Professional Documents
Culture Documents
ACKNOWLEDGMENT
I would like to thank the people who have put in lot of their labor will certainly not be enough to express my gratitude since this dissertation would not have accomplished the way it has, without the help, co-ordination, guidance and support of the numerous people. Honestly admitting, I was not capable enough to handle and maintain all these data etc. had I not received help from all these quarters.
My first thought goes to my pro ect guide, ! who always remained a great source of inspiration and courage for me.
Irrespective of numerous efforts, there are likely to be many mistakes which might have creped in the work for which I alone should be held accountable.
SYNOPSIS
Concept : " mutual fund is a pool of money, collected from investors, and is invested according to certain investment options. " mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. " mutual fund is created when investors put their money together. It is therefore a pool of the investor#s funds. $he money thus collected is then invested in capital market instruments such as shares ,debentures and other securities. $he income earned through these investments and the capital appreciation reali%ed are shared by its unit holders in proportion to the number of units owned by them. $he most important characteristics of a fund is that the contributors and the beneficiaries of the fund are the same class of people, namely the investors. $he term mutual fund means the investors contribute to the pool , and also benefit from the pool . $here are no other claimants to the funds. $he pool of funds held mutually by investors is the mutual fund . Objective : $he basic purpose is to know about the Mutual &und Industry and to know the behaviour of the Indian Investors regarding different investment tools . Rationa e O! T"e p#oject : In Indian financial market, recent trends shows that the retail investor are more concern about the risk factors of the Indian 'conomy and most importantly returns on the money invested by them. (ow people are more interested towards (&)s of the Mutual &unds. *eing a student of management I shall try to find out what could be the ma or factors because of which people are choosing (&)s.
Scope:
$his pro ect will provide me the better platform to understand the History, +rowth and various other aspects of Mutual &und. It will also help me to understand the behavior of Indian investor regarding different investment tools.
Met"o$o o%&: ,rimary -ata. - ,ersonal interaction with the respondents. /econdary -ata. - Information through websites, books, fact sheets of various fund houses etc.
INTRODUCTION
" mutual fund is a pool of money, collected from investors, and is invested according to certain investment options. " mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. " mutual fund is created when investors put their money together. It is therefore a pool of the investor#s funds. $he money thus collected is then invested in capital market instruments such as shares ,debentures and other securities. $he income earned through these investments and the capital appreciation reali%ed are shared by its unit holders in proportion to the number of units owned by them. $he most important characterstics of a fund is that the contributors and the beneficiaries of the fund are the same class of people, namely the investors. $he term mutual fund means the investors contribute to the pool , and also benefit from the pool . $here are no other claimants to the funds. $he pool of funds held mutually by investors is the mutual fund . " mutual funds business is to invest the funds thus collected according to the wishes of the investors who created the pool. 0sually , the investors appoint professional investment managers, to manage their funds. $he same ob ective is achieved when professional investment managers create a product and offer it for investment to the investor. $his product represents a share in the pool ,and pre states investment ob ectives. $hus 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. Investors in the mutual fund industry today have a choice of 12 mutual funds, offering nearly 344 products. $hough the categories of product offered can be classified under about a do%en generic heads, competition in the industry has led to innovative alterations to standard products. $he most important benefit of product choice is that it enables investors to choose options that suit their return requirements and risk appetite. Investors can combine the options to arrive at their own mutual fund portfolios that fit with their financial planning ob ectives.
Re$u%tion o# transa%tion %osts : 5hat is true of risk is also true of the transaction costs. " direct investor bears all the costs of investing such as brokerage or custody of securities. 5hen going through a fund, he has the benefit of economies of scale6 the funds pay lesser costs because of larger volumes, a benefit passed on to its investors. Li(ui$it) : )ften, investors hold shares or bonds they cannot directly, easily and quickly sell. Investment in a mutual fund, on the other hand, is more liquid. "n investor can liquidate the investment by selling the units to the fund if open-end, or selling them in the market if the fund is closed-end, and collect funds at the end of a period specified by the mutual fund or the stock market. Convenien%e an$ # e*i+i it) : Mutual fund management companies offer many investor services that a direct market investor cannot get. Investors can easily transfer their holdings from one scheme to the other, get updated market information ()t #o*e* "ave t"o#n* a* +e , 5hile the benefits of investing through mutual funds far outweigh the disadvantages, an investor and his advisor will do well to be aware of a few shortcomings of using the mutual funds as investment vehicles. No Contro over Costs : "n investor in a mutual fund has no control over the overall cost of investing. He pays investment management fees as long as he remains with the fund, albeit in return for the professional management and research. &ees are usually payable as a percentage of the value of his investments. 5hether the fund value is rising or declining. " mutual fund investor also pays fund distribution costs, which he would not incur in direct investing. However, this shortcoming only means that there is a cost to obtain the benefits of mutual fund services. However, this cost is often less than the cost of direct investing by the investors.
No Tai or,"a$e Port#o ios : Investors who invest on their own can build their own portfolios of shares, bonds and other securities. Investing through funds means he delegates this decision to the fund managers. $he very high-net-worth individuals or large corporate investors may find this to be a constraint in achieving their ob ectives. However. Most mutual funds help investors overcome this constraint by offering families of schemes-a large number of different schemes 7 within the same fund. "n investor can choose from different investment plans and construct a portfolio of his choice. Poo# Reac": 8ack of deeper distribution networks and channels is hurting the growth of the industry. $his is an area of concern for the M& industry, which has not been able to penetrate deeper into the country and has been limited to few metros. (an-* *ti Do.inate: $he biggest hindrance to the growth of the
mutual fund industry lies in its inability to attract the savings of the public, which constitutes the ma or source of investment in the other developed countries. " large pool of money in the savings in India is still with the state 7run and private banks. I.pact o! / oba Deve op.ent*: $hough the economic reforms
have brought India on the global investment map, this also exposes the Indian financial market, including the Indian mutual fund industry, to the volatility in the international market. &luctuations in the global markets and the financial systems will now be evident as the Indian markets get linked to the other foreign markets. Managing risk in such a scenario will be a key challenge for the Indian mutual fund industry.
Sa e Pri%e
It is the price you pay when you invest in a scheme. It is also called )ffer ,rice. It may include a sales load.
Re1ur%hase Pri%e
It is the price at which a close- ended scheme repurchases its units and it may include a back 7 end load. $his is also known as *id price.
Re$e"1tion Pri%e
It is the price at which open- ended schemes repurchase their units and close 7 ended schemes redeem their units on maturity. $heir prices are ("9 related.
Sa es Loa$
It is a charge collected by a scheme when it sells the units. It is also known as &ront 'nd 8oad. /chemes that do not charge a load are called (o 8oad schemes.
?now merged with &ranklin $empleton @ was the private sector mutual fund registered in Duly :221. $he :221 /'*I ? Mutual &und @ Gegulations were substituted by a more comprehensive and revised Mutual &und Gegulations in :22C. $he Industry now functions under the /'*I ?Mutual &und @ Gegulation :22C. $he 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 . "s at the end of Danuary ;441, there were 11 mutual funds with total assets of Gs.:,;:,=43 crores. $he 0nit $rust of India with Gs .<<,3<: crores of assets under management was way ahead of other mutual funds.
out these functions. "ll the functionaries are required to the trustees, who lay down the ground rules and monitor them working.
REGULATORY FRAMEWORK
Re%) ato#& j)#i*$iction o! SE(I :
/'*I is the apex regulatory of capital markets. /'*I has enacted the /'*I ?mutual fund@ Gegulations,:22C,which provides the scope of the regulation of the mutual fund in India. "ll Mutual funds are required to be mandatorily registered with /'*I. $he structure and formation of mutual funds, appointment of key functionaries, operation of the mutual funds, accounting and disclosure norms, rights and obligations of functionaries and investors, investment restrictions ,compliance and penalties are all defined under the /'*I regulations. Mutual funds have to send half yearly compliance reports to /'*I, and provide all information about their operations.
Ro e o! Stoc- E=c"an%e* :
If a mutual fund is listed its schemes on stock exchanges, such listings are sub ect to the listing regulation of stock exchanges. Mutual funds have to sign the listing agreement and abide by its provisions, which primarily deal with periodic notifications and disclosure of information that may impact the trading of listed units.
LEGAL STRUCTURE
Mutual funds have a unique structure not shared with other entities such as companies or the firms . It is important for employees and agents to be aware of the special nature of this structure ,because it determines the rights and the responsibilities of the fund#s constitutes vi%. sponsor, trustees, custodian, transfer agents and of course the fund and the "MB.$he legal structure also drives the inter relationship between these constituents. 8ike other countries, India has a legal framework within which mutual funds must be constituted along one unique structure as unit trust. " mutual fund in India is allowed to issue open ended and a close ended under a common legal structure. $herefore, a mutual fund may have a several different scheme under it at any point of time.
T#)*tee*
$he trust 7 the mutual fund may be managed by a board of $rustees- a body of the individuals, or a trust company- a corporate body. Most of the funds in India are managed by the *oard of $rustees. 5hile the *oard is governed by the provisions of the Indian $rust act, where the $rustee is a corporate body ,it would also be required to comply the provisions of the Bompanies "ct, :23C, the *oard as an independent body, act as the protector of the interest of the unit holders. $he $rustees do not directly manage the portfolio of the securities. &or this specialist function, they appoint "MB. $hey ensure that the fund is managed by the "MB as per the defined ob ective and in accordance with the trust deed and the regulations of the /'*I. $he trust is created through a document called the $rust -eed that is executed by the fund sponsor in the favour of the trustees. $he $rust -eed is required to be stamped as registered under the provisions of the Indian Gegistration "ct and registered with /'*I. Blauses in the $rust -eed ,inter alia, deal with the establishment of the $rust, the appointment of the trustees, their powers and duties and the obligations of the trustees towards the unit holders and the "MB. $hese clauses also specify activities that the fund K "MB cannot undertake. $he third schedule of the /'*I ?M&@ Gegulations, :22C specifies the contents of the $rust -eed.
Ope#ationa C a**i!ication
a@ Open en$e$ *c"e.e* : "s the name implies the si%e of the scheme ?fund@ is open i.e. not specified or pre determined. 'ntry to the fund is always open to the investor who can subscribe at any time. /uch fund stands ready to buy or sell its securities at any time. It implies that the capitali%ation of the fund is constantly changing as investors sell or buy their shares . &urther the shares or units are normally not traded on the stock exchange but are repurchased by the fund at announced rates. )pen ended schemes have comparatively better liquidity despite the fact that these are not listed. $he reason is that investor can at any time approach mutual funds for sale of such units. (o intermediaries are required.Morever, the reali%able amount is certain since repurchase is at a price based on declared net asset value ?("9@. (o minute to minute fluctuations in rate haunts the investors. $he portfolio mix of such schemes has to be investments, which are actively traded in the market. )therwise, it will not be possible to
calculate ("9.$his is the reason that generally open 7 ended schemes are equity based. Moreover , desiring frequently traded securities, open 7ended schemes are hardly have in their portfolio shares of comparatively new and smaller companies since these are not generally not traded. In such funds, option to reinvest its dividend is also available. /ince there is always a possibility of withdrawals, the management of such funds becomes more tedious as managers have to work from crisis to crisis. Brisis may be on two fronts ,one is that unexpected withdrawals require funds to maintain a high level of cash available every time implying thereby idle cash. &und managers have to face question like Ewhat to sellF . He could very well have to sell his most liquid assets. /econd, by virtue of this situation such funds may fail to grab favorable opportunities. &urther to match quick cash payments, funds cannot have matching reali%ation from their portfolio due to intricacies of the stock market . $hus, success of the open ended schemes to a great extent depends on the efficiency of the capital market. b@ C o*e en$e$ *c"e.e* : /uch schemes have a definite period after which their sharesK units are redeemed. 0nlike open ended , these funds have fixed capitali%ation , i.e. corpus normally does not change throughout its life period. Blose ended funds units# trade among the investors in the secondary market since these are to be quoted on the stock exchanges. $heir price is determined on the basis of demand and supply in the market. $heir liquidity depends on the to efficiency and understanding of the engaged brokers. $heir price is free
deviate ("9, i.e., there is very possibility that the market price may be above or below its ("9 . If one takes into account the issue expenses , conceptually close ended funds units cannot be trade at a premium or over ("9 because of a package of investments, i.e., cannot exceed the sum of the prices of the investments constituting the package . 5hatever premium exists that may exist only on account of speculative activities. In India as per /'*I ?M&@ Gegulations every mutual fund is free to launch any or both types of schemes.
/uch funds have been most popular and appeal to the investors who want both growth and income.
/i t F)n$*
+ilts are the governments securities with medium to long term maturities typically of over one year ?under one year instruments being money market securities @. In India, we have now seen the emergence of government securities or gilt funds that invest in government paper called dated securities. /ince the issuer is the government ,these funds have little risk of default and hence offer better protection of principal. However , investors have to recogni%e the potential changes in values of debt securities held by the funds that are caused by changes in the market price of debt securities held by the funds that are caused by changes in the market price of debt securities quoted on the stock exchanges.
E?)it& F)n$*
"s investors move from debt funds category to equity funds , they face increased risk level . However there are a large variety of equity funds and all of them are not equally risk prone. Investor and their advisors need to sort out and select the right equity fund that risk appetite. 'quity funds invest a ma or portion of their corpus in equity shares issued by the companies, acquired directly in initial public offerings or through the secondary market . 'quity funds would be exposed to the equity price fluctuations risk at the market level , at the industry or the sector level and the company specific level .'quity &unds ("9 fluctuates with all these price movement. $hese price movements are caused by all kinds of external factors, political and social as well economic. $he issuers of equity shares offer no guaranteed repayments in case of debt instruments. Hence ,equity funds are generally considered at the higher end of the risk spectrum among all funds available in the market. )n the other hand, unlike debt instruments that offer fixed amounts of repayments , equities can appreciate in value in line with the issuers# earning potential and so offer the greatest potential for growth in capital. 'quity funds adopt different investment strategies resulting in different levels of risk. Hence they are generally separated into different types in terms of their investment styles. /ome of these equity funds are as under .
/#o+t" F)n$*
+rowth funds invest in companies whose earnings are expected to rise at an average. $hese companies may be operating in sectors like technology considered having a growth potential, but not entirely unproven and speculative. $he primary ob ective of growth fund is capital appreciation over a span of 1 to 3 years. +rowth funds are therefore les volatile than funds that target aggressive growth.
Va )e F)n$*
$he growth funds that we reviewed above holds shares of the companies with good or improving profit prospects and aim primarily at capital appreciation. $hese concentrate on future growth prospects may be willing to pay high priceK earnings multiples for companies considered to have good potential. In contrast to the growth investing other funds follow 9alue Investing "pproach. 9alue funds try to seek out fundamentally sound companies whose shares are currently under priced in the market. 9alue funds will add only those shares to their portfolios that are selling at low price earning ratios ,low market to book value ratios and are undervalued by other yardsticks. 9alue funds have the equity market price fluctuation risks, but stand often at a lower end of the risk spectrum in comparison with the growth funds. 9alue stocks may be from a large number of sectors and therefore diversified.
"s an example an equity income fund would invest largely in powerK utility companies shares of established companies that pay higher dividend and whose price do not fluctuate as much as the other shares. $hese equity funds should therefore be less volatile and less risky than nearly all other equity funds.
H&b#i$ F)n$*
5e have seen that in terms of the nature of financial securities held, there are three ma or mutual fund types .money market , debt and equity. Many mutual fund mix these different types of securities in their portfolios. $hus, most funds equity or debt always have some money market securities in their portfolios as these securities offer the much needed liquidity. However money market holdings will constitute a lower proportion in the overall portfolios. $hese are the funds that seek to hold a relatively balanced holdings of debt or equity in their portfolios. /uch funds are termed as Ehybrid fundsF as they have a dual equityK bond focus.
(a ance$ F)n$*
" balanced fund is the one that has a portfolio comprising debt instruments, convertible securities, preference and equity shares. $heir assets are generally held in more or less equal proportion between debt K money market securities and equities. *y investing in a mix of this nature, balanced funds seek to attain the ob ectives of the income, moderate capital appreciation and preservation of capital and are ideal for investors with a conservative and long term orientation.
IN.ESTMENT PLANS
$he term investment plans generally refers to the services that the funds provide to investors offering different ways to invest or invest. $he different investment plans are an important considerations in the investment decisions because they determine the level of flexibility available to the investors. "lternate investment plans offered by the fund allow the investor freedom with respect to investing at one time or at regular intervals, making transfers to different schemes within the same fund family or receiving income at specified intervals or accumulating distributions . /ome of the investment plans offered are as follows.-
Ot"e# Se#vice*
In addition to these plans as mentioned above, mutual funds may provide other services as under .
P"one T#an*action
Investors may redeem or purchase units by calling a fund representative, or registrars or investor service centers. $hey may also telephonically modify instructions regarding their
automatic investment plans, transfer plans and so on. In India , this mode of operating a fund account is still in its nascent stage.
C"e?)e A#itin%
/ome open end mutual funds allow the facility of cheque writing by providing the investors with a cheque book, treating his fund account as equivalent of a bank savings account for this purpose. $he fund must have G*I approval in order to offer this service, usually given to liquid schemes of short duration. G*I rules permit the investor to issue cheque against his fund balance, sub ect to maintaining a minimum balance and only to transfer funds in his own favors. G*I rule do not permit investors to issue cheque to third parties for other payments .&or investors with large amounts of short term surplus, invested in many schemes, this facility can be very important .
investor to ascertain the right picture about the "MB and to decide whether or not continue his investments .
E-UITY FUND
An open 5 en$e$ E?)it& Sc"e.e F)n$ !eat)#e* :
A"o *"o) $ inve*t ? $he scheme is suitable for investors seeking effective diversification by spreading the risks without compromising on the returns. Inve*t.ent Objective Inve*t.ent option Li?)i$it& NAV ca c) ation Re$e.ption p#ocee$* Ta= bene!it* A**et Un$e# Mana%e.ent NAV Mini.). app ication a.o)nt Loa$ St#)ct)#e $he ob ective is to provide investors long term capital appreciation. a@ +rowth b@ -ividend /ale and repurchase on all business days. "ll business days. 5ill be dispatched within 1 business days. Indexation benefits, no +ift $ax, no 5ealth tax. Gs. C3.=3crore +rowth ,lan . Gs. :=.:A -ividend ,lan . Gs. :2.:3 (ew investor . Gs. 3444 'xisting investor . Gs. 344 'ntry load .:.24J - less than Gs. 34 lakhs 4.34J - Gs. 34 lakhs and above upto Gs. : crore 4.;3J - Gs. : crore and above 'xit load . (I8
INDE5 FUND
An open 5 en$e$ In$e= Sc"e.e F)n$ !eat)#e*
A"o *"o) $ inve*t ? Inve*t.ent Objective $he scheme is suitable for investors seeking capital appreciation commensurate with that of the market. $he ob ective is to invest in the securities that comprise /M, B(N (ifty in the same ,roportion so as to attain results commensurate with the (ifty. Inve*t.ent option Li?)i$it& NAV ca c) ation Re$e.ption p#ocee$* Ta= bene!it* A**et Un$e# Mana%e.ent NAV Mini.). app ication a.o)nt Loa$ St#)ct)#e a@ +rowth b@ -ividend /ale and repurchase on all business days. "ll business days. 5ill be dispatched within 1 business days. Indexation benefits, no +ift $ax, no 5ealth tax. Gs. ::C.3A crore +rowth ,lan . Gs. :1.C:22 -ividend ,lan . Gs. :4.1<AC (ew investor . Gs. 3444 'xisting investor . Gs. 344 'ntry load . :J for subscription of Gs. :4 lakhs or 8ess (il for subscription of above Gs.:4 lakhs. 'xit load . (I8
2ALANCED FUND
An open 5 en$e$ (a ance$ Sc"e.e F)n$ !eat)#e*
A"o *"o) $ inve*t ? $he scheme is suitable for investors who seek long term growth and wish to avoid the risk if investing solely in equities. It provides a balanced exposure to both growth and income producing assets. Inve*t.ent Objective $he ob ective is to provide periodic returns and capital appreciation through a udicious mix of equity and debt instruments, while simultaneously aiming to minimi%e capital erosion. Li?)i$it& NAV ca c) ation Re$e.ption p#ocee$* Ta= bene!it* A**et Un$e# Mana%e.ent NAV Mini.). app ication a.o)nt Loa$ St#)ct)#e /ale and repurchase on all business days. "ll business days. 5ill be dispatched within 1 business days. Indexation benefits, no +ift $ax, no 5ealth tax. Gs. <<.=2 crore +rowth ,lan . Gs. :C.<A -ividend ,lan . Gs. :4.AC (ew investor . Gs. 3444 'xisting investor . Gs. 344 'ntry load . ;J 'xit load . (I8
("9
Minimum "mount
F)n$ !eat)#e*
A"o *"o) $ inve*t ? "n open ended income scheme having periodical distributions with no assured monthly returns. MI, attempts to provide income on a monthly basis and is therefore particularly suited for investors seeking regular source of income . Inve*t.ent Objective $he ob ective is to generate regular income through investments in debt securities to enable periodical income distribution and also to generate long term capital appreciation by investing a potion in equity related instruments. Inve*t.ent option Li?)i$it& NAV ca c) ation Re$e.ption p#ocee$* Ta= bene!it* A**et Un$e# Mana%e.ent NAV -ividend ,lan,+rowth "ccumulation ,lan "nd "uto earnings /ale and repurchase on all business days. "ll business days. 5ill be dispatched within 1 business days. Indexation benefits, no +ift $ax, no 5ealth tax. Gs. 3<4.<A crore +rowth plan . Gs. :;.=:3; -ividend ,lan ?monthly @. Gs.:4.211C -ividend ,lan ?quarterly@ .Gs. ::.443: Mini.). app ication a.o)nt -ividend plan K "uto earning payout (ew investor . Gs. :4444 'xisting investor . Gs. 344 +rowth accumulation plan (ew investor . Gs. 3444
'xisting investor . Gs. 344 Loa$ St#)ct)#e 'ntry load . (I8 'xit load . for investment of Gs. 3 crore and above (I8 &or investment of over Gs. :4 lakhs and upto Gs. 3 Brore 7 4.;3J ?if redeemed on or before 14 days &rom the date of allotment @ &or investment of Gs. :4 lakhs or below- 4.3J ?if Gedeemed on or before :=4 days from the date of "llotment @. Ave#a%e Mat)#it& ;.< years
F)n$ !eat)#e*
A"o *"o) $ inve*t ? "n open ended income scheme having periodical distributions with no assured monthly returns. MI, attempts to provide income on a monthly basis and is therefore particularly suited for investors seeking regular source of income . Inve*t.ent Objective $he ob ective is to generate regular income through investments in debt securities to enable periodical income distribution and also to generate long term capital appreciation by investing a potion in equity related instruments. Inve*t.ent option Li?)i$it& NAV ca c) ation Re$e.ption p#ocee$* Ta= bene!it* A**et Un$e# Mana%e.ent NAV -ividend ,lan,+rowth "ccumulation ,lan "nd "uto earnings /ale and repurchase on all business days. "ll business days. 5ill be dispatched within 1 business days. Indexation benefits, no +ift $ax, no 5ealth tax. Gs. :=<.C2 crore +rowth plan . Gs. :4.;4C= -ividend ,lan ?monthly @. Gs.:4.:12= -ividend ,lan ?quarterly@ .Gs. :4.:1A; Mini.). app ication a.o)nt -ividend plan K "uto earning payout (ew investor . Gs. :4444 'xisting investor . Gs. 344 +rowth accumulation plan (ew investor . Gs. 3444
'xisting investor . Gs. 344 Loa$ St#)ct)#e 'ntry load . (I8 'xit load . for investment of Gs. 3 crore and above (I8 &or investment of over Gs. :4 lakhs and upto Gs. 3 Brore 7 4.;3J ?if redeemed on or before 14 days &rom the date of allotment @ &or investment of Gs. :4 lakhs or below- 4.3J ?if Gedeemed on or before :=4 days from the date of "llotment @. Ave#a%e Mat)#it& :.= years
GROWT4 FUND
An open 5 en$e$ E?)it& Sc"e.e F)n$ !eat)#e*
A"o *"o) $ inve*t ? Inve*t.ent Objective Inve*t.ent option Li?)i$it& NAV ca c) ation Re$e.ption p#ocee$* Ta= bene!it* A**et Un$e# Mana%e.ent NAV Mini.). app ication a.o)nt Loa$ St#)ct)#e $he scheme is suitable for investors willing to accept the risks that come with investing in equities. $he ob ective is to provide investors long term capital appreciation. a@ +rowth b@ -ividend /ale and repurchase on all business days. "ll business days. 5ill be dispatched within 1 business days. $ax free dividends in the hands of investors. Indexation benefits, no +ift $ax, no 5ealth tax. Gs. =<.14 crore +rowth ,lan . Gs. ;4.C1 -ividend ,lan . Gs. :1.23 (ew investor . Gs. 3444 'xisting investor . Gs. 344 'ntry load .:.24J - less than Gs. 34 lakhs 4.34J - Gs. 34 lakhs and above upto Gs. : crore 4.;3J - Gs. : crore and above 'xit load . (I8
Ro e o# Distri+ution Channe s
Mutual funds devise investment plans for the institutional and the individual investors . /ome funds target and contact the institutional investors directly, without using any external distribution channels . &or example 0$I and some private funds have some schemes targeted at provident funds, which are contacted directly by their own sales officers . )ther funds work through distribution for institutional clients as well as the individual clients . *ut, it is important to note that mutual funds are primarily vehicles for the larger collective investments, working on the principle of pooling the funds of a large number of the investors . $hat is why a ma ority of schemes are targeted at the individual investors . " substantial portion of the investments in the mutual funds take place at the retail level . Getail distribution channels are therefore a critical element in the distribution of the mutual funds,
be its agent. $hese qualifications may be in terms of education, experience or even registration on an exchange. &or example , 0$I requires its agent to pass at least the matriculation exams and also to provide two references.
Di*t#ib)tion Co.panie*
"vailing of the services of established distribution companies is a practice accepted by mutual funds internationally. $his practice evolved with a view to circumvent the huge administrative mechanism require to support a large agents force .Instead of having to deal with several agents , a fund can interact with a distribution company which has several employees or sub -brokers under it . " distribution company usually manages distribution for several funds simultaneously and receives commission for its services. Many private funds have preferred to adopt this practice because of its sophisticated nature and because they benefit from the specialist knowledge and established client contacts of these marketing firms. In India there are about :4 ma or distribution companies in addition to few :44 smaller ones.
Di#ect Ma#-etin%
-irect marketing means that the mutual funds sell their own product without the use of any intermediaries . 0sually , this takes the form of sales officers and employees of the "MB who approach the investor and accept their contribution directly. However in India, independent agents may really be treated as the direct marketing channel, in the sense that they do not form a well- knit , independent and organi%ed single entity and act more like fund employees. )ther channels like distribution companies or banks or even stock brokers are clearly distinct and independent intermediaries
fund#s transaction with investors and how the fund accounts for its assets and liabilities ,as the knowledge is essential for them to perform their basic role in explaining the mutual fund performance to the investor. &or example, unless the agent knows how the ("9 is computed, he cannot use even simple measures such as ("9 change to assess the fund performance. He also should understand the impact of dividends paid out by the fund or entryKexit loads paid by the investor on the calculation of the ("9 and therefore the fund performance. $he mutual funds in India are required to follow the accounting policies as laid down by the /'*I?Mutual &und@ Gegulations :22C and the amendments in :22=.
" fund#s ("9 is affected by four sets of factors ,urchase and sale of investment securities 9aluation of al investment securities held
)ther assets and liabilities and, 0nits sold or redeemed E other assetsF include income due to the fund but not received as on the valuation date ? for ex. ,dividend announced by he company yet to be received@. E other liabilitiesF have to include expenses payable by the fund , for ex. Bustodian fees or even the management fees payable to "MB. $hese income and expense items have to be EaccruedF and included in the computation of the ("9. Ma or expenses such as management fees should be accrued on a day to day basis, while others need not to be so accrued, if non-accrual does not affect ("9 by more than :J.
management fee upto : J of weekly average net assets outstanding in the accounting year. In addition to fees mentioned above, the "MB may charge the scheme with the following expenses . Initial expenses of launching schemes 6 and Gecurring expenses including.
i.
*rokerage &ees and expenses of trustees "udit fees Bustodian fees 5inding up cost )ther cost as approved by /'*I ,enalties and fines Interest on delayed payments to the unitholders +eneral expences not related to any schemes -epreciation on fixed assets "ny cost prohibited by /'*I
$he total expense charged by the "MB to a scheme, excluding issue or redemption expenses but including investment management and advisory fees, are sub ect to the following limits. )n the first Gs. :44 crore of average weekly net assets 7 ;.3 J )n the next Gs 144 Brores of average weekly net assets 7 ;.;3J )n the next Gs 144 Brores of average weekly net assets 7 ;.4 J )n the balance of average weekly net assets 7 :.A3J
fund shall.
i.
,ublish through advertisement, scheme wise annual report or an abridged summary of the report,
ii. iii.
Mail the summary to the unit holders and &orward to /'*I ,a copy of the annual report and other information including details of investments and deposits held by the fund.
A%%ountin& Po i%ies8 Investment are required to be marked to market using market prices. "ny unreali%ed appreciation cannot be distributed , and provision must be made for the same. In determining the gain or loss of investment, the average cost method must be followed to determine the cost of purchase. 'xample . a fund acquires :44 shares in the company " for Gs. 3444 on "pril :. it buys another :34 shares in the same company on "ril :3 for Gs.A444. It sells 34 shares for Gs.1344 on "pril 14. the gain on sale is Gs. ::44 calculated as . "verage cost of holding per share in the company
"P ?3444QA4444@K?:44Q:34@P<= $otal holding cost of shares sold P<=S34P;<44 +ain on saleP 1344-;<44P::44 Investments owned by mutual funds are marked to market.
$herefore, the value of the investments appreciates or depreciates based on the market fluctuations, which is reflected in the balance /heet. However, this change in value constitutes unreali%ed gainKloss . when any investments are actually sold, the proportion of the unreali%ed gainKloss that pertains to such investments, becomes reali%ed gainKloss. $herefore, at any given point of time, the ("9 includes reali%ed and unreali%ed gainKloss on investments. 5hile /'*I
prohibits the distribution of the unreali%ed appreciation on the investments, reali%ed gain is available for the distribution. 'quali%ation . "n open end scheme sells and repurchase units on the basis of ("9./'*I therefore prescribes the use of equali%ation account, to ensure that creationKredemption of units does not change the percentage of income distributed. $his involves the following steps.
- Co.p)tation o! $i*t#ib)tab e #e*e#ve*: income Qreali%ed gain on investments 7expenses- unreali%ed losses
?unreali%ed gains are excluded@. ,ractically, many funds make the ad ustments for unreali%ed losses in computation of equali%ation only at the time of dividend distribution. $his is to avoid variation in per unit equali%ation balance on a day to day basis. - $he following percentage is then computed . distributable Geserves K0nits )utstanding $he above percentage is multiplied with the number of new units sold,and the equali%ation account is credited by this amount. $he same percentage is multiplied with the number of units repurchased , and the equali%ation account is debited by this amount if the units are repurchased above par, if the units are repurchased below par, the equali%ation account is credited. $he net balance in the equali%ation account is transferred to the profit and loss account. It is only an ad ustment to the distributable surplus and does not effect the net income for the period.
TA5ATION
Investors often view the tax angle as an important consideration while deciding on the appropriate investments. $his section examines the area of mutual fund taxation with respect to the taxation of income ?dividends and capital gains@ in the hands of the fund itself and the income when received in the hands when received in the hands investors. Ta*ation in the han$s o# the #un$s 5hen we talk about a mutual fund for taxation purpose , we mean the legally constituted trust that holds the investors# money. It is this trust that earns and receives income from the investments it makes on the behalf of the investors. Most countries do not impose any tax on this entity- the trust- because this income that it earns is meant for the investors. $he trust is considered to be only a pass through entry. It would amount to double taxation if the trust first pays the tax and then the investor is also required to pay the tax. +enerally, the trust is exempted from the tax and it the investor who pays tax on his share of income. "fter the :222K;444 budget of finance minister Mr.Iashwant /inha , the investors are totally exempted from paying any tax on the dividend income they receive from the mutual funds, while certain types of schemes pay some taxes. $his section deals with what the fund or the trust pays by the way of tax.
Ta* 1rovisions
+enerally, income earned by any mutual fund registered with /'*I is exempt from tax. However, income distributed to unit-holders by a closed-end or
debt fund is liable to a dividend distribution tax of :4J plus a surcharge of ;J,i.e., a tax of :4.;J. this tax is also applicable to distributions made by open-end equity funds ? i.e., funds with more than 34J of their portfolio in equity@ on or after "pril :, ;44;.
In case of EinfrastructureF mutual fund units, investments up to Gs.=4,444 is eligible for ;4J tax rebate . However, total investment eligible for tax rebate under section == is not allowed to exceed Gs. C4,444 ?Gs.=4,444 in case of investment qualifying under Linfrastructure#. 'xample ?/ec ==@. "n investor invests Gs.=4,444 in a /'*I approved mutual fund ?not being an infrastructure fund@. $he tax rebate that he is entitled to is Gs.;,444?;4J of :4,444@. $herefore , if his tax liability on income from all sources is Gs.:,44,444 he is liable to pay a tax of Gs.2=,444 net of rebate under section ==@
Capita
%ain* on *a e o! Unit*
However ,if the investors sells his units and earns EBapital +ainsF , the investor is sub ect to the Bapital +ains $ax as under. If units are held for not more :; months , they will be treated as short term capital assets, otherwise as long term capital assets. ?$his period is 1C months for assets other than shares and listed securities@. $ax law definition of capital gains P sale consideration- ?Bost of "cquisition Q Bost of improvements Q cost of transfer@ If the units were held for over one year, the investors gets the benefit of EindexationF, which means his purchase price is marked up by an inflation index , so his capital gains amount is less than otherwise. ,urchase price of a long term capital assets after indexation is computed as,Bost of acquisition or improvementP actual cost of acquisition or improvement Scost inflation index for year of transferKcost inflation index for year of acquisition or improvement or for :2=:, whichever is later.
,urpose . If
between two dates, he can simply use the ,er 0nit (et "ssets 9alue at the beginning and the end periods and calculate the change in the value of the ("9 between the two dates in absolute and percentage terms. &ormula . for ("9 change in absolute terms. ?("9 at the end of the period@ 7?("9 at the beginning of the period@ &or ("9 change in percentage terms. ?"bsolute changes in ("9 K("9 at the beginning@S:44. If period covered is less Kmore than one year. for annuali%ed ("9 Bhange ?absolute change in ("9K("9 at the beginning@Kmonths coveredTS:;US:44 'xample . $hus ,if a fund Ls ("9 was Gs.;4 at the beginning of the year and Gs.;; at the end of the year , the absolute change was Gs.; and the percentage change was Q:4J ?;;-;4K;4S:44@. (ow, let us assume that an investor purchases a unit in an open-end fund at Gs.;4 and its ("9 after :C months is Gs.;;, the annuali%ed return is A.3J?VW;;;4TK;4UK:CS:;@S:44. /uitability. ("9 change is most commonly used by the investors to evaluate fund performance, and so is also most commonly published by the mutual fund managers. $he advantage of this measure is that it is easily understood and applies to virtually any type of fund. Interpretation . 5hether the return in terms of ("9 growth is sufficient or not should be interpreted in light of the investment ob ective of the fund, current market conditions and alternative investment returns. $hus, a long term growth fund or infrastructure fund will give low returns in its initial years. "ll equity funds may give lower returns when the market is in bearish phase.
8imitation . However, this measures does not always give the correct picture , in case where the fund has distributed to the investors a significant amount of dividend in the interim period. If , in the above example ,year end ("9 was Gs.;; after declaration and payment of dividend of Ge.:, the ("9 change of :4J gives an incomplete picture. $herefore, it is suitable for evaluating growth funds and accumulation plans of debt and equity fund, but should be avoided for income funds and funds with withdrawal plans. $otal Geturn ,urpose. $his measure corrects the shortcomings of the ("9 Bhange measure, by taking into account of the dividends distributed by the fund between the two ("9 dates, and adding them to the ("9 change to arrive at the total return. &ormula. W?distributionsQ change in ("9@K("9 at the beginning of the periodTS:44 'xample . let us assume that an investor purchased : unit of an open-end scheme at Gs.;4. $he fund has an interim dividend distribution of Gs.< per unit. (ow let us that the ("9 of the fund at the year end was Gs.;;. $hus, total return at the end of the year for the investor was 14J WV<Q?;;;4@UK;4TS:44. /uitability. total return is the measure suitable for all types of funds.
,erformance of different types of funds can be compared on the basis of $otal Geturn. $hus, during a given period ,one can find out whether a debt fund has given better returns than the equity fund. It is also more accurate than simple ("9 change, because it takes into account distribution during the period. 5hile using $otal Geturn, performance must be interpreted in the light of market conditions and investment ob ectives of the fund.
8imitation. although more accurate than ("9 change, simple $otal Geturn as calculated here is still inadequate as a performance measure, because it ignores the fact that distributed dividends also get reinvested if received during the year. $he investor#s total return should take account of reinvestment of interim dividends. Geturn )n Investment ,urpose. the short coming of the simple total return is overcome by the total return with reinvestment of the dividends in the funds itself at the ("9 on the date of the distribution. $he appropriate measure of the growth of an investor#s mutual fund holdings is therefore, the return on investment . &ormula . V?units heldQ dividendKex-dividend ("9@Send ("9U-begin ("9Kbegin ("9S:44 'xample . let us assume that an investor purchased :-unit of an open end equity fund at Gs.;4. $he fund has an interim dividend distribution of Gs.< per unit, when the ("9 was Gs.;:. $he distribution of Gs.< was reinvested in the fund at Gs.;: per unit ,giving the investor the 4.:2 unit ?<K;:@in the fund, making his total holding :.:2?original : unitQ4.:2 through reinvestment@. (ow let s assume that the ("9 of the fund at the year-end was Gs.;;. $he value of the investor#s holding at the year end is Gs.;C.:=?;;S:.:2@, giving the investors a total return with reinvestment of distribution 14.2J ?W;C.:=-;4TK;4@. /uitability . $otal return with distributions reinvested at ("9 is a
measure accepted by mutual fund tracking agencies such as Bresedence in Mumbai and 9alue Gesearch in (ew -elhi. It is appropriate for
measuring performance of accumulation plans, monthlyK quarterly income schemes that distribute interim dividends.
$he 'xpense Gatio ,urpose . the expense ratio is an indicator of the fund#s efficiency and cost- effectiveness . &ormula . it is defined as the ratio of the total expenses to average net assets of the fund. 'xample . in any offer document ,one will find the past and estimated expense figures and ratios as disclosed by the fund . )ne will find that from any annual report of a fund, one will be able to compute the expense ratios and compare it with the figures in the offer document. /uitability. /'*I Gegulations regulate this aspect for funds in India. It is important to know that the brokerage commissions on the fund#s transactions are not included in the fund expenses figure while computing this ratio. $he expense ratio is most important in case of the *ond or the -ebt funds, since these funds# performance can be "dversely effected if a larger proportion of its income is spent on the 'xpenses. 8imitation . though an important yardsticks, fluctuation in the ratios across periods require that an average over 1 to 3 years be used to udge a fund#s performance. "lso, the expense ratio must be evaluated in the light of fund si%e, average account si%e and the portfolio composition. $he Income Gatio &ormula . a fund#s income ratio is defined as its net investment income dividend by its net assets for this period. ,urposeK/uitability . this ratio is a useful measure for evaluating income-oriented fund, particularly debt funds. It is not recommended for funds that concentrate primarily on capital appreciation.
8imitation . the income ratio cannot be considered in isolation 6it should be used only to supplement the analysis based on the expense ratio and total return.
Tra%!in& Mutua Fun$ Per#or"an%e Having identified appropriate measures and benchmarks for the mutual funds available in the market, the challenge is to track fund performance on a regular basis. $his is indeed the key towards maximi%ing wealth through mutual fund investing. ,roper tracking allows the investor to make informed and timely decisions regarding his fund portfolio 7whether to acquire attractive funds, dispose off poor performers or switch between fundsKplans. $o be able to track fund performance, the first step is to find the relevant information on ("9, expenses cash flow, appropriate indices and so on. $he following are the sources of information in India. M)t)a F)n$*B Ann)a an$ Pe#io$ic Repo#t*: $hese include data on the fund#s financial performance, so indicators such as incomeKexpense ratios and $otal Geturn can be computed on the basis of this data. $he annual report includes a listing of the fund#s portfolios expenses holdings ,unreali%ed at market value, statement at of revenue year-end, and and appreciationKdepreciation
changes in the net assets. )n the basis of the annual report, the investors can develop a perspective on the quality of the fund Ls assets and portfolio concentration and risk profile, besides computing returns. He can also assess the quality of the fund management company by reviewing all their scheme#s performance. $he profit and loss account part of the annual report will also give details of transaction costs such as brokerage paid, custodianKregistrar fees and stamp duties.
M)t)a F)n$*B Aeb*ite* . 5ith the increasing spread of the internet as a medium, all mutual funds have their own websites. /'*I even requires funds to disclose certain types of the information on these sites- for example, the ,ortfolio Bomposition. /imilarly, "M&I itself has a websites , which displays all of its members funds# ("9 information. Financia pape#*: -aily newspapers such as the 'conomic $imes provide daily ("9 figures for the open end schemes and share prices of the closed end listed schemes. *esides, weekly supplements of the economic newspapers give more analytical information on the fund performance. &or example, *usiness /tandard- the /mart Investor gives total returns over 1month, : year and 1 year periods, besides the fund si%e and rankings with the other funds separately for 'quity, *alanced, -ebt, Money Market, /hort $erm -ebt and $ax ,lanning &unds. /imilarly, 'conomic $imes weekly supplement gives additional data on open end schemes such as 8oads and -ividends besides the ("9 and other information, and performance data on closed end scheme. F)n$ T#ac-in% A%encie*: In India, agencies such as Bredence and 9alue Gesearch are a source of information for mutual fund performance data and evaluation. $his data is available only on request and payment. Ne+ * ette#* : Many stockbrokers ,mutual fund agent and banks and non-ranking firms catering to retail investors publish their own newsletters, sometimes free or else for their subscribes, giving fund performance data and recommendations. P#o*pect)*: /'*I Gegulations for mutual fund require the fund sponsors to disclose performance data relating to scheme being managed by the concerned "MB ,such as the beginning and end of the year.
the fund manager in trying to always buy or sell stocks to remain in line with the weight age that the stock en oys in the index. CActiveD E?)it& F)n$*: "n index fund is passively managed, to track a given index. However, most of the other equity fundsK schemes are actively managed by the fund managers. If an investor holds such an actively managed equity fund, the fund manager would not specify in advance the benchmark to evaluate his expected performance as in case of an index fund. However, the investor still needs to know whether the fund performance is good or bad. $o evaluate the performance of the equity scheme, therefore, we still need to select an appropriate benchmark and compare its return to the returns on the benchmark 6 usually this means using the appropriate market index. $he appropriate index to be used to evaluate a broad based equity fund should be decided on the basis of the si%e and the composition of the fund#s portfolio. If the fund in question has a large portfolio, a broader market index like */' :44 or ;44 or (/' :44 may have to be used as the rather than /M, B(N (I&$I or */' 14. "n actively managed fund expects to be able to beat the index, in other words give higher returns than the index itself. /omewhat like the Index &unds, the choice of benchmarks in case of /ector &unds is easier. Blearly, for example, an investor in Infotech or ,harma sector funds can only expect the same return as the relative sectoral indices. In such cases, he should expect the same or higher returns than the Infotech or ,harma sector index if such index exists. In other words, the choice of the correct equity index as a benchmark also depends upon the investment ob ective of the fund. $he performance of a small cap fund has to be compared with the small cap index. " +rowth &und investing in new growth sectors but is diversified in many sectors can only be udged against the appropriate growth index if available. If not, the returns can only be compared to either a broad based index or a combined set of sectoral indices.
Eva )atin% t"e F)n$ Mana%e# EA**et Mana%e.ent Co.pan& 5hile every fund is exposed to market risks, good funds should at least match ma or market indices, and be able to sustain bearish market phases better than other funds. +ood funds manager operate long term perspective, do not sacrifice investor value by excessive trading which generates a high level of transaction costs, and will turn out more consistent performance , which is more valuable than one-time high and otherwise volatile performance record. $he investor must evaluate the fund manager#s track record, how his schemes have performed over the years. $here is a difference between institution-managed funds that have a team of managers with successful records as against funds that are managed by the individuals only. $he team approach also helps by offsetting bad performance by one manager with good performance from the others in the team. In practice, however, single person managed funds are widely prevalent in the countries like the 0./. In India, many individuals operate as ,ortfolio Managers. However, currently, we have mainly institution sponsored funds, either banksponsored ,corporate owned or government K financial institution 7owned. $he reliability and track record of these sponsors has been an important factor in investor perceptions. In the final analysis, "sset Management Bompanies and their fund managers ought to be udged on consistency in the returns obtained, and performance record against competing or peer group managers running similar funds. 5hile transaction costs incurred are also an important factor, this information is not generally available in India.
STA/E
"ccumulation stage
FINANCIAL NEEDS
INVESTMENT PREFERENCES
Investing for long term +rowth option and long identified financial goals term products . High risk appetite (ear term needs for funds 8iquid and medium term as per specified needs draw investment . ,reference for closer Higher requirements income and debt products. liquidity 8iquid and medium term investment ., for income needs ,
$ransition stage
Geaping stage
"bility to take risks and invest for the long term 5ealth preservation ,reference products. for low . risk
Asset A o%ation
"sset "llocation refers to the process of deciding the composition of a portfolio. In order to achieve the goals of a financial plan, investors should allocate their funds to equity, debt and other asset classes, according to the risk and return features of these classes. $his process is called asset allocation.
Mo$e Port#o ios that %an +e re%o""en$e$ #or investors a%%or$in& to their Li#e C)% e Sta&es
$he model portfolio that has been recommended by Dacobs for investors is as follows.
INVESTOR
Ioung unmarried professional
RECOMMENDED PORTFOLIO
34J in aggressive equity funds
MODEL
;3J in high yield bond funds, growth and income funds ;3J in conservative money market funds Ioung couple with ; incomes and ; :4J in money market funds children 14J in aggressive funds ;3J in high yield bond funds and long term growth funds )lder couple single income 13J in municipal bond funds 14J in short term municipal funds 13J in long term municipal funds ;3J in moderately aggressive equity Gecently retired couple :4J in emerging growth equity 13J in conservative equity funds for capital preservationK income ;3J in moderately aggressive equity for modest capital growth <4J in money market funds.
FRE-UENCY OF IN.ESTMENT
15%
33%
52%
SOURCES OF AWARENESS
New!+a+er,-aga. ine 12% 17% 13% 10% #*% /riend!,0 lleague ! '1 2d)erti!e%ent! /act!heet! Other!
Lac3 f awarene!! 20% 50% 1*% Other! 12% Lac3 f tru!t $nc n)enience
Le!! than 1 year 13% 19% 51% 17% - re than 5 year! 2 t 5 year! 1 t 2 year
4an3 de+ !it! 1*% 20% 12% 50% -utual fund & )ern%ent 4 nd! 5quity %ar3et
13%
"%
19%
19%
85S NO
*1%
1#%
12%
2"%
Di#ect Ma#-etin%:
$his constitutes ;4 percent of the total sales of mutual funds. /ome of the important tools used in this type of selling are .
Pe#*ona Se in% :In this case the customer support officer of the fund at a
particular branch takes appointment from the potential prospect. )nce the appointment is fixed, the branch officer also called *usiness -evelopment "ssociate ?*-"@ in some funds then meets the prospect and gives him all details about the various schemes being offered by his fund. $he conversion rate in this mode of selling is in between 14J - <4J.
Te e.a#-etin% : In this case the emphasis is to inform the people about the
fund. $he names and phone numbers of the people are picked at random from telephone directory. /ometimes people belonging to a particular profession are also contacted through phone and are then informed about the fund. +enerally the conversion rate in this form of marketing is :3J - ;4J.
Di#ect Mai :$his is one of the most common method followed by all mutual
funds. "ddresses of people are picked at random from telephone directory. $he customer support officer ?B/)@ then mails the literature of the schemes offered by the fund. $he follow up starts after 1 7 < days of mailing the literature. $he B/) calls on the people to whom the literature was mailed. "nswers their queries and is generally successful in taking appointments with those people. It is then the ob of *-" to try his best to convert that prospect into a customer.
$he purpose to keep investors aware the schemes offered by the fund and their performance in recent past.
Hoa#$in%* an$ banne#*: In this case the hoardings and banners of the fund
are put at important locations of the city where the movement of the people is very high. +enerally such hoardings are put near 0$I offices in order to tap people who are at present investing in 0$I schemes. $he hoarding and banner generally contains information either about one particular scheme or brief information about all scheme of fund.
Foint Ca * :
$his is generally done when the prospects seems to be a high net worth investor. $he *-" and the agent ?who is located close to the H(I#s residence or area of operation@ together visit the prospect and brief them about the fund. $he conversion rate is very high
in this situation ,generally around C4J. *oth the fund and the agent provide even after sale services in this particular case.
Meetin%* +it" HNIB* :$his is a special feature of all the funds . 5henever a
top official visits a particular branch office, he devotes at least one to two hours in meeting with the H(I#s of that particular area. $his generally develops a faith among the H(I#s towards the fund.
SUGGESTIONS
Inve*to#* point o! vie+
$he question all the customer, irrespective of the age group and financial status, think of is- "re Mutual &unds are a safe option! 5hat makes them safe! $he basis of mutual fund industry#s safety is the way the business is defined and regulations of law. /ince the mutual fund invests in the capital market instruments, so proper knowledge is essential. Hence the essential requirement is the well informed seller and equally informed buyer. 5ho understands and help them to understand the product ?here we can say the capital market and the money market instruments@ is the essential pre-conditions. *eing a prudent investors one should. i. "sk one#s agent to give details of different schemes and match the appropriate ones. ii. +o to the company or the fund house regarding any queries if one is not satisfied by the agents. iii. Investors should always keep an eye on the performance of the scheme and other good schemes as well which are available in the market for the closed comparison. iv. (ever invest blindly in the investments before going through the fact sheets, annual reports etc. of the company since ,according to the guidelines of the /'*I, the "MBs are bound to disclose all the relevant data that is necessary for the investment purpose by the investor.
LIMITATIONS
$his pro ect is limited in scope as the survey is conducted with a shortage of time constraint and is also based on secondary data. $he answers given by the respondents may be biased due to several reason or could be attachment to a particular bank or brand. -ue to ignorance factor some of the respondents were not able to give correct answers . $he respondents were not disclosing their exact portfolio because they have a fear in their minds that they can come under tax slabs.
-UESTIONNAIRE
:@ (ame of the customer Mr.KMrs.KMs. ;@ "ddress KBontact 1@ *ank you are dealing with <@ 5hat occupation you are in! 3@ 5hat is the age group you fall in! a@;4-14 b@14-<4 c@<4-34 d@34-C4 e@above C4
C@ 5hat is the per month income of your family! a@8ess than :4,444 A@ $ype of investment a@Burrent b@/avings c@&ixed -eposits d@/hares e@*ondsK-ebentures f@Mutual &unds =@ ,reference a@8iquidity b@Geturn c@$ax benefit d@/afety g@+oldKGeal 'state b@:4,444-14,444 c@14,444-34,444 d@"bove 34,444
2@ "re you aware of the Mutual &unds! IesK(o If yes, then please attempt next question else go to question no.:; :4@ Have you ever invested in Mutual &unds! If yes ,please attempt next five questions else go to question no.:: i@ 5hich scheme did you last invest in! ii@5hat returns did you get out of that scheme! iii@/ince how long you are in that scheme!
iv@ 5ould you like to switch to current (,) ! I'/K() v@-o you have any knowledge of the tax benefits! vi@&rom where do you get information about Mutual &unds! a@ ,rint Media b@ 'lectronic Media *rokerKInvestment e@ *ank c@ &riendsKGelatives d@
::@ If you#ve never invested in the Mutual funds then attempt the next question i@5hat has been the reason of your not investing into the mutual funds! a@ lack of confidence b@imperfect knowledge c@finds government securitiesKbonds better d@other reasons
ii@"re you aware of the /'*IKG*I guidelines! :;@ If you are not aware of the Mutual &unds then attempt the next "re you not interested in generating higher returns!
2I2LIOGRAP4Y
INDE5
TOPICS8 /ynopsis Introduction )rigin )f Mutual &unds Gegulatory &ramework Blassification )f Mutual &unds $ypes )f Mutual &unds Investment ,lans -istribution Bhannels "ccounting Hnowledge Mutual &und ,erformance# "nalysis Marketing )f Mutual &unds /uggestions 8imitations "nnexure *ibliography
Pa&e no;