5bac#ed mortgage securities thathave a fied rate of return.

Balanced

The )alanced fund aims to provide both growth and income. These funds invest in both sharesand fied income securities in the proportion indicated in their offer documents.

These are ideal for investors who are loo#ing for a combination of income and moderate growth.

Money Market Funds/Liquid Funds

These invest in highly li%uid$ virtually ris#5free$ short5term debt securities of agencies of the"ndian !overnment$ ban#s and corporations and Treasury

Specialty/Sector Funds

These funds invest in securities of a specific industry or sector of the economy such as healthcare$ technology$ leisure$ utilities or precious metals. The funds enable investors to diversifyholdings among many companies within an industry$ a more conservative approach thaninvesting directly in one particular company.

A summary is presented in the table below of the various funds and their

investment objectives:


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TABLE 1

CURRENT SCENARIO OF MUTUAL FUND

The mutual funds industry in "ndia has grown at a strong pace of 67. per cent for the last years which is better compared to the growth rate of the mutual fund industry worldwide$ whichwas about 6= per cent for the same period. The "ndian mutual funds industry has Rs ;


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MUTUA+ FUN$S; RISING SARE OF OUSEO+$ FINANCIA+ ASSETS

RECENT TRENDS IN MUTUAL FUND MARETIN!

The mutual fund industry in "ndia has evolved little over three decades but the real impetus hascome after the changes in the mutual fund regulations in early 6:


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for trading. The specialty of this new product is that investors will have an opportunity toechange their holdings of scrip$ which are available for dematerialization with units of thisscheme.

A large no. of companies are today launching a no. of mutual funds schemes in order to attractsmall investors. And the reason for launching of these large numbers of mutual fund products is

the distributed pattern of investment behavior of "ndian small investor.

The purchase decision of a mutual fund is largely dependant upon investor3s level of savings$investment pattern and the ris# profile. any managers are now ta#ing interest in designingmutual fund products with multi feature options for investors. Customers are often benefitedfrom the improvements that are offered by new features$ for eample by enhanced %uality

products N!arvin 06:2O. These additions of features also offer advantages to others in the valuechain. For the mutual fund agents new features provide new sales arguments in seller buyerinteraction. *ew features do not only infuse single products but also entire product categories

periodically with new lease of life.

The success of a mutual fund and its capacity largely depends on its ability to mobilize funds.The total funds mobilized by the different mutual funds for the period 6:85 to 6:::5;


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-ue to the reduction in the interest rate in D/A the "ndian bond mar#et rallied in epectation ofa similar cut$ debt funds staged a come bac#.

"nvestors realize that an interest rate cut reduces the mar#et yield and hence$ increases the

demand for long5term debt papers bearing high coupon rates.

The average annualized return for the %uarter in debt funds was 6.7$ which were much higherthan the returns posted by any other debt based investment instruments on a post ta basis.

The change in preference from e%uity to debt related instruments during that period can be seenin Table5=

CKA*!E "* PREFERE*CE

a""et" .//8 .//4 .//3 .///

E


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1920

1940

1960

1980

2000

2020

2040

2060

2080

2100

2120

1 2 3 4

Money market/ Liquid

Funds

Mixed Funds (equity+

det!

"et Funds

#quity Funds

assets

TABLE 3

The new mutual fund product launches had seen many of the e%uity based funds in the mar#etduring this period$ primarily to attract investors who would li#e to ta#e advantage of the low

prices in the stoc# mar#et but ma(ority of the funds launched were debt funds. The budget hasalso supported the cause of debt fund rather than e%uity due to a lower dividend distribution ta.The investors hesitate to invest in the e%uity fund when the mar#et is down but the mar#etingand distribution cost of these incurred during this period does not reflect a rise in the investors3choice.As a product manager one is ought to design mutual fund products$ which shall combine anoptimal mi of return$ ris# li%uidity and safety for the small investors.

Advantages of Investing in Mutual Funds

Professional Money Management & Research

utual funds are managed by professional fund managers who regularly monitor mar#et trendsand economic trends for ta#ing investment decisions. They also have dedicated research

professionals wor#ing with them who ma#e an in depthstudy of the investment option to ta#ean informed decision.

Ris !iversification

-iversification reduces ris# contained in a portfolio by spreading it. "t is about not putting allyour eggs in one bas#et. As mutual funds have huge corpuses to invest in$ one can be part of alarge and well5diversified portfolio with very little investment.

"onvenience

'ith features li#e dematerialized account statements$ easy subscription and redemption

processes$ availability of *ALs and performance details through (ournals$ newspapers andupdatesand lot more utual Funds are sure a convenient way of investing.


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RISK FACTORS OF IN5ESTMENTS IN MUTUA+ FUN$S

utual funds li#e securities investments are sub(ect to mar#et and other ris#s and there

can be no assurance that the ob(ectives of any of the schemes of the Fund will beachieved.

The *AL of units issued under the /chemes can go up or down depending on the factors

and forces affecting capital mar#ets and may also be affected by changes in the generallevel of interest rates.

The past performance of the mutual funds managed by the /ponsors and their affiliates

associates is not necessarily indicative of the future performance of the schemes.

The /ponsors are not responsible or liable for any loss resulting from the operation of the

schemes beyond the initial contribution of an amount of Rs.6 la#h made by the /ponsors

towards setting up the Fund or such other accretions and additions that may be made tothe initial corpus set up by the /ponsors.

The li%uidity of the /cheme4s investments may be restricted by trading volumes

settlement periods and transfer procedures. "n the event of an inordinately large numberof redemption re%uests or of a restructuring of any of the /chemes4 portfolios$ the timeta#en by the Fund for redemption of units may become significant. "nvestors are alsore%uested to peruse the Ris# Factors and /pecial Considerations. Right to ,imitRedemptions in the +ffer -ocuments of the respective schemes of the Fund.


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The Risk-Return Trade-off

The most important relationship to understand is the ris#5return trade5off. Kigher the ris# greaterthe returnsloss and lower the ris# lesser the returnsloss.

Kence it is up to you$ the investor to decide how much ris# you are willing to ta#e. "n order to dothis you must first be aware of the different types of ris#s involved with your investmentdecision.

Market Risk

/ometimes prices and yields of all securities rise and fall. )road outside influences affecting themar#et in general lead to this. This is true$ may it be big corporations or smaller mid5sizedcompanies. This is #nown as ar#et Ris#. A /ystematic "nvestment Plan 0S/"P2 that wor#s onthe concept of Rupee Cost Averaging 0SRCA2 might help mitigate this ris#.

Credit Risk

The debt servicing ability 0may it be interest payments or repayment of principal2 of a companythrough its cash flows determines the Credit Ris# faced by you. This credit ris# is measured by

independent rating agencies li#e CR"/", who rate companies and their paper. A UAAA3 rating isconsidered the safest whereas a U-3 rating is considered poor credit %uality. A well5diversifiedportfolio might help mitigate this ris#.

Inflation Risk

"nflation is the loss of purchasing power over time. A lot of times people ma#e conservativeinvestment decisions to protect their capital but end up with a sum of money that can buy lessthan what the principal could at the time of the investment. This happens when inflation grows

faster than the return on your investment. A well5diversified portfolio with some investment ine%uities might help mitigate this ris#.

Interest Rate Risk

"n a free mar#et economy interest rates are difficult if not impossible to predict. Changes ininterest rates affect the prices of bonds as well as e%uities. "f interest rates rise the prices of

bonds fall and vice versa. E%uity might be negatively affected as well in a rising interest rateenvironment. A well5diversified portfolio might help mitigate this ris#.


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Political/Government Policy Risk

Changes in government policy and political decision can change the investment environment.

They can create a favorable environment for investment or vice versa.

Liquidity Risk

,i%uidity ris# arises when it becomes difficult to sell the securities that one has purchased.,i%uidity Ris# can be partly mitigated by diversification$ staggering of maturities as well asinternal ris# controls that lean towards purchase of li%uid securities.ou have been reading about diversificationabove$ but what is it@

T+PE %F M*T*AL F*(! ",EME

'ide variety of utual Fund /chemes eists to cater to the needs such as financial position$ris# tolerance and return epectations etc. The table below gives an overview into the eistingtypes of schemes in the "ndustry.


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T%P 1- %PE( E(!E! .E/*IT+ F*(! PERI%!

0LAT M%(T,2

Ran cheme (ame !ate (A'0Rs32

4 Return

as on (A'date

7 Taurus (ibra Ta? shieldSept 5@ 533. 8UESTIONNAIRE;

The study is based on a survey of 6

'ith the help of this pro(ect$ " have attempted to study various needs and epectations of smallinvestors from different types of mutual funds available in "ndian mar#et and identify the ris#return perception with the purchase of mutual funds.

Larious sophisticated multivariate techni%ues li#e Factor Analysis$ Chi /%uare Test etc. willthen be applied to identify important characteristics being considered by the "ndian investors inthe purchase decision.

The %uestionnaire has been developed on the basis of five ma(or components. These areB

6. -emographic Attributes li#e age$ "ncome$ *o. of years until retirement$ epectationsfrom future earning$ Family /ize and #nowledge of financial products & the financialmar#et.

;. Ris# Attitude of the customers

=. ,atest "nvestment in utual Fund E.g. Amount invested in the mutual fund recently$type of mutual fund$ priority while investing in mutual fund and why mutual funds.

. Time KorizonB This component has been included in order to identify the time period inwhich the customer withdraws his money from the investment made by him.

9. "nvestment ob(ectiveB This will help in identifying the investment ob(ective of thecustomer i.e. for travel$ for his children$ for further investment or for availing retirement

benefit.

$emo"ra0#ic Attri3-tes

The various demographic attributes li#e Age$ "ncome$ and *o. +f years till retirement$ Family

size$ #nowledge of finance influence the decisions being made by the investors while investingin utual Funds.

Risk Attit-de of C-stomers


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This component has been included in order to identify the proimity of a person to ta#e ris#while investing. An analysis of this section would help in identifying the needs and epectationsof small investors #eeping in mind their ris# attitude.

T#e section 2o-1d #e10 in ans2erin" t#e fo11o2in" section;

Choices made while investing big amounts 0W Rs.9


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me an in depth #nowledge about the various schemes offered by "C"C"$ K-FC$ K/)C$ Fidelity$etc.

This would further help me in doing a sophisticated and detailed comparison between thevarious schemes.


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ANA+6SIS

Following graph shows the factors influencing the decision of a person

to invest into mutual funds.

Above factors have been evaluated on a scale of 6


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They have enough disposable income so ma(or investment is made into both e%uity and mutualfunds. "nsurance is also given due weight age but with the e%uity related options for betterreturns. They are updated with the features so thorough #nowledge is needed before advisingthem any fund.

Income "ro-0 a3oe > 1ak#s;

They too have enough disposable income so ma(or investment is made into both e%uity andmutual funds. This category also demands for portfolio facility. They are important customers sospecific relationship eecutives are assigned to them. They are continuously updated about newfund schemes.

Fo11o2in" "ra0# descri3es t#e re1ations#i0 3et2een t#e a"e and t#e o0tions

Under a"e "ro-0 (D /ears;

People under this category people start planning for retirement so they loo# for time saving

option to be a better one. oreover they also start see#ing for Ta benefit

0

'

10

1'

20

2'

nder

30

31-40 41-'0 '1-60 &er 60

ax eneit 26

:roessiona$

Mana+ement 9

Less ime ;onsumin+

16

"i&ersii5ation


45/55

Under a"e "ro-0 D> ( ' /ears;

The inclination of people is more on Ta )enefit as ris# ta#ing capacity is low and most of the#nowledge ac%uired by them is through newspapers and (ournals etc. time saving option is alsoconsidered.

Under a"e "ro-0 ';

As this category people don3t have their regular income so they go for Ta benefit only.Kowever they want returns early so time saving is also ta#en into consideration. oreover

people are averse to ta#e ris# so they feel li#e investing in !overnment /ecurities also.

Fo11o2in" "ra0# descri3es t#e re1ations#i0 3et2een t#e a"e and t#e kind of inestments

0eo01e make;

0

1

2

3

4

'

6

8

9

10

nder

30

31-40 41-'0 '1-60 &er 60

(e

Investments

/ank "e*osits and

/onds 1'

Mutua$ Funds 1'

ares 13

;omination o

/anks=F"s=/onds 2'

;omination o Mutua$

Funds and ares 32

;omination o Mutua$

Funds and ares 32

A"e "ro-0 -nder


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This age group lay stress on both the returns and ta planning. For ta purpose it is observed thatSunit lin#ed investment plans are preferred as they also provide the insurance cover. Theirinvestment into mutual funds and shares is less in comparison t previous age group.

A"e "ro-0 ?> D /ears;

"n this age group inclination towards )an# F-s$ )onds and mutual fund has increased. Thereason observed is in this age group$ people start planning for their retirement.

A"e "ro-0 D> ( ' /ears; "n this age group inclination towards )an# F-s$ )onds has increasedand utual Funds has decreased. The reason observed is in this age group $people arealmost near to retirement and plan to spend their money on travel and leisure

A"e "ro-0 -nder ' /ears; "n this age group people start investing in )an#s F-s $ as it isbelieved to be the safer options with fi returns. "t was also found that almost nonewere interested for investment in shares because of perception of ris#y mar#et trend

Following graph shows the preferences of the customer while selecting for investment inany utual Fund company

0

10

20

30

40

'0

60 Mutua$ Fund

/

tandard ;arted Mutua$

Fund

Frank$in em*$eton

/; Mutua$ Fund

Fide$ity #quity Fund

:rudenti$ ;; Mutua$

Fund


47/55

additions to the portfolio have been TC/$ Kindustan ,ever$ 1et Airways$ -r.Reddy3s$ Dnion)an# of "ndia. The eposure to the company in sectors li#e metals$ auto and cement has goneup. The company is continuously earning profit and giving good returns. /tandard Chartedutual Fund and K/)C utual Fund are also giving good returns so people are highly satisfiedwith both of the company3s.

Fo11o2in" "ra0# s#o2s t#at #o2 0eo01e of different a"e "ro-0 -se t#eir mone/ from

inestment.

0

2

4

6

8

10

12

14

nder

30

31-40 41-'0 '1-60 &er 60

ra&e$ or Leis ure 16

;i$d (edu5ation or

marria+e! 30

Furter in&estments 34

%etirement /eneit 20

Under a"e "ro-0


48/55


49/55

RECOMMEN$ATION AN$ SUGGETIONS

62 "nvestors should always #eep a photocopy of the application form. which can be filed to#now the manner in which application was made single$ (oint ownership and order of

ownership. "nvestors will also be able to see how they have signed the forms $ manyinvestors change their signatures over time some have a different signatures for ban#ingand investment transactions some investors use both Kindi and English signatures2."nvestors will also #now the choice they have eercised 0dividend and redemptionoptions2.

;2 "nvestors should preserve the counterfoil ac#nowledgement issued by the collectingagency. This ac#nowledgement usually also has the application number. "f accountstatement or certificate is not received$ the ac#nowledgement is the proof of purchase$with which investors can approach the registrar and transfer agent.

=2 "t is preferable to have (oint ownership$ so that investments will pass on to the (ointowner in the event of death of the first holder.

2 "t is important to fill up nomination details in the application. This will enable legal heirsto claim the holdings without procedural delays. *ominations that do not indicate theguardian of a minor are not valid. !uardian indicated will have to be a person other thanthe holders of the investment.

92 Che%ues should be crossed and application number and name should be written on thebac# of the che%ue. ost mutual funds do not accept outstation che%ues$ post dated

che%ues 0with the eception of specific investment plans2 or postal orders.

72 Eisting investors can %uote their uni%ue account or folio numbers so that their holdingswill be consolidated. This is helpful in ta matters and in #eeping investment informationin a consolidated manner.


50/55

C+*C,D/"+*

Through the study " finally reached to the conclusion that "nvestment is the best utilization of theearnings and leads to the improvement in the living standard of the people.

"t was found that people of different age groups have different perception s regarding

investments in utual Fund schemes.

Kigh ris# ta#ers are generally interested in investing in utual Fund and shares. They basicallygo for E%uity /hares. 'hereas those who can ta#e calculated ris# are generally interested ininvesting in )alanced /chemes. These schemes invest their funds in e%uity shares and debt inapportion of 7


51/55

)"),"+!RAPK

www.amfi.com

www.pruicici.com

www.rbi.com

www.iciciban#.com

www.investopedia.com

www.financialdictionary.com

Financial management by m.y.#han

)usiness world

Professional ban#er$ icfai publication

)an#ing law$ icfai publication

anagement of financial institutions$ icfai publication


52/55

A**EYDRE

8UESTIONNAIRE

-ear /ir adam$IH Astha ?alrais a anagement student and is doing my summer internship in "C"C" )an#. Thetitle of my pro(ect is SAn Analysis +f utual Funds "ndustry. " re%uest you to #indly fill thissurvey$ as it would help me in successful completion of my pro(ect. " assure that theinformation given by you will be confidential and will be utilized for research purposes only.

6. our Age is

Dnder =

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Analysis of Mutual Fund Industries in India

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