CHAPTER 1: INTRODUCTION

1.1 MEANING:

A mutual fund is just the connecting bridge or a financial intermediary that allows a

group of investors to pool their money together with a predetermined investment objective. The

mutual fund will have a fund manager who is responsible for investing the gathered money into

specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or

portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the

fund.

Mutual funds are considered as one of the best available investments as compare to others

they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual

fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to

do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing

risk & maximizing returns.

Thus a Mutual Fund is the most suitable investment for the common man as it offers an

opportunity to invest in a diversified, professionally managed basket of securities at a relatively

low cost. The flow chart below describes broadly the working of a mutual fund

1.2 OBJECTIVE:

To study the Marketing mix elements followed by Reliance Mutual fund.

To study in the working environment of Reliance Mutual fund.

To study the reasons for slow growth rate of industry.

To make comparison between reliance and HDFC mutual fund

CHAPTER: 2 CONCEPTUAL DATA

2.1 HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY:

The origin of mutual fund industry in India is with the introduction of the concept of

mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the

year 1987 when non-UTI players entered the industry.

In the past decade, Indian mutual fund industry had seen dramatic improvements, both

quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending

phase, the Assets Under Management (AUM) was Rs. 67bn. The private sector entry to the fund

family rose the AUM to Rs. 470 bn in March 1993 and till April 2004, it reached the height of

1,540 bn.

Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less

than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian

banking industry.

The main reason of its poor growth is that the mutual fund industry in India is new in the

country. Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it

is the prime responsibility of all mutual fund companies, to market the product correctly abreast

of selling.

The mutual fund industry can be broadly put into four phases according to the development

of the sector which can b understand on the basis of following diagram:

First Phase – 1964-87(UTI was the Only Player)

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

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

Fourth Phase – since February 2003.

2.2 RELIANCE :

Reliance Mutual Fund (RMF) is one of India’s leading Mutual Funds, with Assets Under

Management (AUM) of Rs. 79,974  crores (AUM as on 31st Oct 07) and an investor base of over

40.28 Lakhs

Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is one of the

fastest growing mutual funds in the country. RMF offers investors a well-rounded portfolio of

products to meet varying investor requirements and has presence in 115 cities across the country.

Reliance Mutual Fund constantly endeavors to launch innovative products and customer service

initiatives to increase value to investors. Reliance Mutual Fund schemes are managed by

Reliance Capital Asset Management Ltd., a wholly owned subsidiary of Reliance Capital Ltd.

Reliance Capital Ltd. is one of India’s leading and fastest growing private sector financial

services companies, and ranks among the top 3 private sector financial services and banking

companies, in terms of net worth.

Reliance Capital Ltd. has interests in asset management, life and general insurance, private

equity and proprietary investments, stock broking and other financial services.

Organizational Structure of MF

2.3ORGANIZATIONAL STRUCTURE OF MUTUAL FUND :

Sponsor

• Akin to the Promoter of the company,

• Contribute min 40% of net worth of AMC,

• Posses sound financial record over five years period,

• Establishes the Fund,

• Gets it registered with the SEBI,

• Forms a trust, & appoints Board of trustee.

Trustees

• Holds assets on behalf of unit holders in trust.

• Trustees are caretaker of unit holders money.

• Two third of the trustees shall be independent persons (not associated with the sponsor).

• Trustees ensure that the system, processes & personnel are in place.

• Resolves unit holders GRIEVANCES.

• Appoint AMC & Custodian, & ensure that all activities are accordance with the SEBI

regulation.

Custodian

• Holds the fund’s securities in safekeeping,

• Settles securities transaction for the fund,

• Collects interest & dividends paid on securities,

• Records information on corporate actions.

Examples of custodian

HDFC CITY BANK

ABN AMRO IIT CORPORATE SERVICES

SBI INDIA STANDARD CHARTRED

SHCIL DEUTSCHE BANK

Asset Management Company

• Floats schemes & manages according to SEBI.

• Can not undertake any other business activity, other than portfolio mgmt services.

• 75% of unit holders can jointly terminate appointment of AMC.

• At least 50% of independent directors.

• Chairman of AMC can not be a trustee of any MF.

Examples of AMC

UTI ICICI Prudential Reliance

SBI Canbank ING Vysya

Stanchart Taurus HSBC

Distributor / Agents:

• Sell units on the behalf of the fund.

• It can be bank, NBFCs, individuals.

Banker:

• Facilitates financial transactions,

• Provides remittance facilities.

Registrar & Transfer Agent

• Maintains records of unit holders’ accounts & transactions

• Disburses & receives funds from unit holder transactions.

• Prepares & distributes a/c settlements,

• Tax information, handles unit holder communication,

• Provides unit holder transaction services.

Examples of R & T Agents

CAMS KARVY

MCS Ltd Datamatics

MN Dastoor & Co IIT Corporate Services

Computeronics TCS

2.4 THE 7 P’s OF MARKETING:

PRODUCT:

Customers invest in mutual funds with capital appreciation, liquidity and safety as their

objectives. So, marketers need to design the products keeping these objectives in mind. In

addition, the marketer has to take care of the government regulations that govern the industry. As

a result, he needs to be very judicious in designing the product and planning the investment

portfolio of the customer. Only then he can maximize the returns while minimizing the risk.

In the case of Reliance Mutual fund they also have products based on the same segmentation.

PRICE:

Before we try to understand the pricing of mutual funds, let us first understand the concept of

NAV (Net Asset Value). The net asset value of the fund is the cumulative market value of the

assets fund net of its liabilities. In other words, if the funds is dissolved or liquidated, by selling

of all the assets in the fund, this is the amount that the share holders would collectively own .

They give rise to the concept of the net asset value per unit, which is the value, expressed by the

owner ship of one unit in the fund, It is calculated simply by dividing the net asset value of the

fund by the number of units. However, most people refers usually to the NAV per unit as NAV,

ignoring the per unit. We also abide by the same convention.

Calculation of NAV:

The most important part of the calculation is the valuation of the assets owned by the funds .

Once it is calculated the NAV is simply the net value of assets divide by the number of units out

standing . The detail methodology for the calculation of the net asset value is given below :

PROMOTION:

With more and more private and global players entering the mutual market, the market has

become quite competitive in the recent past. Mutual funds, as an investment option, are now

competing with commercial banks and other financial institutions for the investor’s savings.

Mutual fund companies need to differentiate themselves from the other investment avenues in

the market and position their services exclusively in the customers mind. They need to adopt

innovative promotional strategies like strategic tie-ups.

Reliance uses electronic media, print media and hoardings for promotion.

PLACE:

The various distribution channels employed by mutual fund companies include their own

employees, agents, third party distribution companies, banks and post offices. The third party

distribution companies started flourishing with the entry of private players into the industry in

1993. UTI and the government players relied completely on their agents for distributing the

funds.

Reliance has more than 500 distributors in the state. In addition to it 50 brokerage houses and 2

AMC’s (Asset Management company)

PEOPLE:

The process of investment decision-making in a mutual fund company determines the

importance of the individuals in the company. If the fund manager has a free hand to decide the

fate of savings of thousands of unit holders, he needs to be very competent and judicious in his

decision-making. In such companies, people become the most important element of the

marketing mix. In fact companies publicize the success of their fund manager who has delivered

consistent results, to promote their services.

If we talk about Reliance AMC, it has not a big staff. The reason behind that is the expenses

made on these people is adjusted from the return which they earn from the investment of their

customer. In Reliance AMC there is 1 Relationship manager, 2 Office Coordinator executives

(customer), 1 coordinator (Karvy), 1 Sales manager, and 1 assistant sales manager, and 1

coordinater.

PROCESS:

The process of investment by one mutual fund company can be quite different from that of

another. In some companies, the fund manager given a free hand and he decides where to invest

and how much to invest. On the other hand, the investment decision in some companies is

strictly governed by the company itself. Any fund manager can operate within the defined

parameters of the company.

Difference in investment processes defines the style of functioning of a fund and determines its

success.

PHYSICAL EVIDENCE:

Providing physical evidence to the customer is one of the most difficult aspects of the mutual

fund business. As there are very few instances of the customer entering the company premises,

buildings and infrastructure can rarely be used as physical evidence. Therefore, companies use

their channels of distribution like banks and post offices to attach an element of credibility to

their services. They also try to use their service personnel to reduce the perceived risk of

customers. One of the most important ways is to promote the earlier successes of the company in

a big way.

2.5 SWOT ANALYSIS:

STRENGTHS:

Professional Management - The basic advantage of funds is that, they are

professional managed, by well qualified professional. Investors purchase funds

because they do not have the time or the expertise to manage their own portfolio. A

mutual fund is considered to be relatively less expensive way to make and monitor

their investments.

Diversification - Purchasing units in a mutual fund instead of buying individual

stocks or bonds, the investors risk is spread out and minimized up to certain extent.

The idea behind diversification is to invest in a large number of assets so that a loss in

any particular investment is minimized by gains in others.

Economies of Scale - Mutual fund buy and sell large amounts of securities at a time,

thus help to reducing transaction costs, and help to bring down the average cost of the

unit for their investors.

Liquidity - Just like an individual stock, mutual fund also allows investors to

liquidate their holdings as and when they want.

Simplicity - Investments in mutual fund is considered to be easy, compare to other

available instruments in the market, and the minimum investment is small. Most

AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP

start with just Rs.50 per month basis.

WEAKNESS:

Professional Management - Some funds doesn't perform in neither the market, as

their management is not dynamic enough to explore the available opportunity in

the market, thus many investors debate over whether or not the so-called

professionals are any better than mutual fund or investor him self, for picking up

stocks.

Costs – The biggest source of AMC income is generally from the entry & exit

load which they charge from investors, at the time of purchase. The mutual fund

industries are thus charging extra cost under layers of jargon.

Dilution - Because funds have small holdings across 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.

Taxes - when making decisions about your money, fund managers don't consider

your personal tax situation. For example, when a fund manager sells a security, a

capital-gain tax is triggered, which affects how profitable the individual is from

the sale. It might have been more advantageous for the individual to defer the

capital gains liability.

THREATS:

Lack of Investor Awareness - Retail investors had a wrong notion about mutual

funds as an investment avenue. The benefits of risk diversification, professional

management and ease of administration involved while investing in mutual funds

are not clearly understood. Knowledge of financial products is ingrained in

school and college curriculum in countries like UK, US and France.

Investor Risk Appetite -Equity funds account for 30% of the total AUM in

India. This figure is more than 50% in most developed countries. Frequent stock

market scams and the bust of tech sector specific MFs have contributed to this

apprehension. The growth in mutual funds has come through the growth in

investments in short term instrument like Money Market Mutual Funds which

account for 40% of AUM.

Higher Returns of Alternative Debt Instruments -Government guaranteed

schemes provide risk free returns at competitive rates of returns. This is why

mutual funds have difficulty competing retail business.

Concentration of Corporate Investors - Mutual funds have become overly

attractive to corporate investors because of higher returns than bank deposits and

ability to distribute capital gains tax. Corporate investors account for 57% of the

AUM (by value). Though the turnover rates have increased the average fund in

management has grown by only 25% in the past 4 years. It is clear that the lack

of growth in funds under management in India is because of the absence of long

term investors. Corporate investors take profits frequently resulting in

destruction in the compound growth in funds under management. Distributors are

forced to pass on more commissions to companies, while fund companies are

compelled to offer funds with wafer thin margins. Retail investors lose out in the

sense that they continue to pay higher expenses.

Distribution - One of the major factors impacting the growth of mutual fund

industry is the absence of any regulation in distribution of mutual funds. Mutual

fund investors need distributors who are able to inform them about the efficacy

of distribution product for a particular risk profile and stage in life cycle. Lack of

distributor awareness and the absence of any disclosures from distributors make

selling of MF products commonplace. Also penetration in rural areas is a

problem. Only 3% of rural households own mutual funds. For mutual funds to

set up a distribution network in these centres can be very expensive.

OPPORTUNITIES:

AUM as a Percentage of GDP - In most of the developed countries the total

assets under management ranges from 30% -60% of the GDP. Total assets under

management are only 8% of the GDP in case of India.

Penetration of Mutual funds - In India it is estimated that 6.7% of the

households hold mutual funds. This figure is close to 50% in case of the US and

17% in case of UK. Mutual funds account for only 0.73% of total financial assets

in India (11% of bank deposits). AUM for Mutual funds had exceeded the bank

deposits in US in as early as 1998.

Growing Economy - Indian economy in a resilient mode in terms of GDP

growth is positioned as the fourth largest economy in terms of purchasing power

parity and has the benefit of low inflation along with rising forex rate and reserve

Opening up of sectors for investment – in India service sector is also growing at

a fast rate because government has opened up investment in the sector.

Promising consumer market

Significant investment in infrastructure creation for industry.

2.6 RELIANCE MUTUAL FUND:

The Reliance Mutual Fund is one of the most popular and leading mutual fund in India.

The Fund is owned by Anil Dhirubhai Ambani Group and with respect to net worth it

ranks among the top three of all the private financial service providers in India. It is an

ISO 9001:2000 certified company, which offers innovative mutual fund products to a

wide pool of customers. The Reliance mutual fund products are available in hundred

and fifteen cities across India. It is one of the fastest growing mutual fund in India and

the main reason of its popularity is that it has a wide portfolio of products that meets the

requirements of each and every type of investors. The Reliance Mutual Fund is headed

by Mr. Vikrant Gugnani - the CEO of the company.

Details of Reliance Mutual Fund:

The schemes of Reliance Mutual Fund are being managed by Reliance

Capital Asset Management Ltd, which is a subsidiary of Reliance.

Reliance Capital Ltd holds 93.37% of the paid-up capital of the Reliance

Capital Asset Management Ltd.

The value of the cumulative assets that are being managed (also called

Assets Under Management (AUM)) amounted to Rs. 80,779 crores, as on

Dec 31st 2007.

investor base of Reliance Mutual Fund is over 43.67 lakh.

EQUITY/GROWTH SCHEMES:

The aim of growth funds is to provide capital appreciation over the medium to long-

term. Such schemes normally invest a major part of their corpus in equities. Such funds

have comparatively high risks. These schemes provide different options to the investors

like dividend option, capital appreciation, etc. and the investors may choose an option

depending on their preferences. The investors must indicate the option in the application

form. The mutual funds also allow the investors to change the options at a later date.

Growth schemes are good for investors having a long-term outlook seeking appreciation

over a period of time.

RELIANCE EQUITY FUND – GROWTH

(3-Star Fund ICRA Online MF Rank3 Year-March 2009)

FUND FACTS

Objectives of the Fund

The primary investment objective of the scheme is to seek to generate capital

appreciation & provide long-term growth opportunities by investing in a portfolio

constituted of equity & equity related securities of top 100 companies by market

capitalization & of companies which are available in the derivatives segment from time

to time and the secondary objective is to generate consistent returns by investing in debt

and money market securities.

FUND FEATURE:

TYPES OF SCHEME Open ended

NATURE Equity

OPTION Growth

INCEPTION DATE Mar 28, 2006

FACE VALUE

(RS/UNIT)

10

FUNDSIZE IN RS CR 2232.02 as on jun 30,2009

2.7 HDFC MUTUAL FUND:

HDFC Mutual Fund is governed by HDFC Asset Management Company Limited

(AMC). The HDFC mutual fund was approved by SEBI in June 2000. Equity Funds,

Balanced Funds, and Debt Funds are the mutual fund schemes offered by HDFC

Mutual Fund.

An Overview of HDFC Mutual Fund

HDFC Mutual Fund has witnessed significant growth in the past few years. It is

regulated by HDFC Asset Management Company Limited (AMC) which works as an

Asset Management Company (AMC) for HDFC Mutual Fund. HDFC Asset

Management Company Limited (AMC) is a Joint Venture concern between the large-

scale housing finance company HDFC and British investment firm Standard Life

Investments Limited.

The HDFC Asset Management Company Limited conducts the activities carried out by

the HDFC Mutual Fund and manages the assets of various mutual fund schemes. The

August 2006 report states that the fund has assets of Rs. 25,892 crores under Asset

Management Company (AMC).

HDFC Asset Management Company Limited (AMC) entered into an agreement with

Zurich Insurance Company (ZIC) with the aim to develop the asset management

business in India in the year 2003. Following to this, all the mutual fund schemes of

Zurich Mutual Fund in India got transferred to HDFC Mutual Fund and gained the

name of HDFC schemes.

Details of HDFC Mutual Fund-

HDFC Asset Management Company Ltd (AMC) was set up on December 10, 1999

under the Companies Act, 1956. It got the approval to function as an Asset

Management Company for the HDFC Mutual Fund by SEBI on June 30, 2000. AMC

was appointed in order manage the HDFC Mutual Fund. The registered office of HDFC

Asset Management Company Limited (AMC) is located at Ramon House, 3rd Floor,

H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400 020.

Schemes of HDFC Mutual Fund-

• HDFC Equity Fund

• HDFC Prudence Fund

• HDFC Capital Builder Fund

• HDFC Tax Saver

• HDFC Top 200 Fund

• HDFC High Interest Fund

• HDFC Cash Management Fund

• HDFC Sovereign Gilt Fund

Equity Funds, Balanced Funds, and Debt Funds are the broad categories of mutual

fund schemes offered by HDFC Mutual Fund.

HDFC EQUITY FUND – GROWTH:

(3-STAR FUND ICRA Online MF Rank3 Year-March 2009)

FUND FACTS

OBJECTIVE

Aims at providing capital appreciation through investments predominantly in

equity oriented securities

FUND FEATURES:

TYPES OF SCHEME Open ended

NATURE Equity

OPTION Growth

INCEPTION DATE Jan 1, 1995

FACE VALUE

(RS/UNIT)

10

FUNDSIZE IN RS CR 3870.79 as on jun 30,2009

2.8 RELIANCE MUTUAL FUND HAS SECTOR SPECIFIC SCHEMES

WHICH HDFC DOESN’T HAVE?

The SECTOR SPECIFIC FUNDS OF RELIANCE ARE:

1. Reliance Banking Fund

2. Reliance Diversification Power Sector Fund

3. Reliance Pharma Fund

4. Reliance Media & Entertainment Fund.

2.9 SWOT ANALYSIS OF HDFC MUTUAL FUND & RELIANCE

MUTUAL FUND:

Strength:

Good brand name of the company in all over india.

Flexible products

Expertise in the field of mutual fund

Sound financial resources of the company as well as sponsors.

Strong communication network all over the country.

Weakness:

Less awareness regarding mutual fund among investors

Yet to build strong distribution network

Cannot tap rural market

Opportunities:

Untapped rural market

Lack of competitive products to suit clients’ investment objective

Threat:

The numbers of players are increasing which further increases the competition.

Product innovation is done by other asset management companies and are able to collect

large amounts.

Customer mindsets are still rigid and they mostly prefer traditional pattern of investments.

SWOT ANALYSIS OF RELIANCE MUTUAL FUND

Strength:

Reliance mutual fund – a part of the Anil Dhirubhai Ambani Group(ADAG) is one of the

fastest growing mutual fund company in the country

Reliance mutual fund offers investors a well-rounded portfolio of products to meet

varying investor requirements

Reliance mutual fund has a presence over 118 cities across the contry

Strong and consistent fund management team

Investor friendly personal and technological support

Brand name- Reliance mutual fund is a brand name among customers

Good image between customers

Weaknesses:

Less existence in rural areas

Less expenditure on promotional schemes

Opportunities:

First company to launch equity fund with hedging feature which aim to minimize risk

Good perception among customers

Threat:

Lot of competitors in market

Mutual fund doesn’t guarantee or assure dividend/ bonus

CHAPTER 3 CONCLUSION

3.1 CONCLUSION:

CHAPTER 4 ANNEXURE

4.1 BIBLIOGRAPHY:

www.moneyoutlookindia.com

www.dictionaryreference.com

www.economictimes.com

www.moneycontrol.com

www.amfindia.com