A PROJECT REPORT ON MUTUAL FUND HIGH RETURN INVESTMENT

ANNEXURE
I hereby declare that the project report Mutual Fund High Return Investment submitted in partial fulfillment of the requirements for the degree of Master of Business Administration to Sikkim Manipal University, India, is my original work and not submitted for the award of any other degree, diploma, fellowship, or any other similar title or prizes.

BONAFIDE CERTIFICATE

Certified that this project report titled MUTUAL FUND HIGH RETURN INVESTMENT is the bonafide work of SANTOSH KUMAR SINGH who carried out the project work under facultys supervision.
SIGNATURE

ASHOK KUMAR SINGH (Deputy General Manager) AXIS BANK

ACKNOWLEDGEMENT

It is with great pleasure that I put on record my gratitude to my family members, without their support I would not have completed the project. I would like to thank all my friends & colleagues for all the support extended to me during my project. I would also like to thank my center for the guidance & help provided to me during my analysis.

CONTENTS OF THE REPORT PAGE NO. 9 12 17 19 28 32 40 45 54 61

SERIAL NO.

PARTICULARS

1 2 3 4 5 6 7 8 9 10

BACKGROUND OF PRINCIPAL MF CONCEPT & WORKING OF MF REGULATORY FRAMEWORK TYPES OF MUTUAL FUNDS ADVANTAGES AND DISADVANTAGE TYPES OF RISK MARKETING STRATEGIES MARKET RESEARCH FINDINGS AND RECOMMENDATIONS REFRENCES

PREFACE

Mutual Funds are going to be amongst the most exciting players in the years to come. Fund managers of well oiled operations and their clients are in for a terrific experience. The question in everybodys mind however is, When? When will investors interest in Mutual Funds will really pick up? When will the infatuation of the small investors with primary markets end? And when will the mutual fund gain the type of clout in the stock market that their counterparts in the United States of America enjoy. The Indian investor, believes in playing the market on his own, and will continue to do so till the time his perception changes- which they undoubtedly will. Financial institutions and mutual funds, leaving the small investor with no other option except the mutual fund to put his savings in., will ultimately dominate the markets but for this to happen, industry will have to be patient and prove that it can prove investors with better returns than the markets. Plus they will have to make their operations much more transparent and investor friendly. Well if we look at the trend and the figure of last one-year number it seems the shift has started to happen towards mutual fund shifting the trend.

OBJECTIVE

The objective of this project is to suggest the customers to invest in mutual fund on the basis of their needs and requirement by comparing the top funds, which are the market leaders in the mutual fund industry.

BACKGROUND OF PRINCIPAL FINANCIAL GROUP

The Principal Financial Group is a leading global financial company offering businesses, individuals and institutional clients a wide range of financial products and services. Our range of products and services includes retirement solutions, life and health insurance, wellness programs, and investment and banking products through our diverse family of financial services companies and national network of financial professionals. The Principal Financial Group Delivers top-quality retirement, mutual funds, life insurance and assetmanagement services with $306.0 billion in assets under management. Manages assets for 10 of the top 25 largest pension funds in the United States. Is the 38th largest institutional asset manager in the world. Is a publicly traded company on the New York Stock Exchange (NYSE ticker symbol: PFG) Provides financial services to more than 18.3 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group's, comprehensive knowledge of retirement services and asset management gives it a true edge in the marketplace. This knowledge and experience has helped The Principal* become a global leader in delivering high-quality financial services to clients around the world through its diverse family of companies. As the leader in the U.S.A, and a member of the FORTUNE 500 and the S&P 500, The Principal has become a trusted source for clients since 1879. Diversity of strengths and skills has increased its ability to deliver innovative solutions to millions of individuals and businesses around the world. Having built a strong reputation in United States, the Principal has steadily entered markets around the globe. We pride ourselves on our long record of providing value through our expertise in investments, administration, system design, distribution management, education and client service.

INTRODUCTION
What is Mutual Fund ? 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.

IMPORTANT CHARACTERISTICS OF THE MUTUAL FUND

A mutual fund actually belongs to the investors who have pooled their funds. The ownership of the mutual fund is in the hand of the investor

A mutual fund is managed by investment professional and other service providers who earn a fee for their services from the fund

The pool of funds is invested in a portfolio of marketable investments. The value of the portfolio is update every day.

The investors share in the fund is denominated by UNIT. The value of the unit changes with changes in the portfolio value every day the value of the unit of investment is called as the Net Assets Value or NAV.

The investment portfolio of the fund is created according to the stated investment objectives of the fund.

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Concept and role of Mutual Fund

A Mutual Fund is common pool of money into which Investor place their contributions that are to be invested in accordance with a stated objective. The ownership of the Fund is thus joint or mutual; the fund belongings to all investors. A single investors ownership of the fund is in the same proportion as the amount of the contribution made by him or her bears to the total amount of the fund.

A Mutual fund uses the money collected from investors to buy those assets, which are specifically permitted by its stated investment objective. Thus, an Equity Fund would buy mainly Equity assets-ordinary shares, preference shares, warrants etc. A bond fund would mainly buy debt instruments such as debentures, bonds or government securities. It is these assets, which are owned by the investors in the same proportions as there contribution bears to the total contribution of all investors put together.

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When an investor subscribes to a mutual fund, he or she buys a part of these assets or the pool of funds that are outstanding at that time. Its no different from buying shares of a joint stock company, in which case the purchase makes the investor a part owner of the company and its

assets. In fact, in the USA, a Mutual fund is constituted as an investment company and an investor buys into the fund, meaning he buys the shares of the fund. In India, a mutual fund is constituted as a Trust and the investor subscribes to the units issued by the fund, which is where the term unit Trust comes from.

About Mutual Fund Industry

Mutual Funds are financial intermediaries which pool the savings of numerous individuals and invest the money, thus related in a diversified portfolio of securities, including equity, bonds debentures and other money market instruments, thus spreading and reducing risk. The objective of mutual fund is to maximize the return to the investor who participates in equity indirectly through mutual funds. History of the Indian Mutual Fund Industry

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The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. The history of mutual funds in India can be broadly divided into four distinct phases.

First Phase 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management. Second Phase 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores. Third Phase 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

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The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. 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.

As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds. Fourth Phase since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of March 2008, there were 33 mutual funds, which managed assets of Rs. 5,05,152 crores(US $ 126 Billion)* under 956 schemes.

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GROWTH IN ASSETS UNDER MANAGEMENT

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Regulatory Structure of Mutual Fund in India

The structure of mutual fund in India is governed by SEBI (MUTUAL FUND) regulations 1996. These regulations make it mandatory for mutual funds to have a three-tier structure of SPONSOR-TRUSTEE-ASSET MANAGEMENT COMPANY (AMC).

Mutual Fund Structure

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The structure consists of

Sponsor Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. Sponsor must contribute atleast 40% of the networth of the Investment Manged and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund.

Trust The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908. 17

Trustee Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and inter alia ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the respective Schemes. Atleast 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manner. Asset Management Company (AMC) The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. Atleast 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 crore at all times.

Registrar and Transfer Agent The AMC if so authorised by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records.

Types of Mutual Funds Schemes

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Schemes floated by the various mutual funds are essentially of two types, namely open-ended and close-ended. The basic characteristics of these two types of mutual fund schemes are given below: Types of Schemes

OPEN ENDED SCHEMES: Open-ended schemes are available for subscription all the year round excluding the period of book-closing. They may or may not have a specified redemption period. The sale and repurchase prices are fixed by the mutual fund concerned from time to time. Repurchases are generally allowed al specified rated. Each open-ended scheme must have a minimum corpus of Rs.50 crore. In case the fund manager is not able to raise this amount at the time of issue, or 60 % of the targeted amount whichever is higher, the entire subscription must be returned to the investor.

CLOSE-ENDED SCHEMES

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These are open for subscription only during a specified period. Generally the redemption dates are also specified when the investor can redeem their units. The duration of this scheme varies: normally it is 5-7 years. Repurchase during the intervening period may or may not be allowed. Some of the schemes though have a repurchase facility after a certain period. Many of these schemes are listed in stock exchanges, except for some of the close-ended income schemes . Equity Oriented Schemes : These schemes, also commonly called Growth Schemes, seek to invest a majority of their funds in equities and a small portion in money market instruments. Such schemes have the potential to deliver superior returns over the long term. However, because they invest in equities, these schemes are exposed to fluctuations in value especially in the short term. Equity schemes are hence not suitable for investors seeking regular income or needing to use their investments in the short-term. They are ideal for investors who have a long-term investment horizon. The NAV prices of equity fund fluctuates with market value of the underlying stock which are influenced by external factors such as social, political as well as economic. HDFC Growth Fund, HDFC Tax saver and HDFC Index Fund are examples of equity schemes. Debt Based Schemes: These schemes, also commonly called Income Schemes, invest in debt securities such as corporate bonds, debentures and government securities. The prices of these schemes tend to be more stable compared with equity schemes and most of the returns to the investors are generated through dividends or steady capital appreciation. These schemes are ideal for conservative investors or those not in a position to take higher equity risks, such as retired individuals. However, as compared to the money market schemes they do have a higher price fluctuation risk and compared to a Gilt fund they have a higher credit risk.

INCOME SCHEMES : These schemes provide returns in the form of dividends. The returns
may be cumulative or non-cumulative on a monthly, quarterly, or yearly basis. Mutual Funds carry market risks and are prohibited by SEBI from declaring any guaranteed rate of returns. The money under such schemes are predominantly invested in fixed income securities like debentures, bonds, Government securities etc.

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 Liquid Income Schemes: Similar to the Income scheme but with a shorter maturity than
Income schemes. An example of this scheme is the HDFC Liquid Fund.

Money Market Schemes: These schemes invest in short term instruments such as
commercial paper (CP), certificates of deposit (CD), treasury bills (T-Bill) and overnight money (Call). The schemes are the least volatile of all the types of schemes because of their investments in money market instrument with short-term maturities. These schemes have become popular with institutional investors and high net worth individuals having short-term surplus funds. Gilt Funds: This scheme primarily invests in Government Debt. Hence the investor usually does not have to worry about credit risk since Government Debt is generally credit risk free. HDFC Gilt Fund is an example of such a scheme. HYBRID SCHEMES : These schemes are commonly known as balanced schemes. These schemes invest in both equities as well as debt. By investing in a mix of this nature, balanced schemes seek to attain the objective of income and moderate capital appreciation and are ideal for investors with a conservative, long-term orientation. HDFC Balanced Fund and HDFC Childrens Gift Fund are examples of hybrid schemes. Interval Schemes: These schemes combine the features of open-ended and closed-ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV based prices. VALUE-ADDED SCHEMES: they are in addition to the growth/income schemes. Some of the mutual funds schemes have provision for value addition. This is usually in the nature of personal insurance cover for accidents, etc. GIC Mutual Fund was the first to introduce this concept.

By Investment Objective
Growth Schemes

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Aim to provide capital appreciation over the medium to long term. These schemes normally invest a majority of their funds in equities and are willing to bear short term decline in value for possible future appreciation. These schemes are not for investors seeking regular income or needing their money back in the short term. Ideal for: Investors in their prime earning years. Investors seeking growth over the long term. Income Schemes Aim to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. schemes may be limited. Ideal for: Retired people and others with a need for capital stability and regular income. Investors who need some income to supplement their earnings. Balanced Schemes Aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. They invest in both shares and fixed income securities in the proportion indicated in their offer documents. In arising stock market, the NAV of these schemes may not normally keep pace or fall equally when the market falls. Ideal for: Investors looking for a combination of income and moderate growth. Capital appreciation in such

Money Market / Liquid Schemes Aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short term instruments such as treasury bills, certificates of deposit, commercial paper and interbank call money.

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Returns on these schemes may fluctuate, depending upon the interest rates prevailing in the market. Ideal for: Corporate and individual investors as a means to park their surplus funds for short periods or awaiting a more favorable investment alternative. Other Schemes Tax Saving Schemes (Equity Linked Saving Scheme - ELSS) These schemes offer tax incentives to the investors under tax laws as prescribed from time to time and promote long term investments inequities through Mutual Funds. Ideal for: Investors seeking tax incentives Special Schemes This category includes index schemes that attempt to replicate the performance of a particular index such as the BSE Sensex, the NSE 50 (NIFTY) or sector specific schemes which invest in specific sectors such as Technology, Infrastructure, Banking, Pharma etc. Besides, there are also schemes which invest exclusively in certain segments of the capital market, such as Large Caps, Mid Caps, Small Caps, Micro Caps, 'A' group shares, shares issued through Initial Public Offerings (IPOs), etc. Index fund schemes are ideal for investors who are satisfied with a return approximately equal to that of an index. Sectoral fund schemes are ideal for investors who have already decided to invest in a particular sector or segment.

Fixed Maturity Plans Fixed Maturity Plans (FMPs) are investment schemes floated by mutual funds and are close ended with a fixed tenure, the maturity period ranging from one month to three/five years. These plans are predominantly debt-oriented, while some of them may have a small equity component. 23

The objective of such a scheme is to generate steady returns over a fixed-maturity period and protect the investor against market fluctuations. FMPs are typically passively managed fixed income schemes with the fund manager locking into investments with maturities corresponding with the maturity of the plan. FMPs are not guaranteed products. Exchange Traded Funds (ETFs) Exchange Traded Funds are essentially index funds that are listed and traded on exchanges like stocks. Globally, ETFs have opened a whole new panorama of investment opportunities to retail as well as institutional investors. ETFs enable investors to gain broad exposure to entire stock markets as well as in specific sectors with relative ease, on a real-time basis and at a lower cost than many other forms of investing. An ETF is a basket of stocks that reflects the composition of an index, like S&P CNX Nifty, BSE Sensex, CNX Bank Index, CNX PSU Bank Index, etc. The ETF's trading value is based on the net asset value of the underlying stocks that it represents. It can be compared to a stock that can be bought or sold on real time basis during the market hours. The first ETF in India, Benchmark Nifty Bees, opened for subscription on December 12, 2001 and listed on the NSE on January 8, 2002. Capital Protection Oriented Schemes Capital Protection Oriented Schemes are schemes that endeavor to protect the capital as the primary objective by investing in high quality fixed income securities and generate capital appreciation by investing in equity / equity related instruments as a secondary objective. The first Capital Protection Oriented Fund in India, Franklin Templeton Capital Protection Oriented Fund opened for subscription on October 31, 2006.

Gold ExchangeTraded Funds (GETFs) Gold Exchange Traded Funds offer investors an innovative, cost-efficient and secure way to access the gold market. Gold ETFs are intended to offer investors a means of participating in the gold bullion market by buying and selling units on the Stock Exchanges, without taking physical

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delivery of gold. The first Gold ETF in India, Benchmark GETF, opened for subscription on February 15, 2007 and listed on the NSE on April 17, 2007. Quantitative Funds A quantitative fund is an investment fund that selects securities based on quantitative analysis. The managers of such funds build computer based models to determine whether or not an investment is attractive. In a pure "quant shop" the final decision to buy or sell is made by the model. However, there is a middle ground where the fund manager will use human judgment in addition to a quantitative model. The first Quant based Mutual Fund Scheme in India, Lotus Agile Fund opened for subscription on October 25, 2007 Funds Investing Abroad With the opening up of the Indian economy, Mutual Funds have been permitted to invest in foreign securities/ American Depository Receipts (ADRs) / Global Depository Receipts (GDRs). Some of such schemes are edicated funds for investment abroad while others invest partly in foreign securities and partly in domestic securities. While most such schemes invest in securities across the world there are also schemes which are country specific in their investment approach. Fund of Funds (FOFs) Fund of Funds are schemes that invest in other mutual fund schemes. The portfolio of these schemes comprise only of units of other mutual fund schemes and cash / money market securities/ short term deposits pending deployment. The first FOF was launched by Franklin Templeton Mutual Fund on October 17, 2003.Fund of Funds can be Sector specific e.g. Real Estate FOFs, Theme specific e.g. Equity FOFs, Objective specific e.g. Life Stages FOFs or Style specific e.g. Aggressive/ Cautious FOFs etc.

HOW TO INVEST IN MUTUAL FUNDS

Step One - Identify your investment needs.

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Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, level of income and expenses among many other factors. Therefore, the first step is to assess your needs. Begin by asking yourself these questions: 1. What are my investment objectives and needs? Probable Answers: I need regular income or need to buy a home or finance a wedding or educate my children or a combination of all these needs. 2. How much risks a MF willing to take? Probable Answers: I can only take a minimum amount of risk or I am willing to accept the fact that my investment value may fluctuate or that there may be a short term loss in order to achieve a long term potential gain. 3. What are my cash flow requirements? Probable Answers: I need a regular cash flow or I need a lump sum amount to meet a specific need after a certain period or I dont require a current cash flow but I want to build my assets for the future. By going through such an exercise, you will know what you want out of your investment and can set the foundation for a sound Mutual Fund Investment strategy. Step Two - Choose the right Mutual Fund. Once you have a clear strategy in mind, you now have to choose which Mutual Fund and scheme you want to invest in. The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed the same Fund Manager. Some factors to evaluate before choosing a particular Mutual Fund are: the track record of performance over the last few years in relation to the appropriate. .Step Three- Select the ideal mix of Schemes. Investing in just one Mutual Fund scheme may not meet all your investment needs. You may consider investing in a combination of schemes to achieve your specific goals.

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Step Four - Invest regularly For most of us, the approach that works best is to invest a fixed amount at specific intervals, say every month. By investing a fixed sum each month, you get fewer units when the price is high and more units when the price is low, thus bringing down your average cost per unit. This is called rupee cost averaging and is a disciplined investment strategy followed by investors all over the world. With many open-ended schemes offering systematic investment plans, this regular investing habit is made easy for you Step Five - Keep your taxes in mind As per the current tax laws, Dividend/Income Distribution made by mutual funds is exempt from Income Tax in the hands of investor. However, in case of debt schemes Dividend/ Income Distribution is subject to Dividend Distribution Tax. Further, there are other benefits available for investment in Mutual Funds under the provisions of the prevailing tax laws. You may therefore consult your tax advisor or Chartered Step Six -Start early It is desirable to start investing early and stick to a regular investment plan. If you start now, you will make more than if you wait and invest later. The power of compounding lets you earn income on income and your money multiplies at a compounded rate of return. Step Seven -The final step All you need to do now is to get in touch with a Mutual Fund or your advisor and start investing. Reap the rewards in the years to come. Mutual Funds are suitable for every kind of investor whether starting a career or retiring, conservative or risk taking, growth oriented or income seeking.

ADVANTAGES OF MUTUAL FUNDS:

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The advantages of investing in a Mutual Fund are: Professional Management.

The major advantage of investing in a mutual fund is that you get a professional money manager to manage your investments for a small fee. You can leave the investment decisions to him and only have to monitor the performance of the fund at regular intervals. Diversification.

Considered the essential tool in risk management, mutual funds make it possible for even small investors to diversify their portfolio. A mutual fund can effectively diversify its portfolio because of the large corpus. However, a small investor cannot have a well-diversified portfolio because it calls for large investment. For example, a modest portfolio of 10 bluechip stocks calls for a few a few thousands.

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Convenient Administration.

Mutual funds offer tailor-made solutions like systematic investment plans and systematic withdrawal plans to investors, which is very convenient to investors. Investors also do not have to worry about investment decisions, they do not have to deal with brokerage or depository, etc. for buying or selling of securities. Mutual funds also offer specialized schemes like retirement plans, childrens plans, industry specific schemes, etc. to suit personal preference of investors. These schemes also help small investors with asset allocation of their corpus. It also saves a lot of paper work. Costs Effectiveness

A small investor will find that the mutual fund route is a cost-effective method (the AMC fee is normally 2.5%) and it also saves a lot of transaction cost as mutual funds get concession from brokerages. Also, the investor gets the service of a financial professional for a very small fee. If he were to seek a financial advisor's help directly, he will end up paying significantly more for investment advice. Also, he will need to have a sizeable corpus to offer for investment management to be eligible for an investment advisers services.

Liquidity.

You can liquidate your investments within 3 to 5 working days (mutual funds dispatch redemption cheques speedily and also offer direct credit facility into your bank account i.e. Electronic Clearing Services). Transparency.

Mutual funds offer daily NAVs of schemes, which help you to monitor your investments on a regular basis. They also send quarterly newsletters, which give details of the portfolio, performance of schemes against various benchmarks, etc. They are also well regulated and Sebi monitors their actions closely. Tax benefits.

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You do not have to pay any taxes on dividends issued by mutual funds. You also have the advantage of capital gains taxation. Tax-saving schemes and pension schemes give you the added advantage of benefits under section 88. Affordability

Mutual funds allow you to invest small sums. For instance, if you want to buy a portfolio of blue chips of modest size, you should at least have a few lakhs of rupees. A mutual fund gives you the same portfolio for meager investment of Rs.1,000-5,000. A mutual fund can do that because it collects money from many people and it has a large corpus.

DISADVANTAGES OF MUTUAL FUNDS:

No Control over cost An investor in Mutual Funds has no control over the overall cost investing as he pays investment management fees as long as he remains with the fund. He also pays fund distribution costs, which he would not incur in direct investing.

No Tailor-made Portfolios Investors who invest on their own can build their own portfolios whereas investing through funds involves delegating this decision to the fund managers.

Managing portfolio of fund- Availability of the large number of funds can actually mean too much choice for the investor wherein he needs an advice on selecting a fund to achieve his objectives, to suit the situation when he selects individual shares or bonds to invest in.

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RISK ASSOCIATED WITH MUTUAL FUNDS

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The Risk-Return Trade-off The most important relationship to understand is the risk-return trade-off. Higher the risk greater the returns/loss and lower the risk lesser the returns/loss. Hence it is unto investor, the investor to decide how much risk you are willing to take. In order to do this you must first be aware of the different types of risks involved with your investment decision.

Market Risk Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting the market in general lead to this. This is true, may it be big corporations or smaller mid-sized companies. This is known as Market Risk.

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Credit Risk The debt servicing ability (may it be interest payments or repayment of principal) of a company through its cashflows determines the Credit Risk faced by you. This credit risk is measured by independent rating agencies like CRISIL who rate companies and their paper. A AAA rating is considered the safest whereas a D rating is considered poor credit quality. Inflation Risk Rs. 100 today is worth more than Rs. 100 tomorrow. Remember the time when a bus ride coasted 50 paise? The root cause, Inflation. Inflation is the loss of purchasing power over time. A lot of times people make conservative investment decisions to protect their capital but end up with a sum of money that can buy less than what the principal could at the time of the investment. This happens when inflation grows faster than the return on your investment. A welldiversified portfolio with some investment in equities might help mitigate this risk.

Interest Rate Risk In a free market economy interest rates are difficult if not impossible to predict. Changes in interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of bonds fall and vice versa. Equity might be negatively affected as well in a rising interest rate environment. Political/Government Policy Risk Changes in government policy and political decision can change the investment environment. They can create a favorable environment for investment or vice versa.

RISK AND PERFORMANCE MEASUREMENT

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MEASURES

DESCRIPTION

IDEAL RANGE

STANDARD DEVIATION

Standard Deviation allows to evaluate Should be near to its the volatility of the fund. The standard mean return. deviation of a fund measures this risk by measuring the degree to which the fund fluctuates in relation to its mean return. Beta > 1 = high risky Beta is a fairly commonly used measure of risk. It basically indicates Beta = 1 = Avg the level of volatility associated with the fund as compared to the Beta <1 = Low Risky benchmark. R- square measures the correlation of a funds movement to that of an index. R-squared describes the level of association between the fund's volatility and market risk. R-squared values range between 0 and 1, where 0 represents no correlation and 1 represents full correlation.

BETA

R-SQUARE

ALPHA

Alpha is the difference between the Alpha is positive = returns one would expect from a fund, returns of stock are better given its beta, and the return it actually then market returns. produces. It also measures the unsystematic risk . Alpha is negative = returns of stock are worst then market. Alpha is zero = returns are same as market.

SHARPE RATIO

Sharpe Ratio= Fund return in excess of risk free return/ Standard deviation of Fund. Sharpe ratios are ideal for comparing funds that have a mixed asset classes.

The higher the Sharpe ratio, the better a funds returns relative to the amount of risk taken.

Comparison of Investment products:

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Investor tends to constantly compare one form of investment with another Investors certainly look for the best returns for different option. However, to determine which option is better, the comparison should be made in terms of other benefits that the investor ought to look for in any investment. Investment Equity FI Bonds Corporate Debentures Corporate FDs Bank Deposits PPF Life Insurance Gold Real Estate Mutual Funds Objective Capital appreciation Income Income Income Income Income Risk cover Inflation hedge Inflation hedge Capital growth Income & Returns High Moderate Moderate Moderate Low Moderate Low Moderate High High Risk Tolerance High Low High High Generally low Low Low Low Low High Investment Horizon Long term Med-long Med Med Flexible Long term Long term Long term Long term Flexible Liquidity High Moderate Low Low High Moderate Low Moderate Low High

Tax Rules For Mutual Fund Investors*

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Equity schemes

Other schemes

Dividen d income TDS All Scheme s TAX FREE

Dividend distribution tax

Short Term Capital Gains Resident Individual / HUF 15%

Long Term Capital Gain NIL

Short Term Capital Gains AS PER SLAB

Long Term Capital Gain 10% (20% with indexati on)

Equity Schemes

Liquid Schemes

Other Schemes

NIL

NIL

28.32% (25% +10%surcha rge+educati on cess)

14.16% (12.5% +10%surch arge+3%ed ucation cess) 22.66% (20%+10% surcharge +3% education cess) 22.66% (20%+10% surcharge +3% education cess) 22.66% (20%+10% surcharge +3% education cess) 14.16% (12.5% +10%surch arge+3%ed ucation cess)

Partnership Firms

15%

NIL

30%

10% (20% with indexati on)

NIL

TAX FREE

NIL

28.32% (25% +10%surcha rge+educati on cess)

AOP/BOI

15%

NIL

AS PER SLAB

10% (20% with indexati on)

NIL

TAX FREE

NIL

28.32% (25% +10%surcha rge+educati on cess)

Domestic Companies

15%

NIL

30%

10% (20% with indexati on)

NIL

TAX FREE

NIL

28.32% (25% +10%surcha rge+educati on cess)

NRIs

10%

NIL

AS PER SLAB

10% (20% with indexati on)

STCG30%L TCG20%Af ter provid ing for indexa tion

TAX FREE

NIL

28.32% (25% +10%surcha rge+educati on cess)

As per the Finance Bill 2008

36

Who Can Invest In Mutual Funds In India?

Mutual funds in India are open to investment by: a) Residents including 1) Resident Indian Individuals 2) Indian Companies 3) Indian Trusts/Charitable Institutions 4) Banks 5) Non-Banking Finance Companies 6) Insurance Companies 7) Provident Funds

b) Non Residents including 1) Non-Resident Indians, and 2) Overseas Corporate Bodies (OCBs) and c) Foreign entities, viz; 1) Foreign Institutional Investors (FIIs) registered with SEBI.

Foreign citizens/ entities are however not allowed to invest in Mutual funds in India.

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THE FIVE MOST COMMON MISTAKES MUTUAL FUND INVESTORS MAKE

Failing to stay invested for a longer period Worrying about portfolio turnover or dividends it pays
Being affected by new in the market when youre supposed to be investing for the long term

Selling out during bad markets Being impatient and losing confidence too soon.

INVESTORS THINK LONG TERM BUT ACT SHORT TERM..

Time in the market is more important than timing the market

RISK FACTORS

38

Mutual Funds and Securities investment are subject to market risks and there can not be assurance or guarantee that the scheme objectives will be achieved.

As with any investment in securities, the Net Asset Value of Unit issued under the Scheme may go up or down depending on the various factors and farces affecting the capital markets.

Past performance of the Sponsors and their affiliates / AMC / Mutual Fund and its scheme do not indicate the future performance of the schemes of the Mutual Fund.

The Sponsors are not responsible or liable for any loss or shortfall resulting from the operations of the scheme beyond the contribution of Rs 1 lakh each made by them towards the corpus of the Mutual Fund.

As per SEBI circular ref. SEBI/IMD/CIR No. 10/22701/03 dated December 12, 2003 read with circular ref SEBI/IMD/CIR NO. 1/42529/05 dared June 14, 2005, it is specified inter alias that each portfolio under a scheme should have a minimum of 20 investors and no single investor should account for more than 25% of the corpus of such portfolio.

MARKETING STRATEGIES ADOPTED BY THE MUTUAL FUNDS

39

The present marketing strategies of mutual funds can be divided into three main headings: Direct Marketing: Some of the important tools used in this type of selling are: Personal Selling: In this case the customer support officer or Relationship Manager of the fund at a particular branch takes appointment from the potential prospect. Once the appointment is fixed, the branch officer also called Business Development Associate (BDA) in some funds then meets the prospect and gives him all details about the various schemes being offered by his fund. Telemarketing: In this case the emphasis is to inform the people about the fund. The names and phone numbers of the people are picked at random from telephone directory. Some fund houses have their database of investors and they cross sell their other products. Sometimes people belonging to a particular profession are also contacted through phone and are then informed about the fund.. Direct mail: This one of the most common method followed by all mutual funds. Addresses of people are picked at random from telephone directory, business directory, professional directory etc. The customer support officer (CSO) then mails the literature of the schemes offered by the fund. The follow up starts after 3 to 4 days of mailing the literature. The CSO calls on the people to whom the literature was mailed. Answers their queries and is generally successful in taking appointments with those people. It is then the job of BDA to try his best to convert that prospect into a customer. Advertisements in newspapers and magazines: The funds regularly advertise in business newspapers and magazines besides in leading national dailies. The purpose to keep investors aware about the schemes offered by the fund and their performance in recent past. Advertisement in TV/FM Channel: The funds are aggressively giving their advertisements in TV and FM Channels to promote their funds. Hoardings and Banners: 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. The hoarding and

40

banner generally contains information either about one particular scheme or brief information about all schemes of fund. Selling through intermediaries: Intermediaries contribute towards 80% of the total sales of mutual funds. These are the people distributors who are in direct touch with the investors. They perform an important role in attracting new customers. Most of these intermediaries are also involved in selling shares and other investment instruments. They do a commendable job in convincing investors to invest in mutual funds. A lot depends on the after sale services offered by the intermediary to the customer. Customers prefer to work with those intermediaries who give them right information about the fund and keep them abreast with the latest changes taking place in the market especially if they have any bearing on the fund in which they have invested. Regular Meetings with distributors: Most of the funds conduct monthly/bi-monthly meetings with their distributors. The objective is to hear their complaints regarding service aspects from funds side and other queries related to the market situation. Sometimes, special training programmes are also conducted for the new agents/ distributors. Training involves giving details about the products of the fund, their present performance in the market, what the competitors are doing and what they can do to increase the sales of the fund. Joint Calls: This is generally done when the prospect seems to be a high net worth investor. The BDA and the agent (who is located close to the residence or area of operation) together visit the prospect and brief him about the fund. Both the fund and the agent provide even after sale services in this particular case.

ADVERTISING AND SALES PROMOTION

41

By their very nature, mutual funds require higher advertisement and sales promotion expenses than any consumer product offering measurable performance. Different kinds of advertising and sales promotion exercises are required to serve the needs of different classes of investors. For instance, an aggressive push marketing strategy is required for retail markets, where investors are not adequately aware of the product and do not have specialized skill in financial market, in contrast with pull marketing strategies for the wholesale market. There are certain issues with reference to advertisement, publicity literature and oil er documents, which deserve attention. Most of the mutual fund advertisements look similar, focusing on scheme features, returns and incentives. An investor exposed to LI increasing number of mutual fund products finds that all the available brands arc rather identical, and cannot appreciate any distinction. The present form of application, brochures and other literature is generally lengthy, cumbersome and at times complicated leading to higher emphasis on advertisement. One of the limiting factors is the regulatory framework governing advertisements of mutual fund products. For instance, in the offer documents, mutual funds are required to mention the fund objectives in clear terms. Immediately thereafter, the first risk factor that has to be mentioned is that there is no certainty whether the objectives of the fund will h achieved or not. Some more relaxation in these may facilitate bringing more novelty in advertisements, within a broad framework, without luring investors through false promises, and will certainly improve the situation. Another hurdle is the statutory disclaimer required to be carried along with every advertisement. Mutual funds have to provide risk factors. Under the present mutual fund regulations, a prior approval by SEBI is a must before a mutual fund can launch its fund. In the regulation itself, a period of one month has been provided. But in a month time, perhaps the situation may so change, that the timing of launch gets affected. The requirement for getting approval, which normally takes about 2 months time, defeats the purpose for which the fund was designed also.

QUALITY OF SERVICE

42

This industry primarily sells quality of services, given that the performance cannot be promised. It is with this attribute along with procedural simplicity, that the fund gradually builds its brand and its class of loyal investors. The qualities of services are broadly categorized as: A .Timely services after the sale of the units; and B. Continuous reporting of investment performance. Mutual fund managers must give due attention and evaluate their performance on each front. They may also consider an option of conducting a service audit for controlling and improving the quality of service.

DISTRIBUTION NETWORK

43

Retail through agents The alternative distribution channels that are available are selling, or using lead managers and brokers along with sub-brokers, for selling units. The experience of UTI has been that, if necessary motivation and incentive is provided to the retailer agents, they are likely to be more successful than the lead managers. This is because, there is a sense of loyalty amongst agents, in anticipation of getting continuous business throughout the year, and the trust and credibility that has been generated or will be generated by being loyal to one institution. Statistics reveal that the wastage ratio of application forms in the lead manager concept is much higher than in the retail agency system. Savings in advertisement and publicity expenses is also affected, as the target of communication is restricted to a few groups of individuals, since the agent will function as a facilitator, informer and educator. The reduced cost benefit will ultimately accrue to the investor in the form of higher returns. In such a system, one achieves brand loyalty through continuous interaction between agents and investors. Building a team of agents and other distribution network such as distribution and collecting agents and franchise offices, will provide the investor the opportunity of having continuous interaction and contact with the mutual fund. Therefore, retail distribution through the agents is a preferred alternative for distributing mutual fund products.

MARKET RESEARCH

44

Investment in mutual fund is not a one-time activity. It is a continuous activity. The same investor, if satisfied, will come to the fund again and again. When the investor sends his application, it is not only an application, but it also contains vital information. Most of this information if tabulated and analyzed would provide important insights into investor needs, preferences and behavior and enables us to target customers need more accurately, to achieve better penetration, deeper loyalty and reduced costs. It is in this context that direct marketing will assume increased importance. Knowing the customer thoroughly is of utmost importance. Unlike the consumer goods industry, it is not possible for mutual fund industry to test market and have pilot projects before launch. At the same time, focusing and concentrating on a particular geographic area where the fund has a strong presence and proven marketing network, can help reduce network, can help reduce issue expenses and ultimately translate into higher returns for the investor. Very little research on investor preference is available, but the industry can collectively have a data bank, and share the information for appropriate use. Market Segmentation: Different segments of the market have different risk-return criteria, on the basis of which they take investment decisions. Not only that, in a particular segment also there could be different sub-segments asking for yet different risk-return attributes, and differential preference for various investments attributes of financial product. Different investment attributes an investor expects in a financial product are Liquidity Capital appreciation Safety of principal Tax treatment Dividend or interest income Regulatory restrictions Time period for investment

On the basis of these attributes the mutual fund market may be broadly segmented into five main segments as under. 45

1) Retail Segment This segment characterizes large number of participants but low individual volumes. It consists of individuals, Hindu Undivided Families, and firms. It may be further subdivided into: i. Salaried class people; ii. Retired people; iii. Businessmen and firms having occasional surpluses; iv. HUF for long term investment purpose. These may be further classified on the basis of their income levels. It has been observed that prospects in different classes of income levels have different patterns of preferences of investment. Similarly the investment preference for urban and rural prospects would differ and therefore the strategies for tapping this segment would differ on the basis of different life style, value and ethics, social environment, media habits and nature of work. The marketing strategy involving indirect selling through agency network and creating awareness through appropriate media would be more effective in this segment. 2) Institutional Segment This segment characterizes less number of participants but large individual volumes. It consist of banks, public sector units, financial institutes, foreign institutional investors, insurance companies, provident fund, pension funds, etc. This class normally looks for more specialized professional investment skills of the manager and excepts a structured product than a readymade product. The tax features and regulatory restriction are the vital consideration in their investment decisions. It required more of a personalized and direct marketing to sustain and increase volumes.

3) Non-Resident Indians

46

This segment consists of very risk sensitive participants, at times referred as fair weather friends. They need the highest cover against political and exchange risk. They nominally prefer easy exit with repatriation of income and principal. They also hold a strategic importance as they bring in crucial foreign exchange a crucial input for developing country like ours. Marketing to this segment requires special kind of products for groups of foreign countries depending upon the provisions of tax treaties. The range of suitable products is required to design to divert the funds flowing into bank accounts. The latest flavor in the mutual fund industry is exclusive schemes for non-resident Indians (NRI.) 4) Corporates Generally, the investment need of this segment is to park their occasional surplus funds that earn return more than what they have to pay on account of holding them. Alternatively, they also get surplus fund due to the seasonality of the business, which typically become due for the payment within a year or quarter or even a month. They need short term parking place for their fund, this segment offers a vast potential to specialized money market managers. Given the relaxation in the regulatory guidelines, fund managers are expected design products to this segment. Thus, each segment and sub-segment has their own risk return preferences forming niches in the market. Mutual funds managers have to analyze in detail the intrinsic needs of the prospects and design a variety of suitable products for them. Not only is that, the products also required to be marketed through appropriately different marketing strategies. The Atheists are turning believers. Mutual funds, private sector ones in particular, who had written off advertising as the A ultimate waste of money have nearly tripled their press media spend .What interesting is that in this period the share of the private sector mutual funds in the category total media spending has surged from 20 percent to 52 percent. This can be attributed to private sector funds (given the data available with the Association Mutual Funds of India) seeing an increase share of net inflows relative to the bank-sponsored counterparts in the public sector.

Clearly advertising types have something to cheer about. But what caused this sudden attitudinal shift towards advertising? According to experts, funds are being pushed into advertising more by

47

intermediaries like banks who are reluctant to sell a product whose online is unfamiliar to investor. Besides, since more open-ended schemes are now available, some form of ongoing support to keep sales booming has been deemed necessary by the funds. The industry has discovered that advertising in the changed climate today, when investors are most receptive to mutual funds, can perk up sales by anywhere between 20-40 percent. MF has rationale for stepping up marketing spends because the brand is an important part of the consumer decision to invest in a category that is not yet clearly understood by people. According to the mutual fund marketers, advertising helps bring recall when consumers are looking at investment opportunities. Advertising backed by an integrated marketing and communication campaign designed to attract investors with long term prospective has helped the fund post redemption-to- sales ratio of just about five percent as compared to 20-30 percent for the industry on an average. Direct mail is another medium, which some funds have successfully used. But rather than sending out mailers to all and sundry, there is a need for appropriate targeting. Educational seminars are the final leg in the marketing and communication process. In these, investors conditioned by advertising and hooked by an interesting mailer can have lingering doubts clarified. Attractive point of purchase (POP) material can also help. Another very successful media niche, which has been exploited to the hilt by funds, is intermediary magazines and newsletters. Besides the low costs of advertising in these newsletters, these publications circulate to those who are looking for investment opportunities and thus represent an extremely lucrative target segment. Advertising content by most of the funds too has undergone a marked change from conceptselling ads dispelling myths, to selling specific schemes that meet defined objectives/ goals.

Small and medium enterprises

48

SME means Small and Medium Enterprises. Which are important for developing economy. In India, the Govt. is paying more attention for improvement. Government to drive and encourage small manufacturers to enjoy facilities from Banks at concession rates, Also in some countries there are Tax reliefs and Special allocation of Infrastructural benefits. This sector has increased the manufacturing sector in many countries. Small Scale Industry in India SSI, a vehicle to achieve multi-fold objectives: Small scale sector has remained high on the agenda of all political parties, intelligentsia and policy makers since Independence. The special thrust to this sector has been with the multiple objectives of employment generation, regional dispersal of industries and as a seedbed for Entrepreneurship. The contribution of small scale industries (SSIs) has been remarkable in the industrial development of the country. It has a share of 40% in the industrial production. 35% of the total manufactured exports of the country are directly accounted for by this sector. In terms of employment generated, this sector is next only to agriculture employing approximately 14 million people. As per the classification of Indian Small Scale Industry, the activities of trading and services (leaving aside few industrial services) are not included in this classification of Small Industries. Several of these objectives have been fulfilled with SSI growth: The growth of the SSI has been prominent. In 1980-81, the number of SSI units was 8.74 lakhs * whereas at the end of 1995-96 the number had gone up to 28 lakhs. The total value of output in 1993-94 at current prices was Rs. 241,648 crores ** and exports were of the order of Rs. 24,000 crores. To compare the increase, figures from the two All India Censuses in 1972 and 1988 depict the production increase from Rs. 2,603 crores to Rs. 13,528 crores, both at 1972-73 prices thus representing an increase of 420 % during that period3. Overall, the small industry sector has done quite well and has enabled the country to achieve considerable industrial growth and diversification. Being generally low capital intensive, SSIs suit the Indian economic

49

environment with scarce financial resources and large population base. In addition, it is highly labor intensive and has a scope for building upon the traditional skills and knowledge. Major provider of employment: Employment in the manufacturing sector has been largely generated by the small scale sector. In the total manufacturing sector, the share of registered small scale enterprises (SSEs) is 48.8%. The household and non registered SSEs together contribute 37% of the employment generated. Together all SSEs, registered and unregistered (informal) generate employment to the extent of 85.8% of the manufacturing sector. Employment in the Manufacturing Sector Type of firms Employees (in lakhs) Percent composition

SSI Sector produces wide range of products: The small scale sector produces a wide range of products, from simple consumer goods to highly precision and sophisticated end-products. As ancillaries, it produces a variety of parts and components required by the large enterprises. The sector has emerged as a major supplier of mass consumption goods like leather articles, plastics and rubber goods, fabrics and readymade garments, cosmetics, utensils, sheet metal components, soaps and detergents, processed

50

food and vegetables, wooden and steel furniture and so on. More sophisticated items manufactured by the small scale sector now include television sets, electronic desk calculators, microwave components, air conditioning equipment, electric motors, auto-parts, drugs and pharmaceuticals. SME Clusters in the Indian Context Size and heterogeneity in the cluster network: It has been estimated that there exist about 135 SME clusters in India. These clusters are overwhelmingly predominant with small industries and the share of medium and large industries in the sales turnover, production and employment is nominal. The size in terms of the number of units and the quantum of output of clusters may vary significantly. Some of them are so big that they produce unto 70 to 80% of the total volume of that particular product produced in India. For example, the township of Panipat produces 75% of the total blankets produced in the country. Similarly Tirupur, a small township in the Coimbatore district of Tamilnadu contributes 80% of the country's cotton hosiery exports. Yet another example would be of the city of Agra, virtually a Footwear City with 800 registered and 6,000 unregistered small and cottage footwear production units, making 1.5 lakh pairs of shoes per day with a production value of 1.3 million dollars per day and exporting shoes worth US $ 57.14 million per year4. Similarly Ludhiana in Punjab produces 95% of the countries woolen knitwear, 85% of the country's sewing machines and 60% of the nation's bicycle and bicycle parts. On the other hand some clusters are very small also, but they are so specialized that about 100 workers each may work in these clusters. For the purpose of the present study clusters which have minimum of 100 registered units in a particular location have been taken. There may be another 50-100 unregistered units along with the registered ones. State-wise Distribution: The table below gives the state-wise distribution of industrial clusters in the country. It would be interesting to note that the industrially developed states of Maharashtra, Gujarat, Punjab, Rajasthan, Tamil Nadu and Haryana have the maximum number of clusters. The top six industrially developed states out of the 25 states in the country account for 54.3 % of the SSI

51

units. Whereas 71% of the clusters are located in them. The common states among the two sets of data are Gujarat, Punjab, Uttar Pradesh and West Bengal. Surprisingly, the state of Madhya Pradesh which has the maximum number of small scale enterprises (12.7%) as per the IInd All India Survey of SSI, seems to have very few clusters (1.4%). Traditionally certain communities viz. Gujaratis, Marwaris and Punjabis have been a rich source of entrepreneurial talent and this could be one of the reasons for the growth of clusters in Maharashtra, Gujarat, Punjab and Haryana. A state-wise list of clusters is given as under;

Performance of SME Clusters in India Exports from SSI are healthy: The small scale sector in India contributes directly to 35% of the total exports from the country. It is estimated that another 15% of the exports are indirectly contributed by this sector. Some of the major items of exports, e.g., 'Hosiery and Garments', 'Leather and leather products', 'Diamonds, Gems & Jewelry' have large clusters in more than one location and these contribute significantly to the exports..

52

53

FINDINGS
The following table shows the number of companys investment in mutual fund. (Statewise)

No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

States Maharashtra West Bengal New Delhi Tamil Nadu Gujarat Karnataka Andhra Pradesh Uttar Pradesh Punjab Haryana Rajasthan Madhya Pradesh Kerala Chandigarh Delhi Orissa Jharkhand Assam Goa Dadra & Nagar Haveli Jammu & Kashmir

No. of companies. 209 87 82 62 61 33 31 17 17 15 11 9 6 6 4 3 2 2 2 1 1

Particulars Total investment more than 100 Cr. in mutual fund & less than 3 % or NIL in Principal MF

Number of companies

74

54

Total investment more than 50 Cr. in mutual fund & less than 3 % or NIL in Principal MF Total investment more than 10 Cr. in mutual fund & less than 3 % or NIL in Principal MF 102 56

Total investment more than 100 Cr. in mutual fund & more than 5 % or NIL in Principal MF Total investment more than 50 Cr. in mutual fund & more than 5 % or NIL in Principal MF 12 40

It is observed that out of 1117 companies; 154 companies have invested Rs. 100 crore and more in mutual fund. 119 companies have invested Rs. 50 crore and more in mutual fund 112 companies have invested Rs. 10 crore and more in mutual fund.

It is observed that the small segment companies are interested in taking advantage of booming market and hence they are invested in equity based mutual fund. These action of small segment companies illustrated that they are aggressive when it comes to investing. It is observed that the large segment companies despite having huge cash reserve are conservative and hence they are invested inn debt based mutual fund. 55

 These companies are invested in secured return there by ensuring in the protection of the invested fund. When it comes to investment by financial institution like banks who are hard-pressed for liquidity, invest in money market ( Liquid ) fund. This ensures return based on market conditions and redemption of the fund invested as per the need. It is also observed that companies having sufficient cash reserve and have no immediate requirement of funds; invest in FMP ( flexible maturity plan ). The advantage arising out these, the returns are better than the return offered by various banks.

SWOT ANALYSIS OF PRINCIPAL PNB MUTUL FUND VIZ-A-VIZ OTHER FUND HOUSES

56

Strengths: Brand image. Image of an Ethical player. Prompt service provider. Good relationship with distributors Efficient Sales Staff Fair understanding of market and competition.

Weakness: Inability to fully cover the outstation market. Lack of manpower.

Opportunity: Unexplored/ outstation market. Target aggressively

Threats: Substitute products like bank FDs, RDs etc. New entrants Increased Competition

RECOMMENDATIONS

57

 It is also concluded that although few companies having huge cash reserve and have invested in other mutual fund but their investment in principal mutual fund was NIL. It is imperative to chalk out these companies and approach them for their future contribution in principal pnb mutual fund. In case of those companies having invested in other mutual fund but have comparatively lesser investment in principal mutual fund , It would be essential to approach them for enhance investment in principal pnb mutual fund. Companies having a prolong and substantial investment in principal pnb mutual fund, which should be catered on regular basis, and cardinal relationship have to be maintain with these client on regular basis. These will ensure a continuous investment from these clients. Asset Management Companys need to create awareness so that they become the prospective customer of the future. Returns record must be focused by the sales executives while explaining the schemes to the customer. During my research I found that the consumer wants a quick grievance solving mechanism. Consumer doesnt want to come to the office/branch for solving the grievance. So the Asset Management Companys should have to work upon that. Most of the consumer is fascinated towards the open ended schemes. So the company should have more attention on open ended scheme. Asset Management Companys for its advertisement and promotional activity should go for Newspaper/Magazine and Internet.

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Future of Mutual Funds In India

The Future of Mutual Funds in India suggests that the industry has got huge scopes of development in the times to come. The Future of Mutual Funds In India is quite bright. Mutual Funds are one of the most popular forms of investments as these funds are diversification, professional management, and liquidity. Countrys mutual fund industry is expected to see its assets more than double to Rs12.8 trillion by 2012, with the entry of over 15 new fund houses in the near future, a latest report says. US-based financial services research and consulting firm Cerulli Associates stated India will continue to be one of the faster growing asset management markets in the world, with our projections showing assets will more than double to Rs12.8 trillion over the next five years to 2012. The report named Asset Management Opportunities in India 2008 stated that the growth in assets over the next half a decade would be driven by strong economic growth, deeper financial markets and a multi-varied distribution system. At the end of 2007, there were 33 fund houses in the country including 16 joint ventures and 3 wholly-owned foreign asset managers with total assets worth Rs5.4 trillion. The international asset management community is also well -represented in the country and is likely to grow as more global asset managers intend to set up business here. Cerulli believes the total number of asset managers in India could rise to as many as 50 in the near future, with many of the new entrants coming from abroad. The research firms projections suggest that Indian mutual fund market would see an 18% compounded annual growth rate (CAGR) over the next five years. The growth of the domestic MFs might appear modest compared to the recent past, but it is likely to remain subdued in the short term as internationally the market is expected to see slower growth,

59

Although countrys financial markets are still largely domestic in nature, and this is equally true for the asset management industry, India is far more correlated with the global economy than any time in the past and this will only increase in the future, Experts believe countries mutual fund industry holds immense potential as it is significantly under penetrated and covers just 2% of households in the country. Also, several new fund houses are entering the space with plans to tap the tier II and III cities, even the rural areas.

Important aspects related to the future of mutual funds in India are

The growth rate was 100 % in 6 previous years. The saving rate in India is 23 %. There is a huge scope in the future for the expansion of the mutual funds industry. A number of foreign based assets management companies are venturing into Indian markets. The Securities Exchange Board of India has allowed the introduction of commodity mutual funds. The emphasis is being given on the effective corporate governance of Mutual Funds. The Mutual funds in India has the scope of penetrating into the rural and semi urban areas. Financial planners are introduced into the market, which would provide the people with better financial planning.

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REFRENCES Websites

www.capitalmarket.com. www.mutualfundsindia.com www.mfindia.com www.business-standard.com www.valueresearchonline.com www.amfiindia.com www.moneycontrol.com.

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THANK YOU

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