Table of Content
Chapter 1:- Conceptual Overview
Chapter 2:- Research Methodology
Objective of Study
Scope and Rationale of Study Methodology Limitation of StudyChapter 3:- Theoretical Background
Chapter 4:- Case Study
Introduction of Company profile and Product
About the work in company done by students
Chapter 5:- Data Analysis Chapter 6:- FindingsBibliography
Annexure CHAPTER - 1Chapter 1:- Conceptual Overview
In few years Mutual Fund has emerged as a tool for ensuring ones financial well being. Mutual Funds have not only contributed to the India growth story but have also helped families tap into the success of Indian Industry. As information and awareness is rising more and more people are enjoying the benefits of investing in mutual funds. The main reason the number of retail mutual fund investors remains small is that nine in ten people with incomes in India do not know that mutual funds exist. But once people are aware of mutual fund investment opportunities, the number who decide to invest in mutual funds increases to as many as one in five people. The trick for converting a person with no knowledge of mutual funds to a new Mutual Fund customer is to understand which of the potential investors are more likely to buy mutual funds and to use the right arguments in the sales process that customers will accept as important and relevant to their decision.
This Project gave me a great learning experience and at the same time it gave me enough scope to implement my analytical ability. The analysis and advice presented in this Project Report is based on market research on the saving and investment practices of the investors and preferences of the investors for investment in Mutual Funds. This Report will help to know about the investors Preferences in Mutual Fund as an investment option means Are they prefer any particular Asset Management Company (AMC), Which type of Product they prefer, Which Option (Growth or Dividend) they prefer or Which Investment Strategy they follow (Systematic Investment Plan or One time Plan). This Project as a whole can be divided into two parts.
MEANING OF MUTUAL FUNDSMutual fund is a trust that pools the savings of a number of investors who share a common financial goal. This pool of money is invested in accordance with a stated objective. The joint ownership of the fund is thus Mutual, i.e. the fund belongs to all investors. The money thus collected is then invested in capital market 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 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. A Mutual Fund is an investment tool that allows small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The funds Net Asset value (NAV) is determined each day. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders.
MUTUAL FUND AS AN INVESTMENT OPTION
When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder.
Any change in the value of the investments made into capital market instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors.
An investor normally prioritizes his investment needs before undertaking an investment. Different goals will be allocated to different proportions of the total disposable amount. Investments for specific goals normally find their way into the debt market as risk reduction is of prime importance, this is the area for the risk-averse investors and here, Mutual Funds are generally the best option. One can avail of the benefits of better returns with added benefits of anytime liquidity by investing in open-ended debt funds at lower risk, this risk of default by any company that one has chosen to invest in, can be minimized by investing in Mutual Funds as the fund managers analyze the companies financials more minutely than an individual can do as they have the expertise to do so.
Moving up the risk spectrum, there are people who would like to take some risk and invest in equity funds/capital market. However, since their appetite for risk is also limited, they would rather have some exposure to debt as well. For these investors, balanced funds provide an easy route of investment, armed with expertise of investment techniques, they can invest in equity as well as good quality debt thereby reducing risks and providing the investor with better returns than he could otherwise manage. Since they can reshuffle their portfolio as per market conditions, they are likely to generate moderate returns even in pessimistic market conditions.
Next comes the risk takers, risk takers by their nature, would not be averse to investing in high-risk avenues. Capital markets find their fancy more often than not, because they have historically generated better returns than any other avenue, provided, the money was judiciously invested. Though the risk associated is generally on the higher side of the spectrum, the return-potential compensates for the risk attached.
CHAPTER - 2
Chapter 2:- Research Methodology
Objective of Study
1. To find out the Preferences of the investors for Asset Management Company.
2. To know the Preferences for the portfolios.
3. To know why one has invested or not invested in SBI Mutual fund
4. To find out the most preferred channel.
5. To find out what should do to boost Mutual Fund Industry.
Scope and Rationale of Study
Methodology
Research in common parlance refers to a search for knowledge. The advanced learners dictionary of current English lays down the meaning of research as a careful investigation of enquiry especially through search for new facts in any branch of knowledge.
The systematic approach concerning generalization and the formulation of a theory is also research. The purpose of research is to discover answers to questions through the application of scientific procedures.
A research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure.
- JOHN.W.BEST
Research may be defined as any organized inquiry designed and carried out to provide information for solving a problem.
- EMORY
Research is essentially an investigation, a recording and an analysis of evidence for the purpose of gaining knowledge.
- ROBERT ROSS
DESCRIPTIVE RESEARCH DESIGN
Descriptive research design studies are those studies, which are concerned with describing the character of a group.
The researcher makes a plan of the study his research work. That will enable the researcher to save and resources such a plan of study or blue print or study is called a research design.
Three main purposes of research are to describe, explain, and validate findings. Description emerges following creative exploration, and serves to organize the findings in order to fit them with explanations, and then test or validate those explanations
The reason to adopt the descriptive research is due to the type of research question, design, and data analysis that will be applied to a given topic. Descriptive statistics tell what is, while inferential statistics try to determine cause and effect. Descriptive research aims at fact finding & more often is based on surveys .Its purpose to describe the present state of affairs of the topic of study. It is more focused than an exploratory study. It provides basic information for formulating more sophisticated study.DATA COLLECTION
The study was based on questionnaire method. There are two types of data collection:
1. Primary data
2. Secondary data
Primary data
The primary data are those, which are collected a fresh and for the first time happen to be original in character. It has been collected through a Questionnaire and personal interview. Only the primary data is not the sufficient to get information about the complete topic so both primary and secondary data is collected.
Secondary data
Secondary data are those which have already been collected by someone else and which have already been passed through the stratified process. It has collected through the books, journals & Internet.
Data sources:
Research is totally based on primary data. Secondary data can be used only for the reference. Research has been done by primary data collection, and primary data has been collected by interacting with various people. The secondary data has been collected through various journals and websites and some special publications of MUTUAL FUND COMPANY.
Sampling:
Sampling procedure:
The sample is selected in a random way, irrespective of them being investor or not or availing the services or not. It was collected through mails and personal visits to the known persons, by formal and informal talks and through filling up the questionnaire prepared. The data has been analyzed by using the measures of central tendencies like mean, median, mode. The group has been selected and the analysis has been done on the basis statistical tools available.
Sample size:
The sample size of my project is limited to 200 only. Out of which only 135 people attempted all the questions. Other 65 not investing in MFs attempted only 2 questions.
Sample design:
Data has been presented with the help of bar graph, pie charts, line graphs etc.
RESEARCH INSTRUMENT
Questionnaire
A questionnaire is simply a set of questions designed to generate the data necessary for accomplishing a research projects objectives (Parasuraman, 1991, p.363).
SAMPLE DESIGN:POPULATION
It covers the 120 unit of population.
SAMPLE PROCEDURES
In this study convenient sampling method was adopted. First each organization was divided into different departments like Operations, Customer Services, Human Resources, Internet Marketing and under writing departments. From this department, the respondents were selected on the basis of convenience.
INTERVEIW SCHEDULE
The interview schedule has been used to collect the data. Information can be gathered even when the respondents happen to be literate or illiterate.TABULATION
It is the arrangement of classified data in an orderly manner. This involves creating table for recording the filled in interview schedule. These tables are of immense help to analysis by using the statistics tools help to analysis by using the statistical tools.
TOOLS USED FOR ANALYSIS
Simple percentage analysis
It is simple analysis tool. In this method, based on the opinions of the respondents, percentage and bar chart is calculated for the respective scales of each factor.
Formula:
Simple percentage = No of Respondents
x 100
Total No of Sample Size
Limitation of Study
Time limitation.
Research has been done only at BHOPAL.
Some of the persons were not so responsive.
Possibility of error in data collection.
Possibility of error in analysis of data due to small sample size.
SUGGESTIONS The most vital problem spotted is of ignorance. Investors should be made aware of the benefits. Nobody will invest until and unless he is fully convinced. Investors should be made to realize that ignorance is no longer bliss and what they are losing by not investing.
Mutual funds offer a lot of benefit which no other single option could offer. But most of the people are not even aware of what actually a mutual fund is? They only see it as just another investment option. So the advisors should try to change their mindsets. The advisors should target for more and more young investors. Young investors as well as persons at the height of their career would like to go for advisors due to lack of expertise and time.
Mutual Fund Company needs to give the Study of the Individual Financial Advisors about the Fund/Scheme and its objective, because they are the main source to influence the investors.
Before making any investment Financial Advisors should first enquire about the risk tolerance of the investors/customers, their need and time (how long they want to invest). By considering these three things they can take the customers into consideration.
Younger people aged under 35 will be a key new customer group into the future, so making greater efforts with younger customers who show some interest in investing should pay off.
Customers with graduate level education are easier to sell to and there is a large untapped market there. To succeed however, advisors must provide sound advice and high quality.
Systematic Investment Plan (SIP) is one the innovative products launched by Assets Management companies very recently in the industry. SIP is easy for monthly salaried person as it provides the facility of do the investment in EMI. Though most of the prospects and potential investors are not aware about the SIP. There is a large scope for the companies to tap the salaried persons.
CHAPTER - 3
Chapter 3:- Theoretical Background
IMPORTANCE OF MUTUAL FUNDS1. A Mutual Fund actually belongs to the investors who have pooled their Funds. The ownership of the mutual fund is in the hands of the Investors.
2. A Mutual Fund is managed by investment professional and other Service providers, who earns a fee for their services, from the funds.
3. The pool of Funds is invested in a portfolio of marketable investments. The value of the portfolio is updated every day.
4. The investors share in the fund is denominated by units. The value of the units changes with change in the portfolio value, every day. The value of one unit of investment is called net asset value (NAV).
5. The investment portfolio of the mutual fund is created according to The stated Investment objectives of the Fund.
NEED OF MUTUAL FUNDSHere are some of the Advantages offered by Mutual Funds-:
Number of available optionsMutual funds invest according to the underlying investment objective as specified at the time of launching a scheme. So, we have equity funds, debt funds, gilt funds and many others that cater to the different needs of the investor. The availability of these options makes them a good option. While equity funds can be as risky as the stock markets themselves, debt funds offer the kind of security that is aimed for at the time of making investments. Money market funds offer the liquidity that is desired by big investors who wish to park surplus funds for very short-term periods. Balance Funds cater to the investors having an appetite for risk greater than the debt funds but less than the equity funds.
Diversification
Investments are spread across a wide cross-section of industries and sectors and so the risk is reduced. Diversification reduces the risk because all stocks dont move in the same direction at the same time. One can achieve this diversification through a Mutual Fund with far less money than one can on his own.
Professional Management
Mutual Funds employ the services of skilled professionals who have years of experience to back them up. They use intensive research techniques to analyze each investment option for the potential of returns along with their risk levels to come up with the figures for performance that determine the suitability of any potential investment.
Liquidity
Mutual Funds offer the benefit of liquidity which provides the investor with the option of easy conversion to money. As in the case of fixed deposits, where the investor can get his money back only on the completion of a fixed period, an investor can get his money back as and when he wants. Investors can redeem their money at the prevailing NAVs (Net Asset Values). Mutual funds directly re-purchase at the current NAV.
Well Regulated
Unlike the company fixed deposits, where there is little control with the investment being considered as unsecured debt from the legal point of view, the Mutual Fund industry is very well regulated. All investments have to be accounted for, decisions judiciously taken. SEBI acts as a true watchdog in this case and can impose penalties on the AMCs at fault. The regulations, designed to protect the investors interests are also implemented effectively.
Transparency
Being under a regulatory framework, mutual funds have to disclose their holdings, investment pattern and all the information that can be considered as material, before all investors. This means that the investment strategy, outlooks of the market and scheme related details are disclosed with reasonable frequency to ensure that transparency exists in the system. On the other hand, the investor is totally clueless in case of the other investment alternatives as nothing is disclosed.
Savings
Tax saving schemes of Mutual Funds offer investor a tax rebate under section 88 of the Income Tax Act. Under this section, an investor can invest up to Rs.10,000 per Financial year in a tax saving scheme. The rate of rebate under this section depends on the investors total income
Flexible and Affordable
Mutual Funds offer a relatively less expensive way to invest when compared to other avenues such as capital market operations. The fee in terms of brokerages, custodial fees and other management fees are substantially lower than other options and are directly linked to the performance of the scheme. Investment in mutual funds also offers a lot of flexibility with features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans enabling systematic investment or withdrawal of funds. Even the investors, who could otherwise not enter stock markets with low investible funds, can benefit from a portfolio comprising of high-priced stocks because they are purchased from pooled funds.
TYPES OF MUTUAL FUNDS
1. OPEN-ENDED MUTUAL FUNDS:-
The holders of the shares in the Fund can resell them to the issuing Mutual Fund company at the time. They receive in turn the net assets value (NAV) of the shares at the time of re-sale. Such Mutual Fund Companies place their funds in the secondary securities market. They do not participate in new issue market as do pension funds or life insurance companies. Thus they influence market price of corporate securities. Open-end investment companies can sell an unlimited number of Shares and thus keep going larger. The open-end Mutual Fund Company Buys or sells their shares. These companies sell new shares NAV plus a Loading or management fees and redeem shares at NAV. In other words, the target amount and the period both are indefinite in such funds.
2. CLOSED-ENDED MUTUAL FUNDS:-
A closedend Fund is open for sale to investors for a specific period, after which further sales are closed. Any further transaction for buying the units or repurchasing them, Happen in the secondary markets, where closed end Funds are listed. Therefore new investors buy from the existing investors, and existing investors can liquidate their units by selling them to other willing buyers. In a closed end Funds, thus the pool of Funds can technically be kept constant. The asset management company (AMC) however, can buy out the units from the investors, in the secondary markets, thus reducing the amount of funds held by outside investors. The price at which units can be sold or redeemed Depends on the market prices, which are fundamentally linked to the NAV. Investors in closed end Funds receive either certificates or Depository receipts, for their holdings in a closed end mutual Fund.
ADVANTAGES OF MUTUAL FUND
Professional Management
The idea behind a mutual fund is that individual investors generally lack the time, the inclination or the skills to manage their own investment. Thus mutual funds hire professional managers to manage the investments for the benefit of their investors in return for a management fee.
The organization that manages the investment is the Asset Management Company (AMC). Employees of the AMC who perform this role of managing investments are the fund managers.
Diversification
The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. For example, economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value. When a portfolio is balanced in this way, the value of the overall portfolio should gradually increase over time, even if some securities lose value.
Convenient Administration
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.
Low cost
Mutual fund expenses are often no more than 1.5 percent of your investment. Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index.
Choice of Schemes
A mutual fund can, and typically does have several schemes to cater to different investors preferences. The individual could choose to hire a professional manager to manage his money as per his investment and risk preferences. Such personal treatment often referred to as Portfolio Management Scheme (PMS).
Legal Framework
Since the investors are often not so well qualified to invest, the mutual fund business is highly regulated. Broadly the existing regulations are:
Pre-requisitions to start a mutual fund;
Permissible schemes and investments;
Control over marketing process;
Checks and balances in the legal structure;
Valuation of securities;
Level of operational flexibility to the professional investors.
Tax Benefits
Dividend income from mutual fund units will be exempt from income tax with effect from July 1, 1999. Further, investors can get rebate from tax under section 88 of Income Tax Act, 1961 by investing in Equity Linked Saving Schemes of mutual funds. Further benefits are also available under section 54EA and 54EB with regard to relief from long term capital gains tax in certain specified schemes.
Return Potential
Mutual funds allow you to allocate investments assets across different fund categories to achieve a variety of risk/reward objectives thereby reducing overall portfolio risk. In other words, the right way to benefit from Mutual funds is to balance the risk as well as the potential to earn.
Liquidity
Open-end schemes offer liquidity through on-going sale and re-purchase facility. Thus, the investor does not have to worry about finding a buyer for his investment a risk normally associated with direct investment in the securities market.
Transparency
You get regular information on the value of your investment in addition to disclosure on the specific investments made by your 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 investment strategy.
DISADVANTAGES OF MUTUAL FUNDS
Mutual funds are good investment vehicles to navigate the complex and unpredictable world of investments. However, even mutual funds have some inherent drawbacks. Understand these before you commit your money to a mutual fund.
No assured returns and no protection of capital
If you are planning to go with a mutual fund, this must be your mantra: mutual funds do not offer assured returns and carry risk. For instance, unlike bank deposits, your investment in a mutual fund can fall in value. In addition, mutual funds are not insured or guaranteed by any government body (unlike a bank deposit, where up to Rs 1 lakh per bank is insured by the Deposit and Credit Insurance Corporation, a subsidiary of the Reserve Bank of India). There are strict norms for any fund that assures returns and it is now compulsory for funds to establish that they have resources to back such assurances. This is because most closed-end funds that assured returns in the early-nineties failed to stick to their assurances made at the time of launch, resulting in losses to investors. A scheme cannot make any guarantee of return, without stating the name of the guarantor, and disclosing the net worth of the guarantor. The past performance of the assured return schemes should also be given.
Restrictive gains
Diversification helps, if risk minimization is your objective. However, the lack of investment focus also means you gain less than if you had invested directly in a single security.
Assume, Reliance appreciated 50 per cent. A direct investment in the stock would appreciate by 50 per cent. But your investment in the mutual fund, which had invested 10 per cent of its corpus in Reliance, will see only a 5 per cent appreciation.
Taxes
During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made.
Management risk
When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in Index Funds, you forego management risk, because these funds do not employ managers.
LIMITATIONS OF MUTUAL FUNDS
No Guarantees
No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through a mutual fund runs the risk of losing money.
Fees and commissions
All funds charge administrative fees to cover their day-to-day expenses. Some funds also charge sales commissions or "loads" to compensate brokers, financial consultants, or financial planners. Even if you don't use a broker or other financial adviser, you will pay a sales commission if you buy shares in a Load Fund.
Taxes
During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made.
Management risk
When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in Index Funds, you forego management risk, because these funds do not employ managers.
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 has trouble finding a good investment for all the new money.
HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY
A little historyThe mutual fund industry started in India in a small way with the UTI Act creating what was effectively a small savings division within the RBI. Over period of 25 years this grew fairly successfully and gave investors a good return, and therefore in 1989, as the next logical step, public sector banks and financial institutions were allowed to float mutual funds and their success emboldened the government to allow the private sector to foray into this area. The initial years of the industry also saw the emerging years of the Indian equity market, when a number of mistakes were made and hence the mutual fund schemes, which invested in lesser-known stocks and at very high levels, became loss leaders for retail investors. From those days to today the retail investor, for whom the mutual fund is actually intended, has not yet returned to the industry in a big way. But to be fair, the industry too has focused on brining in the large investor, so that it can create a significant base corpus, which can make the retail investor feel more secure.
HISTORY OF MUTUAL FUND
The Evolution
The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in the year 1963. The primary objective at that time was to attract the small investors and it was made possible through the collective efforts of the Government of India and the Reserve Bank of India. The history of mutual fund industry in India can be better understood divided into following phases: Phase 1. Establishment and Growth of Unit Trust of India - 1964-87:
Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate under the regulatory control of the RBI until the two were de-linked in 1978 and the entire control was transferred in the hands of Industrial Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of investors in any single scheme over the years.
UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in 1971, six more schemes between 1981-84, Children's Gift Growth Fund and India Fund (India's first offshore fund) in 1986, Master share (Indias first equity diversified scheme) in 1987 and Monthly Income Schemes (offering assured returns) during 1990s. By the end of 1987, UTI's assets under management grew ten times to Rs 6700 crores.Phase II. Entry of Public Sector Funds - 1987-1993
The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual Fund
From the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under management of the industry increased seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about 80% market share.
1992-93Amount MobilizedAssets Under ManagementMobilization as % of gross Domestic Savings
UTI11,05738,2475.2%
Public Sector1,9648,7570.9%
Total13,02147,0046.1%
.
Phase III. Emergence of Private Sector Funds - 1993-96
The permission given to private sector funds including foreign fund management companies (most of them entering through joint ventures with Indian promoters) to enter the mutual fund industry in 1993, provided a wide range of choice to investors and more competition in the industry. Private funds introduced innovative products, investment techniques and investor-servicing technology. By 1994-95, about 11 private sector funds had launched their schemes.
Phase IV. Growth and SEBI Regulation - 1996-2004
The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996. The mobilization of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds.
Inventors' interests were safeguarded by SEBI and the Government offered tax benefits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of investors from income tax. Various Investor Awareness Programmes were launched during this phase, both by SEBI and AMFI, with an objective to educate investors and make them informed about the mutual fund industry.
In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective behind this was to bring all mutual fund players on the same level. UTI was re-organized into two parts: 1. The Specified Undertaking, 2. The UTI Mutual Fund
Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past schemes (like US-64, Assured Return Schemes) are being gradually wound up. However, UTI Mutual Fund is still the largest player in the industry. In 1999, there was a significant growth in mobilization of funds from investors and assets under management which is supported by the following data:
GROSS FUND MOBILISATION (RS. CRORES)
FROMTOUTIPUBLIC SECTORPRIVATE SECTORTOTAL
01-April-9831-March-9911,6791,7327,96621,377
01-April-9931-March-0013,5364,03942,17359,748
01-April-0031-March-0112,4136,19274,35292,957
01-April-0131-March-024,64313,6131,46,2671,64,523
01-April-0231-Jan-035,50522,9232,20,5512,48,979
01-Feb.-0331-March-03*7,259*58,43565,694
01-April-0331-March-04-68,5585,21,6325,90,190
01-April-0431-March-05-1,03,2467,36,4168,39,662
01-April-0531-March-06-1,83,4469,14,71210,98,158
ASSETS UNDER MANAGEMENT (RS. CRORES)
AS ONUTIPUBLIC SECTORPRIVATE SECTORTOTAL
31-March-9953,3208,2926,86068,472
Phase V. Growth and Consolidation - 2004 Onwards
The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutual fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.
CATEGORIES OF MUTUAL FUND:
Mutual funds can be classified as follow :
Based on their structure:
Open-ended funds: Investors can buy and sell the units from the fund, at any point of time.
Close-ended funds: These funds raise money from investors only once. Therefore, after the offer period, fresh investments can not be made into the fund. If the fund is listed on a stocks exchange the units can be traded like stocks (E.g., Morgan Stanley Growth Fund). Recently, most of the New Fund Offers of close-ended funds provided liquidity window on a periodic basis such as monthly or weekly. Redemption of units can be made during specified intervals. Therefore, such funds have relatively low liquidity.
Based on their investment objective:
Equity funds: These funds invest in equities and equity related instruments. With fluctuating share prices, such funds show volatile performance, even losses. However, short term fluctuations in the market, generally smoothens out in the long term, thereby offering higher returns at relatively lower volatility. At the same time, such funds can yield great capital appreciation as, historically, equities have outperformed all asset classes in the long term. Hence, investment in equity funds should be considered for a period of at least 3-5 years. It can be further classified as:
i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty is tracked. Their portfolio mirrors the benchmark index both in terms of composition and individual stock weightages.
ii) Equity diversified funds- 100% of the capital is invested in equities spreading across different sectors and stocks.
iii|) Dividend yield funds- it is similar to the equity diversified funds except that they invest in companies offering high dividend yields.
iv) Thematic funds- Invest 100% of the assets in sectors which are related through some theme.e.g. -An infrastructure fund invests in power, construction, cements sectors etc.
v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector fund will invest in banking stocks.
vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.
Balanced fund: Their investment portfolio includes both debt and equity. As a result, on the risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual funds vehicle for investors who prefer spreading their risk across various instruments. Following are balanced funds classes:
i) Debt-oriented funds -Investment below 65% in equities.
ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.
Debt fund: They invest only in debt instruments, and are a good option for investors averse to idea of taking risk associated with equities. Therefore, they invest exclusively in fixed-income instruments like bonds, debentures, Government of India securities; and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. Put your money into any of these debt funds depending on your investment horizon and needs.
i) Liquid funds- These funds invest 100% in money market instruments, a large portion being invested in call money market.
ii) Gilt funds ST- They invest 100% of their portfolio in government securities of and T-bills.
iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in debt instruments which have variable coupon rate.
iv) Arbitrage fund- They generate income through arbitrage opportunities due to mis-pricing between cash market and derivatives market. Funds are allocated to equities, derivatives and money markets. Higher proportion (around 75%) is put in money markets, in the absence of arbitrage opportunities.
v) Gilt funds LT- They invest 100% of their portfolio in long-term government securities.
vi) Income funds LT- Typically, such funds invest a major portion of the portfolio in long-term debt papers.
vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure of 10%-30% to equities.
viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in line with that of the fund.
INVESTMENT STRATEGIES
1. Systematic Investment Plan: under this a fixed sum is invested each month on a fixed date of a month. Payment is made through post dated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA)
2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund.
3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he can withdraw a fixed amount each month.
CHAPTER - 4
Chapter 4:- Case Study
Introduction of Company profile and Product
STATE BANK OF INDIA - MUTUAL FUND
---- A partner for life
SBI Mutual Fund (SBI MF) is one of the largest mutual funds in the country with an investor base of over 4.6 million. With over 20 years of rich experience in fund management, SBI MF brings forward its expertise in consistently delivering value to its investorsProven Skills in wealth generation:
SBI Mutual Fund is Indias largest bank sponsored mutual fund and has an enviable track record in judicious investments and consistent wealth creation.
The fund traces its lineage to SBI - Indias largest banking enterprise. The institution has grown immensely since its inception and today it is India's largest bank, patronized by over 80% of the top corporate houses of the country.
SBI Mutual Fund is a joint venture between the State Bank of India and Socit General Asset Management, one of the worlds leading fund management companies that manages over US$ 500 Billion worldwide.
Exploiting expertise, compounding growth:
In twenty years of operation, the fund has launched 38 schemes and successfully redeemed fifteen of them. In the process it has rewarded its investors handsomely with consistently high returns.
A total of over 5.4 million investors have reposed their faith in the wealth generation expertise of the Mutual Fund.
Schemes of the Mutual fund have consistently outperformed benchmark indices and have emerged as the preferred investment for millions of investors and HNIs.
Today, the fund manages over Rs. 51,461 crores of assets and has a diverse profile of investors actively parking their investments across 36 active schemes.
The fund serves this vast family of investors by reaching out to them through network of over 130 points of acceptance, 28 investor service centers, 46 investor service desks and 56 district organizers.
SBI Mutual is the first bank-sponsored fund to launch an offshore fund Resurgent India Opportunities Fund.
Growth through innovation and stable investment policies is the SBI MF credo.
Fund house expertise:
The investment environment is becoming increasingly complex. Innumerable parameters need to be factored in to generate a clear understanding of market movement and performance in the near and long term future.
At SBIMF, we devote considerable resources to gain, maintain and sustain our profitable insights into market movements. We consistently push the envelope to ensure our investors get the maximum benefits year after year.
Research - the backbone of our Performance
Our expert team of experienced and market savvy researchers prepare comprehensive analytical and informative reports on diverse sectors and identify stocks that promise high performance in the future.
This team works in tandem with a compliance and risk-monitoring department, which ensures minimization of operational risks while protecting the interests of the investors.
Quite naturally many of our equity funds have delivered consistent returns to investors and have repeatedly out performed benchmark indices by wide marginsAWARDS AND ACHIEVEMENTS
SBI- MUTUAL FUND has been performing excellently since its inception. The fund has received lot of appreciation for its performance from the mutual fund industry. It has been awarded by ICRA on line award 8 times, CNBC- TV 18 CRISIL 4 AWARDS, the Lipper award (year 05-06) and most recently the CNBC TV 18 Crisil Mutual Fund Award of the year 2007 and 5 award for the schemes.
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SBI- MUTUAL FUND PRODUCTS:EQUITY SCHEMES:
The investments of these schemes will predominantly be in the stock markets and endeavor will be to provide investors the opportunity to benefit from the higher returns which stock markets can provide. However they are also exposed to the volatility and attendant risks of stock markets and hence should be chosen only by such investors who have high risk taking capacities and are willing to think long term. Equity Funds include diversified Equity Funds, Sectoral Funds and Index Funds. Diversified Equity Funds invest in various stocks across different sectors while Sectoral funds which are specialized Equity Funds restrict their investments only to shares of a particular sector and hence, are riskier than Diversified Equity Funds. Index Funds invest passively only in the stocks of a particular index and the performance of such funds move with the movements of the index.
Magnum COMMA Fund Magnum Equity Fund Magnum Global Fund Magnum Index Fund Magnum MidCap Fund Magnum Multicap Fund Magnum Multiplier Plus 1993 SBI Arbitrage Opportunities Fund SBI Blue chip Fund SBI Infrastructure Fund - Series I SBI Magnum Taxgain Scheme 1993 SBI ONE India Fund SBI TAX ADVANTAGE FUND - SERIES I DEBT SCHEMES:
Debt Funds invest only in debt instruments such as Corporate Bonds, Government Securities and Money Market instruments either completely avoiding any investments in the stock markets as in Income Funds or Gilt Funds or having a small exposure to equities as in Monthly Income Plans or Children's Plan. Hence they are safer than equity funds. At the same time the expected returns from debt funds would be lower. Such investments are advisable for the risk-averse investor and as a part of the investment portfolio for other investors.
Magnum Childrens Benefit Plan Magnum Gilt Fund
Magnum Gilt Fund (Long Term) Magnum Gilt Fund (Short Term) Magnum Income Fund Magnum Income Plus Fund
Magnum Income plus Fund (Saving Plan) Magnum Income plus Fund (Investment Plan) Magnum Insta Cash Fund Magnum InstaCash Fund -Liquid Floater Plan Magnum Institutional Income Fund Magnum Monthly Income Plan Magnum NRI Investment Fund SBI Capital Protection Oriented Fund - Series I SBI Debt Fund Series
SDFS 15 Months Fund
SDFS 90 Days Fund SDFS 13 Months Fund SDFS 18 Months Fund SDFS 24 Months Fund SDFS 30 DAYS SDFS 30 DAYS SDFS 60 Days Fund SDFS 180 Days Fund SDFS 30 DAYS
SBI Premier Liquid Fund SBI Short Horizon Fund
SBI Short Horizon Fund - Liquid Plus Fund SBI Short Horizon Fund - Short Term Fund BALANCED SCHEMES:
Magnum Balanced Fund invests in a mix of equity and debt investments. Hence they are less risky than equity funds, but at the same time provide commensurately lower returns. They provide a good investment opportunity to investors who do not wish to be completely exposed to equity markets, but is looking for higher returns than those provided by debt funds.
Magnum Balanced Fund Magnum NRI Investment Fund - Flexi Asset PlanKEY PERSONNEL OF SBI MUTUAL FUND
Mr. Syed shahbuddin Managing Director
Mr. Didier Turpin Dy. CEO
Mr. Achal K. Gupta Chief Operating Officer
Mr. Sanjay Sinha Chief Investment Officer
Mr. R. S. Srinivas Jain Chief Marketing Officer
Mr. C A Santosh Chief Manager - Customer Service
Ms. Aparna Nirgude Chief Risk Officer
Mr. Ashutosh P Vaidya Company Secretary & Compliance Officer
Mr. Parijat Agarwal Head Fixed Income
Magnum Multiplier Plus 1993
Investment Objective:
Magnum Multiplier Plus is an open-ended diversified equity fund and the investment objective of the scheme is to provide investors long term capital appreciation along with the liquidity of an open-ended scheme. The scheme will invest in a diversified portfolio of equities of high growth companies.
Asset Allocation
Instrument% of Portfolio of Plan A & BRisk Profile
Equity and related instrumentsNot less than 70 %Medium to High
Debt instruments (including Securitized debt) and Govt. SecuritiesNot more than 30%Low to Medium
Money Market instrumentsBalanceLow
Scheme Highlights:
1. An open-ended equity scheme aiming for aggressive growth from
investments in equities.2. Scheme opens for Resident Indians, Trusts, and Indian Corporates and
on a fully repatriable basis for NRIs, FIIs & Overseas Corporate
Bodies.
3. Facility to reinvest dividend proceeds into the scheme at NAV.4. Easy entry and exit on the basis of sales and repurchase prices
Determined daily. NAV will be declared on every business day.
Launch Date Minimum Application
February 28, 1993 Rs. 1000
Entry LoadExit Load
Investments below Rs. 5 crore - 2.25% Investments of Rs 5 crores and above- Nil Investments below Rs 5 crores
