Mutual funds in India Contents Acknowledgement...................................................... 3 Statement by the Candidate........................................... 4 Genesis.............................................................. 5 Objective............................................................ 6 Overview of Sharekhan Ltd............................................ 7 Products and services offered by Sharekhan..........................8 Services offered by Sharekhan.......................................9 Introduction to Mutual Funds........................................13 What is a mutual fund?.............................................13 History of Mutual Funds............................................13 Mutual Funds industry in India......................................14 Behind Mutual Funds................................................. 16 Characteristics of a Mutual Funds...................................18 Advantages of Mutual Funds.......................................... 19 Disadvantages of Mutual Funds.......................................22 Rules and Regulations............................................... 24 Investment Norms.................................................... 25 Mutual Fund—schemes and various terminologies.......................26 Mutual Fund family.................................................. 28 1. Equity Funds................................................... 28 2. Debt Funds..................................................... 30 When to buy?........................................................ 33 Buy triggers.......................................................33 Whom to buy from?................................................... 34 Mutual fund houses:............................................ 34 Agents:........................................................ 34 Banks:......................................................... 35 Dr. V.N. Bedekar Institute of Management Studies Page 1
Mutual Fund—schemes and various terminologies...................................................................................26
Mutual Fund family...................................................................................................................................28
When to buy?............................................................................................................................................33
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Acknowledgement
I hereby offer my sincere and profound thanks to Dr. P.M Kelkar, Director, Dr.V.N
Bedekar Institute of Management studies for giving me the opportunity to do my summer
internship with Sharekhan Ltd.
I would also like to acknowledge my immense gratitude to Prof. Seema Agarwal, Prof.
R.S. Verma, and Prof. Saroj Mishra for their guidance and timely cooperation at each
and every step during this Internship project and guided me in times of my difficulty.
I would like to express my deep sense of gratitude to my industry guide Mr. Prashant Parab
(Assistant Manager Sharekhan ltd.) Mumbai, who spent their valuable time and guided me
during my project tenure in Sharekhan Ltd.
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Statement by the Candidate
I wish to state that the work embodied in this Project titled Mutual funds in India forms
my own contribution to Management. Wherever references have been made to intellectual
properties of any individual / Institution / Government / Private / Public Bodies / Universities,
research paper, text books, reference books, research monographs, archives of newspapers,
Corporates, Individuals, Business / Government and any other source of intellectual properties
viz., speeches, quotations, conference proceedings, extracts from the website, working paper,
seminal work et al, they have been clearly indicated, duly acknowledged and included in the
Bibliography.
_________________
Signature of Candidate
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Genesis
The report basically deals with Mutual funds. It would enable the reader to get an insight
into the world of Mutual Funds. It gives a general overview of Mutual Funds giving the
definition, the objectives, characteristics, benefits, types and the risk involved in Mutual
Funds. This project gives a clear outlook how mutual fund industry works in India.
It also gives you a crystal clear picture how Mutual Funds have moved into retail
attention in the last few years.
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Objective
The objective for taking up this project is to study about the benefits available from Mutual Fund
investment and different types of schemes available. The idea here is to understand the current market
trend and scenario of Mutual Fund business in India and recent developments in the Mutual fund industry.
To study various regulations passed and prescribed by SEBI and AMFI.
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Overview of Sharekhan Ltd.
Sharekhan is a firm, which is working under SSKI (S. S. Kantilal Ishwarlal Securities Ltd.).
SSKI was founded in 1922. SSKI is one of India’s oldest brokerage houses having eight decades
of experience into:
Institutional Broking
Investment Banking
Retail Broking
It is one of the Founding members of the Stock Exchange, Mumbai and Pioneer Institutional
Broker. SSKI entered into Retail Broking in 1985. Sharekhan is the Retail broking arm of the
BIG 80 Years old organization i.e. of SSKI. “Sharekhan” is the Brand Name given to its Retail
Business. SSKI carries out its Retail Broking Activities under “Sharekhan” Brand Name.
Sharekhan acts as full Investment solutions provider, providing wide range of services like:–
Online Equity & Derivatives Trading on NSE and BSE
Commodities trading on MCX & NCDEX
Portfolio Management Services
Depository Services
IPO Services
Wide Range of Customized Research Products
Mutual Funds
Products and services offered by Sharekhan
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Sharekhan offers both offline and online trading of mutual funds. But now a days it mostly
concentrates on online mutual funds through which a customer can buy it at instant from any part
of the globe through its official website. It does not take into account any type of physical
restriction of going to the broker for carrying out a transaction or any type of settlement of
payment. This makes the transaction very fast and user friendly.
Online selling: Through its official website
Offline selling: Through broker or agent or through a franchisee.
Bank Tie-up’s
Sharekhan has tie-up’s with 10 banks, which allows its customers to enjoy the facility of instant
buying of mutual funds and also online trading in share market through easy transfer and
withdrawal facility.
HDFC BANK
UTI BANK
CITI BANK
ICICI BANK
AXIS BANK
UNION BANK
INDUSIND BANK
BANK OF INDIA
DEUTCHE BANK
CITI BANK
IDBI BANK
YES BANK
Services offered by Sharekhan
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Mobile-N-Trade facility
Sharekhan has introduced the facility to trade with the help of mobile handset. For that purpose
they have to pay some extra charge to activate that facility.
After hour orders facility
Sharekhan customers also enjoy the facility of punching orders even after the trading hours, and
the orders are executed as soon as the market opens.
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Trade in commodities
Sharekhan also trade in commodities like Bullion: Gold / Silver and Agricultural commodities
through Sharekhan Commodities Pvt. Ltd. which is subsidiary of its parent SSKI.
Sharekhan Research team
Qualified and Experienced research team provides knowledge to their customers about various
up’s and down’s in market.
Before opening bell they provide “Eagle Eye” which tells about the movement in the
market during whole day.
In afternoon they provide “High Noon” which tells that up to that time how was the
market and what about the remaining time what will be the condition of the market.
After the market are closed they analyze the market and on the basis of their findings
they give idea about next day market conditions.
Dial-N-Trade
It is an exclusive service available to all Sharekhan customers for trading in shares via the
telephone. On dialing the toll free number 1800-22-7500 the customer will be directed to a
telebroker who will buy or sell shares for him. Orders are not being punched unless the dealer
received the confirmation from the client.
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PRODUCTS OF SHAREKHAN
ShareKhan Classic account:
It facilitates investor to buy and sell stocks online with the following features like multiple watch lists, integrated banking, Demat and digital contracts, real-time portfolio tracking with price alerts and instant credit and transfer.
Features:
Online trading account for investing in Equities and Derivatives Free trading through Phone (Dial-n-Trade) Two dedicated numbers for placing your orders with your cell phone or landline. Automatic funds transfer with its banking partners. After hours order punching facility Integration of: Online trading + Bank + Demat account Instant cash transfer facility against purchase & sale of shares IPO investments Instant order and trade confirmations by e-mail Single screen interface for Equity market and Derivative market
Brokerage Structure:
0.50% on Delivery 0.10% on Intraday Advance Brokerage 750 which is fully adjustable in 6 months.
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ShareKhan TradeTiger:
Trade Tiger is generally for the hardcore traders of the stock market, especially those who are trading in multiple stock exchanges at a single point of time.
Features:
A single platform for multiple exchanges BSE, NSE, MCX, NCDEX, Mutual funds and IPO’s.
Multiple market watch on single screen. Multiple charts with tick by tick intra-day and end of day charting powered with various
studies Graph studies include average, band Bollinger, MACD, RSI etc. User can save his own defined screen and graph template and it involves saving the
layout for future market watch. Tools available to predict market such as tick query, ticker, market summary, action
watch, option premier calculator, span calculator. Shortcut keys for fast access of order summary and history. Online fund transfer activated with 11 banks.
Brokerage Structure:
0.30% on Delivery 0.07% on Intraday Advance Brokerage 6000 which is fully adjustable in one year.
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Introduction to Mutual Funds
Everybody talks about mutual funds, but what exactly are they? Are they like shares in a company, or are
they like bonds and fixed deposits? Will I lose all my money in funds or will I become an overnight
millionaire?
What is a mutual fund?
A Mutual Fund is a trust or a body corporate registered with the Securities and Exchange Board
of India (SEBI) 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 instruments such as shares,
debentures and other securities. The incomes earned through these investments are shared in
proportion to the number of units owned by the holders. 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. Investments in mutual funds
are spread among different types of industries and sectors thus the risk is reduced. However,
you’ll have to accept the reality there are many risks involved. In the other words, a Mutual Fund
allows investors to invest indirectly in different types of securities. Investors of mutual funds are
known as unit holders.
History of Mutual Funds
The modern mutual fund was first introduced in Belgium in 1822. Mutual funds became popular
in the United States in the 1920s. Today the largest market of Mutual Funds is USA these
developments led to the establishment of Fidelity Investments which today is the world’s largest
Mutual Fund Company.
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Mutual Funds industry in India
Mutual Fund industry started in India in 1963 at the initiative of the Government of India and the
Reserve Bank of India which led to the formation of UTI (Unit Trust of India).
The Indian Mutual fund industry can be broadly put into four phases:-
First Phase (1964-87) - UTI commenced its operations in the 1964 in order to
encourage savings and investment and enjoy share in profits and gains which are accrued
by the corporation from the acquisition, holding and disposal of securities. UTI launched
its first scheme called the UNIT Scheme 1964 more popularly known as US-64.
Second Phase (1987-1993) -In 1987, Mutual Funds were setup by public sector
banks, the LIC (Life Insurance Corporation of India) and the GIC (General Insurance
Corporation of India). SBI (State Bank of India) launched the first non-UTI Mutual Fund
in 1987 followed by other public sector banks.
Third Phase (1993-2003) - In this year foreign players were also allowed to operate.
Morgan Stanley was the first foreign player in the Indian mutual fund market. The first
private sector Mutual Fund was launched by Kothari Pioneer which now has merged with
Franklin Templeton. The number of mutual fund houses went on increasing, with many
foreign mutual funds setting up funds in India and also the industry has witnessed several
mergers and acquisitions.
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Fourth Phase (Since February 2003) - UTI was bifurcated into two separate entities.
One is the Specified Undertaking of Unit Trust of India, functioning under the rules
framed by Government of India and does not come under the purview of the Mutual Fund
Regulations. The second is registered with SEBI and functions under the Mutual Fund
Regulations. The first Mutual Fund regulations were formed in 1993 which was the SEBI
(Mutual Fund) Regulations1993.The present day Mutual Fund industry is governed by the SEBI
(Mutual Fund) Regulations 1996. In the year 2003 AMFI certification was made compulsory for
the new entrants.
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Behind Mutual Funds
There are various parties which are actively working under the growth and formulation of a fund.
These parties are as follows:-
A mutual fund is structured as mentioned above. Firstly, the investor invests his money in the
fund. Every mutual fund organization has a sponsor who is required to contribute a minimum of
40% of the net worth of the AMC. It is the duty of the sponsor to establish a fund and apply to
SEBI for its registration. A person or a group of persons known as trustee is given an overall
authority over the fund managers. They basically safeguard the assets of the fund. The fund is
created which is managed by the AMC which is given the powers to take all decisions relating to
the investment. There is another entity known as the custodian, who basically stocks a fund’s
securities and other assets. The registrar is an institution which maintains a register of all the unit
holders of a fund along with their ownership. Finally, the SEBI is the ultimate authority.
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Sponsor:
What a promoter is to a company, a sponsor is to a mutual fund. The sponsor gives the actual idea to start
a mutual fund. A sponsor can be a financial services company, a bank or a financial institution. It could
be an Indian or foreign. It can be alone or a joint venture. In order to run a mutual fund in India, a sponsor
has to obtain a license form SEBI. For this, it has to satisfy certain conditions, such as capital and profits,
track record (at least five years in financial services).
Asset management company (AMC):
An AMC is a legal entity formed by the sponsor to run a mutual fund. It is the AMC that appoints fund
managers and analysts. It looks after every matters of a mutual fund – from launching schemes to
managing them and interacting with investors. The people in the AMC who should matter to you are the
one take investment decisions. There is the head of the fund house i.e. Chief executive officer (CEO),
under him comes the Chief investment officer (CIO) who carves the fund’s investment policy. They are
assisted by a team of analysts, who track markets and its various sectors.
Trustees:
Trustees are like internal regulators in a mutual fund and their job is to protect the interests of
unit holders. Trustees are appointed by sponsors and they can be individuals or corporate bodies.
According to SEBI two thirds of the trustees must be independent body and must not have any
association with the sponsor. Trustees appoint the AMC, they check if the AMC’s investments
are properly invested according to the plan. If any irregularities are found in the mutual fund
trustees are held responsible.
Custodian:
A custodian looks after all back office work of a mutual fund. This include, receipt and delivery
of securities, distribution of dividend. A sponsor cannot act as a custodian in to the fund.
For example: HDFC bank is a custodian, but cannot provide service to HDFC mutual fund.
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Registrars:
Registrars are also known as transfer agents. It looks after issuing and redeeming units, sending
fact sheets and annual reports. Karvy and CAMS are the most well known registrars.
Characteristics of a Mutual Funds
A Mutual Fund actually belongs or the ownership of the mutual fund is in the hands of
the Investors.
A Mutual Fund is managed by investment professional and other Service providers, who
earn a fee for their services, from the funds i.e. AMC
The Funds is invested in a portfolio of marketable investments.
The value of the portfolio is updated every day.
The value of the fund is calculated in “units”. The value of one unit of investment is
called net asset value (NAV).
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Advantages of Mutual Funds
Number of available options
Mutual 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.
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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 don’t 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 NAV’s (Net
Asset Values). Mutual funds directly re-purchase at the current NAV.
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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
investor’s total income.
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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.
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. A
proper understanding is necessary before you invest your money in to a mutual fund.
No assured returns and no protection of capital:
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.
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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:
Mutual funds provide many tax benefits which in-turn increases your take-home returns.
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.
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Rules and Regulations
Mutual funds are to be established in the form of trusts under the Indian trusts act and
are to be operated by separate asset management companies (AMC s).
AMC’s must have a minimum Net worth of Rs. 5 crores.
AMC’s and Trustees of Mutual Funds are to be two separate legal entities and an AMC
or its associate cannot act as a manager in any other fund.
Mutual funds dealing exclusively with money market instruments are to be regulated by
the Reserve Bank of India.
Mutual funds dealing primarily in the capital market and also partly money market
instruments are to be regulated by the Securities Exchange Board of India (SEBI). All
schemes of Mutual funds are to be registered with SEBI.
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Investment Norms
A mutual fund, under all its schemes cannot own more than five percent of any
company’s paid up capital carrying voting rights.
A mutual fund, under all its schemes taken together cannot invest more than 10 percent of
its funds in shares or debentures or other instruments of any single company.
A mutual fund, under all its schemes taken together cannot invest more than 15 percent of
its fund in the shares and debentures of any specific industry, except those schemes
which are specifically floated for investment in one or more specified industries in
respect to which a declaration has been made in the offer letter.
No individual scheme of mutual funds can invest more than five percent of its corpus in
any one company’s share.
Mutual funds can invest only in transferable securities either in the money or in the
capital market. Privately placed debentures, securitized debt, and other unquoted debt,
and other unquoted debt instruments holding cannot exceed 10 percent in the case of
growth funds and 40 percent in the case of income funds.
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Mutual Fund—schemes and various terminologies
1. OPEN-ENDED MUTUAL FUNDS:-
Open ended schemes, don’t have a fixed period and are always open for investment. You
can invest, or withdraw at any point of time. There is no restriction on entry or exit. This
makes them famous among the investors.
2. CLOSED-ENDED MUTUAL FUNDS:-
Close ended schemes are for a fixed period of time. Investments in such schemes can be
made only once during lifetime and that is at the time of launch. You can sell your units
in the market, but you will not receive a proper price, as they are traded below their true
value and have low liquidity.
3. Corpus:-
The total money available with a scheme, at any point of time is called as ‘Corpus’ or
‘assets under management’. The mutual fund invests this corpus in various securities with
specific objectives.
4. Unit:-
Investment in a mutual fund is in terms of ‘units’. A ‘unit’ is the currency of a fund.
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5. Net asset value (NAV):-
Unit values in mutual fund are calculated in terms of NAV. It is measured on per unit
basis. NAV tells you the value of each unit at any point of time. Companies have to
calculate and disclose the NAV’s of their schemes daily. NAV information is also
available on websites, business papers.
6. Load:-
Mutual fund companies charge a nominal fee i.e. processing cost so that investors do not
back out from the scheme. This fee is referred as ‘load’ and it is the price you paid over
and above the NAV when you buy or sell units. At the time of buying units ‘entry load’ is
paid and at the time of selling units ‘exit load’ is paid. Loads are always calculated as a
percentage of the NAV.
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Mutual Fund family
1. Equity Funds
Equity funds invest in a bunch of stocks typically 25 to 20 stocks in different sectors
which are growing rapidly. With an affordable amount starting from minimum 1k one
can invest in various sectors through equity fund.
Equity fund are divided into 5 broad categories according to their risk pattern and choice
of scheme:
Diversified Equity funds:
Diversified equity schemes funds are the most popular among the investors. Diversified
equity funds are mostly into BSE’s (Bombay stock exchange) 30- share sensex or the
NSE’s (National stock exchange) 50- share sensex. They can invest in all listed stocks
and even in unlisted stocks.
Risk Very high
Objective High growth
Ideal tenure Three years and more
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Equity linked savings scheme (ELSS)
Equity- linked savings schemes are diversified equity funds that also offer income tax
benefits to investors. It is an alternative against investments like PPF, NSC. Investments
in these schemes are subject to a lock-in period of three years.
Risk High
Objective Long term growth with tax saving
Ideal tenure Three years and more
Sector funds
Sector funds invest in stocks only in a specific sector or in different sectors. Funds are
invested in various sectors such as FMCG, Pharma, IT, Reality, Banking etc. It is
impossible to make a judgment which sector will rise; therefore there is always a risk
involved. In a diversified fund, even if one sector performs badly, others can cover up the
shortfall. But if the chosen sector of a sector fund performs badly, the entire portfolio
suffers.
Risk Very high
Objective High growth
Ideal tenure Three years and more
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Index funds, Exchange traded funds (ETF’s)
Index funds provide returns that closely correspond to the return of a particular stock
market index such as BSE Sensex, NSE Nifty, etc. Such schemes invest in all the stocks
comprising the index in approximately the same weightage as they are given in that
index.
ETF’s are similar to an index fund. The only difference is ETFs are listed and traded
on a stock exchange. An index fund is bought and sold by the fund and its distributors.
Risk Medium
Objective Long-term growth
Ideal tenure Five years and more
2. Debt Funds
Debt funds invest only in fixed income instruments such as bonds, debentures,
government securities. In this an investor is well aware how much returns he is going to
get in terms of interest. This fund gives you a steady return.
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Short term funds
Short term funds are open-ended funds but with medium term focus. Average maturity is
of two years.
Risk Low
Objective Earn more than bank deposits
Ideal tenure Six months to one year
Gilt funds
Gilt funds invest only in debt instruments which are issued by the government namely T-
bills (period less than one year) and G- secs (period over a year). It has always been said
that that investing in government securities is subject to minimum risk. This means ‘gilt’.
In this fund returns are less as compared to other schemes.
Gilt funds are divided into short term plans and long term plans. Between the two long
term plans give more returns but are very risky.
Risk Medium
Objective Regular returns
Ideal tenure One year and more
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Dynamic funds
These funds invest in different asset depending on the market scenario. Such funds
typically try to book profits when the markets are overvalued and remain fully invested in
equities when the markets are undervalued. This is suitable for investors who find it
difficult to decide when to quit from equity.
Monthly income plans (MIP’s)
These are basically debt schemes, which make investments of 10-25% in equity to
increase returns. MIP schemes are ideal for investors who are looking for higher returns
but at marginally higher risk.
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When to buy?
It is difficult and impossible to time the market situation and its effect on the prices of
various funds. Some of the buy triggers will give an idea when to invest into it.1
Buy triggers
Scheme type Trigger
Diversified equity funds, index funds Market rally
Sector funds Boost in sector performance
Debt funds Cut interest rates
1 The Layman’s guide to Mutual Funds (outlook money)
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Whom to buy from?
The process of investing in mutual fund NFO’s is similar to that of issuing shares. You
fill up one of those application forms, make a cheque and deposit both at one of the
designated collection centers. The mutual fund within a week of issue closing sends you
an account statement, which acts as a proof of your holding in it. Mutual funds are bought
and are being sold on continuous basis by financial service providers and various
intermediaries. Such parties who deal in buying and selling of mutual fund units are as
follows:-
Mutual fund houses:
This service is being provided by mutual fund houses itself. It’s a simple process, fill an
application form, make a cheque in name of the desired fund and in return fund house
will give you an acknowledgement of your investment in its scheme.
Agents:
Distributors such as agent are mostly preferred by investors. The big agents are one- stop
sellers of financial products. They operate from multiple locations. Such agents also
provide guidance to investor in which funds to invest in as per their requirements.
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Banks:
Many private sector and foreign banks are into marketing of mutual fund schemes.
Mutual fund houses enter into an official agreement with banks in order to sell or
promote their schemes to public.
Stockbrokers/ Online trading portals:
Big Brokers are the combination of agents and banks. They generally charge for
providing the service and are also reserved for their clients.
Online trading portals too offer number of mutual fund schemes on their platform. In this,
registered users can buy and sell units just like any other share at no extra cost.
Different plans to invest in
Systematic investment plans (SIP’s) These are best suited for young people who have started their careers and need to build
their wealth. SIPs demand an investor to invest a fixed sum of money at regular intervals
in the scheme the investor has chosen.
For example: an investor opting for SIP in xyz Mutual Fund scheme will need to invest a
certain sum on money every month/quarter/half-year in the scheme.
Systematic withdrawal plans (SWP’s) These plans are best suited for people nearing their retirement. In these plans, an investor
invests in a mutual fund scheme and is allowed to withdraw a fixed sum of money at
regular intervals to take care of his expenses.
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Systematic transfer plans (STP’s) In this plan the investor can transfer on a periodic basis a specified amount from one
scheme to another within the same fund family – meaning two schemes belonging to the
same mutual fund. A transfer will be treated as redemption of units from the scheme from
which the transfer is made. Such redemption or investment will be at the applicable
NAV. This service allows the investor to manage his investments actively to achieve his
objectives. Many funds do not even charge any transaction fees for this service.
Growth plan In this plan, dividend is neither declared nor paid out to the investor but is built into the
value of the NAV. In other words, the NAV increases over time due to such incomes and
the investor realizes the capital appreciation only on redemption of his investment.
Income plan In this plan, dividends are paid-out to the investor. In other words, the NAV only reflects
the capital appreciation or depreciation in market price of the underlying portfolio.
Dividend re- investment plan In this case, dividend is declared but not paid out to the investor, instead, it is reinvested
back into the scheme at the then prevailing NAV. In other words, the investor is given
additional units and not cash as dividend.
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Mutual Funds-Risks involved
Investing in Mutual Funds, as with any security, does not come without risk. One of the
most basic economic principles is that risk and reward are directly correlated. In other
words, the greater the potential risk the greater the potential return. The types of risk
commonly associated with Mutual Funds are:-
1) Market risk :-
Market risk relates to the market value of a security in the future. Market prices fluctuate
and are susceptible to economic and financial trends, supply and demand, and many other
factors that cannot be precisely predicted or controlled.
2) Political risk : -
Changes in the tax laws, trade regulations, administered prices, etc are some of the many
political factors that create market risk. Although collectively, as citizens, we have
indirect control through the power of our vote individually, as investors, we have
virtually no control.
3) Inflation risk :-
Interest rate risk relates to future changes in interest rates. For instance, if an investor
invests in a long-term debt Mutual Fund scheme and interest rates increase, the NAV of
the scheme will fall because the scheme will be end up holding debt offering lower
interest rates.
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4) Business risk :-
Business risk is the uncertainty concerning the future existence, stability, and profitability
of the issuer of the security. Business risk is inherent in all business ventures. The future
financial stability of a company cannot be predicted or guaranteed, nor can the price of its
securities. Adverse changes in business circumstances will reduce the market price of the
company’s equity resulting in proportionate fall in the NAV of the Mutual Fund scheme,
which has invested in the equity of such a company.
5) Economic risk :-
Economic risk involves uncertainty in the economy, which, in turn, can have an adverse
effect on a company’s business. For instance, if monsoons fail in a year, equity stocks of
agriculture-based companies will fall and NAVs of Mutual Funds, which have invested in
such stocks, will fall proportionately.
Future of Mutual Funds industry in India
Why Invest in Gold?
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Mutual funds in India
Historically, gold has been a proven method of preserving value when a national currency
was losing value. If your investments are valued in a depreciating currency, allocating a
portion to gold assets is similar to a financial insurance policy. In the past year, the climb
in the price of gold above $700 per ounce is due to many factors, one being that the dollar
is losing value
Reasons favoring to invest to Gold
The dollar is weak and getting weaker due to national economic policies which don't
appear to have an end.
Gold price appreciation makes up for lost interest, especially in a bull market.
The last four years are the beginning of a major bull move similar to the 70's when gold
moved from $38 to over $800.
Central banks in several countries have stated their intent to increase their gold holdings
instead of selling.
All gold funds are in a long term uptrend with bullion, most recently setting new all-time
highs.
The trend of commodity prices to increase is relative to gold price increases.
Worldwide gold production is not matching consumption. The price will go up with
demand.
Most gold consumption is done in India and China and their demand is increasing with
their increase in national wealth.
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Mutual funds in India
Several gold funds reached all-time highs in 2006 and are still trending upward.
The short position held by hedged gold funds is being methodically reduced.
Gold Mutual funds
A relatively safe method of buying and owning gold stocks allows the owner to diversify
among many stocks and allows the investing decisions to be made by a professional.
Investment methods vary among funds and provide many different styles of portfolio
management for an investor to choose from. Prices move faster and further in both
directions than the price of gold.
Provide professional management and diversification within the gold sector.
Are more volatile than the S&P index.
May or may not have any correlation with the general market.
Move daily with the price of gold, but not always.
Move proportionally more than gold, up and down.
If you believe in 'buy low, sell high', gold is still low, but climbing.
The real estate sector and the road ahead
Real Estate Mutual Funds ('REMFs')
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The SEBI Board has now approved the guidelines for the much awaited Real Estate
Mutual Funds. "Real Estate Mutual Fund Scheme" is defined to mean a scheme of a
mutual fund which has investment objective to invest directly or indirectly in real estate
property.
Governing Law
It is proposed that REMFs will be governed by the provisions and guidelines issued under
SEBI (Mutual Funds) Regulations. REMFs, shall initially, be close ended. The units of
REMFs shall be compulsorily listed on the Stock Exchanges and Net Asset Value (NAV)
of the scheme shall be declared daily.
Custodian
The REMFs would be required to appoint a Custodian who has been granted a Certificate
of Registration to carry on the business of Custodian of securities by the SEBI Board.
The custodian would safe keep the title of real estate properties held by the REMFs.
Investment Criterion:
It is proposed that REMFs could invest in the following: -
o Directly in real estate properties within India
o Mortgage (housing lease) backed securities
o Equity shares / Bonds / Debentures of listed / unlisted companies which deal in
properties and also undertake property development; and in other securities.
Role of Association of Mutual Funds in India (AMFI)
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With the increase in mutual fund players in India, a need for mutual fund association in
India was incorporated to function as a non-profit organization. Association of Mutual
Funds in India (AMFI) was incorporated on 22nd August 1995.
AMFI is an apex body of all Asset Management Companies (AMC) which has been
registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes
are its members. It functions under the supervision and guidelines of its Board of
Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund
Industry to a professional and healthy market with ethical lines enhancing and
maintaining standards. It follows the principle of both protecting and promoting the
interests of mutual funds as well as their unit holders.
The Association of Mutual Funds of India works with 30 registered AMCs of the
country. It has certain defined objectives which juxtaposes the guidelines of its Board of
Directors.
Objectives of AMFI:
This mutual fund association of India maintains a high professional and ethical standard
in all areas of operation of the industry.
It also recommends and promotes the top class business practices and code of conduct
which is followed by members and related people engaged in the activities of mutual
fund and asset management. The agencies who are by any means connected or involved
in the field of capital markets and financial services also involved in this code of conduct
of the association.
AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund
industry.
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Mutual funds in India
Association of Mutual Fund of India does represent the Government of India, the Reserve
Bank of India and other related bodies on matters relating to the Mutual Fund Industry.
It develops a team of well qualified and trained Agent distributors. It implements a
programme of training and certification for all intermediaries and other engaged in the
mutual fund industry.
AMFI undertakes all India awareness programme and research work for investors in
order to promote proper understanding of the concept and working of mutual funds.
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Mutual funds in India
Major Mutual Fund Companies in India
ABN AMRO Mutual Fund:-
ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee
(India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management
(India) Ltd. was incorporated on November 4, 2003. Deutsche Bank AG is the custodian
of ABN AMRO Mutual Fund.
Birla Sun Life Mutual Fund:-
Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life
Financial. Sun Life Financial is a global organisation evolved in 1871 and is being
represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart from
India. Birla Sun Life Mutual Fund follows a conservative long-term approach to
investment.
Bank of Baroda Mutual Fund (BOB Mutual Fund):-
Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under
the sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the
AMC of BOB Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank
is the custodian.
HDFC Mutual Fund:-
HDFC Mutual Fund was setup on June 30, 2000 with two sponsorers namely Housing
Development Finance Corporation Limited and Standard Life Investments Limited.
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Mutual funds in India
HSBC Mutual Fund:-
HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital
Markets (India) Private Limited as the sponsor. HSBC Mutual Fund acts as the Trustee
Company of HSBC Mutual Fund.
ING Vysya Mutual Fund:-
ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee
Company. It is a joint venture of Vysya and ING. The AMC, ING Investment
Management (India) Pvt. Ltd. was incorporated on April 6, 1998.
Prudential ICICI Mutual Fund:-
The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the
largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup
on 13th of October, 1993 with two sponsorers, Prudential Plc. and ICICI Ltd. The Trustee
Company formed is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset
Management Company Limited incorporated on 22nd of June, 1993.
Sahara Mutual Fund:-
Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation
Ltd. as the sponsor. Sahara Asset Management Company Private Limited incorporated on
August 31, 1995 works as the AMC of Sahara Mutual Fund.
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Mutual funds in India
State Bank of India Mutual Fund:-
State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch
offshore fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today
it is the largest Bank sponsored Mutual Fund in India. They have already launched 35
Schemes out of which 15 have already yielded handsome returns to investors. Now it has
an investor base of over 8 Lakhs spread over 18 schemes.
Tata Mutual Fund:-
Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsorers for
Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The
investment manager is Tata Asset Management Limited and its Tata Trustee Company
Pvt. Limited.
Kotak Mahindra Mutual Fund:-
Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL.
KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers
schemes catering to investors with varying risk - return profiles. It was the first company
to launch dedicated gilt scheme investing only in government securities.
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Mutual funds in India
Unit Trust of India Mutual Fund:-
UTI Asset Management Company Private Limited, established in Jan 14, 2003, manages
the UTI Mutual Fund with the support of UTI Trustee Company Private Limited. UTI
Asset Management Company presently manages a corpus of over Rs.40000 Crore. The
sponsorers of UTI Mutual Fund are Bank of Baroda (BOB), Punjab National Bank
(PNB), State Bank of India (SBI), and Life Insurance Corporation of India (LIC). The
schemes of UTI Mutual Fund are Liquid Funds, Income Funds, Asset Management
Funds, Index Funds, Equity Funds and Balance Funds.
Reliance Mutual Fund:-
Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The
sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is
the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which
was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of
various schemes under which units are issued to the Public with a view to contribute to
the capital market and to provide investors the opportunities to make investments in
diversified securities.
Standard Chartered Mutual Fund:-
Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard
Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard
Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated
with SEBI on December 20, 1999.
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Mutual funds in India
Franklin Templeton India Mutual Fund:-
The group, Franklin Templeton Investments is a California (USA) based company. It is
one of the largest financial services groups in the world. It was setup in the year 1996. I.
They have introduced Open ended Diversified Equity schemes, Open ended Sector
Equity schemes, Open ended Hybrid schemes, Open end Tax Saving schemes, Open end
Income and Liquid schemes, Closed ended Income schemes and Open ended funds.
Morgan Stanley Mutual Fund India:-
Morgan Stanley is a worldwide financial services company and it’s leading in the market
in securities, investment management and credit services. Morgan Stanley Investment
Management (MISM) was established in the year 1975. Morgan Stanley Mutual fund was
started in the year 1993, having corpus more than 3000 crores. It provides customized
asset management services and products to governments, corporations, pension funds and
non-profit organizations. Its services are also extended to high net worth individuals and
retail investors. In India it is known as Morgan Stanley Investment Management Private
Limited (MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMF). This is the
first close end diversified equity scheme serving the needs of Indian retail investors
focusing on a long-term capital appreciation.
Escorts Mutual Fund:-
Escorts Mutual Fund was setup on April 15, 1996 with Escorts Finance Limited as its
sponsor. The Trustee Company is Escorts Investment Trust Limited. Its AMC was
incorporated on December 1, 1995 with the name Escorts Asset Management Limited.
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Mutual funds in India
Alliance Capital Mutual Fund:-
Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital
Management Corp. of Delaware (USA) as sponsorer. The Trustee is ACAM Trust
Company Pvt. Ltd. and AMC, the Alliance Capital Asset Management India (Pvt) Ltd.
with the corporate office in Mumbai.
Benchmark Mutual Fund:-
Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services Pvt.
Ltd. as the sponsorer and Benchmark Trustee Company Pvt. Ltd. as the Trustee
Company. Incorporated on October 16, 2000 and headquartered in Mumbai, Benchmark
Asset Management Company Pvt. Ltd. is the AMC.
Canbank Mutual Fund:-
Canbank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as the
sponsor. Canbank Investment Management Services Ltd. incorporated on March 2, 1993
is the AMC. The Corporate Office of the AMC is in Mumbai.
Chola Mutual Fund:-
Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance
Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the
Trustee Company and AMC is Cholamandalam AMC Limited.
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Mutual funds in India
LIC Mutual Fund:-
Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. Corpus
of the Fund is above 9000 crore. LIC Mutual Fund was constituted as a Trust in
accordance with the provisions of the Indian Trust Act, 1882. . The Company started its
business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan
Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC
Mutual Fund.
GIC Mutual Fund:-
GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a
Government of India undertaking and the four Public Sector General Insurance
Companies, viz. National Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd.
(NIA), The Oriental Insurance Co. Ltd (OIC) and United India Insurance Co. Ltd. (UII)
and is constituted as a Trust in accordance with the provisions of the Indian Trusts Act,
1882.
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Mutual funds in India
Conclusion
The Indian mutual fund industry needs to widen its range of products with affordable and
competitive schemes to tap the semi-urban and rural markets in order to attract more investors.
The industry has still not been able to penetrate among retail investors and it needs to share best
practices from mature markets like US and Britain where mutual funds are the most preferred
form of investment. Mutual fund companies need to introduce products for the semi-urban and
rural markets that are affordable and yet competitive against low-risk assured returns of
government sponsored saving schemes such as post office saving deposits.
The industry is also overwhelmed by scarce technological infrastructure and needs to collaborate
with other sectors of the economy such as banking and telecommunications. Mutual fund
companies are also required take advantage of the growing opportunity in the commodities
market. Further, the mutual funds could also enable the small investors to participate in the real
estate boom through real estate mutual funds. With a strong regulatory framework, clear
guidelines and the talent to back it up, the Indian mutual fund industry is in a position to cater to
the new breed of investors who are keen to diversify their risks.
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Mutual funds in India
References
Bibliography
Mehta Vinod, “The Layman’s Guide to Mutual Funds”, 2nd edition, 2007
Business World
Business outlook
Outlook money
Webliography
www.moneycontrol.com/mutual funds
www.amfindia.com
www.mutualfundsindia.com
www.sharekhan.com
www.sharekhanlearning.com
www.bseindia.com
www.nseindia.com
www.sebi.gov.in
Dr. V.N. Bedekar Institute of Management Studies Page 52
