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A Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by the (pro rata). Thus a Mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. Anybody with an inventible surplus of as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy. A mutual fund is the ideal investment vehicle for today's complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc. A mutual fund is answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas - research, investments and transaction processing. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual fund gained popularity only after the Second World War. Globally, there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. Today, mutual funds collectively manage almost as much as or more money as compared to banks. A draft offer document is to be prepared at the time of launching the fund. Typically, it pre specifies the investment objectives of the fund, the risk associated, the costs involved in the process and the broad rules for entry into and exit from the fund and other areas of operation. In India, as in most countries, these sponsors need approval from a regulator, SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the sponsor and its financial strength in granting approval to the fund for commencing operations. A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to be the custodian of the assets of the fund and perhaps a third one to handle registry work for the unit holders (subscribers) of the fund. In the Indian context, the sponsors promote the Asset Management Company also, in which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC).
1 DBIM, SURAT
Study and Research on Mutual Fund
E.g. Birla Global Finance is the sponsor of the Birla Sun Life Asset Management Company Ltd., which has floated different mutual funds schemes and also acts as an asset manager for the funds collected under the schemes. A mutual fund is a collective investment fund formed with the objective of raising money from a large number of investors and investing it in accordance with a specified objective to provide returns that accrue pro rata to all the investors in proportion to their investment. The units held by an investor represent the stake of the investors in the fund. A professionally qualified and experienced team manages the investments and all other functions. With the large pool of money, a mutual fund is able to exploit economies of scale in the areas of research, investing, shuffling the investments and transaction processing - it is able to hire professionals in these functions at a very low cost per investor. As per SEBI regulations, mutual funds can offer guaranteed returns for a maximum period of one year. In case returns are guaranteed, the name of the guarantor and how the guarantee would be honored is required to be disclosed in the offer document.
2 DBIM, SURAT
Study and Research on Mutual Fund
HISTORY & BACKGROUND
Mutual Fund in India (1964-2000)
The end of millennium marks 36 years of existence of mutual funds in this country. The ride through these 36 years is not been smooth. Investor opinion is still divided. While some are for mutual funds others are against it. UTI commenced its operations from July 1964. The impetus for establishing a formal institution came from the desire to increase the propensity of the middle and lower groups to save and to invest. UTI came into existence during a period marked by great political and economic uncertainty in India. With war on the borders and economic turmoil that depressed the financial market, entrepreneurs were hesitant to enter the capital market. The already existing companies found it difficult to raise fresh capital, as investors did not respond adequately to new issues. Earnest efforts were required to canalize savings of the community into productive uses in order to speed up the process of industrial growth. The then Finance Minister, T.T. Krishnamachari set up the idea of a unit trust that would be "open to any person or institution to purchase the units offered by the trust. However, this institution as we see it, is intended to cater to the needs of individual investors, and even among them as far as possible, to those whose means are small" His ideas took the form of the Unit Trust of India, an intermediary that would help fulfill the twin objectives of mobilizing retail savings and investing those savings in the capital market and passing on the benefits so accrued to the small investors. UTI commenced its operations from July 1964 "with a view to encouraging savings and investment and participation in the income, profits and gains accruing to the Corporation from the acquisition, holding, management and disposal of securities." Different provisions of the UTI Act laid down the structure of management, scope of business, powers and functions of the Trust as well as accounting, disclosures and regulatory requirements for the Trust. One thing is certain - the fund industry is here to stay. The industry was one-entity show till 1986 when the UTI monopoly was broken when SBI and Canbank mutual fund entered the arena. This was followed by the entry of others like BOI, LIC, GIC, etc. sponsored by public sector banks. Starting with an asset base of Rs 0.25bn in 1964 the industry has grown at a compounded average growth rate of 26.34% to its current size of Rs 1130bn. The period 1986-1993 can be termed as the period of public sector mutual funds (PMFs). From one player in 1985 the number increased to 8 in 1993. The party did not last long. When the private sector made its debate in 1993-94, the stock market was booming. The opening up of the asset management business to private sector in 1993 saw international players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros and Capital International along with the period of 1994-96 was one of the worst in the history of Indian Mutual Funds. 3 DBIM, SURAT
The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. The quest to attract investors extended beyond just new schemes. 470 bn in March 1993 and till April 2004. the monopoly of the market had seen an ending phase. No longer were the mutual funds interested in selling the concept of mutual fund. the other related parties.700 crores of assets under management. and investor base they had to be fully armed with a whole lot of schemes for every investor. the Assets Under Management (AUM) was Rs. the unit holders. Punjab National Bank Mutual 4 DBIM. The funds started to regulate themselves and were all out on winning the trust and confidence of the investors under the aegis of the Association of Mutual Funds of India (AMFI) One can say that the industry is moving from infancy to adolescence. which would mean to increase asset base. Indian mutual fund industry had seen a dramatic improvements. No longer were the mutual funds interested in selling the concept of mutual funds they wanted to talk business. the industry is maturing and the investors and funds are frankly and openly discussing difficulties opportunities and compulsions. In the past decade. SBI Mutual Fund was the first followed by Canbank Mutual Fund (Dec 87).Study and Research on Mutual Fund 1999-2000 year of the funds Mutual funds have been around for a long period of time to be precise for 36 yrs but the year 1999 saw3 immense future potential and developments in this sector. Four Phases of Mutual Fund in India The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under. So new schemes for new IPO's were inevitable. At the end of 1988 UTI had Rs. made them more attractive and provides acceptability among the investors. However the sole factor that gave lift to the revival of the funds was the Union Budget. 67bn. 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.540 bn. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India.6. The budget brought about a large number of changes in one stroke. An insight of the Union Budget on mutual funds taxation benefits is provided later. The first scheme launched by UTI was Unit Scheme 1964. The Union Budget exempted mutual fund dividend given out by equity-oriented schemes from tax. Though the growth was slow. both at the hands of the investor as well as the mutual fund.1987-1993 (Entry of Public Sector Funds) Entry of non-UTI mutual funds. The private sector entry to the fund family raised the AUM to Rs. but it accelerated from the year 1987 when nonUTI players entered the industry. both quality wise as well as quantity wise. It provided center stage to the mutual funds.1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. it reached the height of 1. This year signaled the year of resurgence of mutual funds and the regaining of investor confidence in these MF's. and to get asset base. First Phase . This time around all the participants are involved in the revival of the funds the AMC's. Second Phase . SURAT . Before.
835 crores (as on January 2003). Fourth Phase . The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. BOB and LIC. Fifth Phase V. 1. There were 29 funds as at the end of March 2006. Third Phase . The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. according to the Association of Mutual Funds in India (AMFI). It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players. As at the end of September. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. 2004.67.541 crores of assets under management was way ahead of other mutual funds. 000 crores of AUM and with the setting up of a UTI Mutual Fund. PNB. Bank of Baroda Mutual Fund (Oct 92). a new era started in the Indian mutual fund industry.21.76.The number of mutual fund houses went on increasing. The second is the UTI Mutual Fund Ltd.47.Study and Research on Mutual Fund Fund (Aug 89).004 as assets under management.805 crores. the industry’s growth has been nothing but exceptional. SURAT . Also.01. single scheme (US-64) industry to having 30 players currently offering 460 schemes as on May 31. The Unit Trust of India with Rs. LIC in 1989 and GIC in 1990. except UTI were to be registered and governed. examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life. With the total Assets Under Management (AUM) increasing from Rs. then the Indian mutual fund industry can now boast of that. more international mutual fund players have entered India like Fidelity. there were 29 funds. 2005 5 DBIM. It has indeed come a long way from being a single player. The Specified Undertaking of Unit Trust of India.1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993. 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.565 cr in January 2000 to Rs.1. giving the Indian investors a wider choice of fund families. Indian Bank Mutual Fund (Nov 89). Growth and Consolidation .. the mutual fund industry has entered its current phase of consolidation and growth. conforming to the SEBI Mutual Fund Regulations.978 cr by May 2005. As at the end of January 2003. which manage assets of Rs. Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund.44. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The end of 1993 marked Rs.153108 crores under 421 schemes. under which all mutual funds.29. with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. Simultaneously. 1993 was the year in which the first Mutual Fund Regulations came into being. Growth in Assets under Management If size is the measure of dominance.since February 2003 This phase had bitter experience for UTI. sponsored by SBI. there were 33 mutual funds with total assets of Rs.2004 Onwards The industry has also witnessed several mergers and acquisitions recently. 1. It is registered with SEBI and functions under the Mutual Fund Regulations. Franklin Templeton Mutual Fund etc. and with recent mergers taking place among different private sector funds. Bank of India (Jun 90).
First and foremost. Increased focus on product and distribution innovations on part of the industry players have also helped fuel the growth. SURAT . particularly in the last five years.Study and Research on Mutual Fund What has driven this growth? A slew of factors have contributed to the surge in the industry’s growth. Another significant factor facilitating this growth has been a conducive regulatory regime. such as making dividends tax-free in the hands of investors and removal of long. 6 DBIM. thanks to increased efforts by SEBI to improve market surveillance and protect investors’ interests. a buoyant domestic economy coupled with a booming stock market has been one of the major drivers of growth in recent times. have also provided strong impetus to the growth. Further.term capital gains tax. incentives.
These do not have a fixed maturity. • Closed-ended Funds A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. SURAT . Classification of Mutual Fund UNDERSTANDING OF MUTUAL FUND Mutual fund schemes may be classified on the basis of its structure and its investments. By Investment Objective • Income Funds 7 DBIM. • Interval Funds Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices. By Structure: • Open-ended Funds An open-end fund is one that is available for subscription all through the year. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices.Study and Research on Mutual Fund 3 A. The key feature of open-end schemes is liquidity. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. In order to provide an exit route to the investors.
Income Funds are ideal for capital stability and regular income. Such schemes normally invest a majority of their corpus in equities. Such schemes generally invest in fixed income securities such as bonds. • Balanced Funds The aim of balanced funds is to provide both growth and regular income. SURAT . or fall equally when the market falls. Returns on these schemes 8 DBIM. corporate debentures and government securities. the NAV of these schemes may not normally keep pace. • Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long-term. These schemes generally invest in safer short-term instruments such as treasury bills. • Money Market Funds The aim of money market funds is to provide easy liquidity. In a rising stock market. These are ideal for investors looking for a combination of income and moderate growth. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. certificates of deposit. preservation of capital and moderate income.Study and Research on Mutual Fund The aim of income funds is to provide regular and steady income to investors. commercial paper and inter-bank call money. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time. It has been proven that returns from stocks. have outperformed most other kind of investments held over the long term.
Investments made in Equity Linked Savings Schemes (ELSS) and pension Schemes are allowed as deduction u/s 88 of the Income Tax Act. no commission is payable on purchase or sale of units in the fund. • Other Schemes • Tax saving Schemes Investors (individuals and Hindu Undivided Families (“HUFs”)) are being encouraged to invest in equity markets through Equity Linked Savings Scheme (“ELSS”) by offering them a tax rebate. 2000 and the amount is invested before September 30. 2000 Fixed.Income Funds in India are mainly concerned with the time period. The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations. Government of India regarding ELSS. Fixed.Income Funds in India have a face value and it is on this that the calculation of interest takes place. 1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs). These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. That is. Fixed. Fixed. a commission will be payable. The Act also provides opportunities to investors to save capital gains u/s 54EA by investing in Mutual Funds.Income Funds in India makes investments are also known as commercial papers of deposit or treasury bills if the duration is less than one year and in case the duration is more than one year then the debt securities are known as bonds or debentures.Study and Research on Mutual Fund may fluctuate depending upon the interest rates prevailing in the market. and face value. SURAT . maturity value. 9 DBIM. No-Load Funds: A no-Load Fund is one that does not charge a commission for entry or exit.Income Funds in India are also known as debt funds or income funds. That is.Income Funds in India are usually held till maturity. Typically entry and exit loads range from 1% to 2%. The advantage of a no load fund is that the entire corpus is put to work. each time you buy or sell units in the fund. 1961. The issuer of the debt securities has the obligation to pay the interest and principal on the time schedule that has been fixed. rate of interest payment. rate of interest. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched – out until completion of 3 years from the date of allotment of the respective Units. government or companies. • Load Funds: A Load Fund is one that charges a commission for entry or exit. if the fund has a good performance history.Income Funds Fixed. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. provided the capital asset has been sold prior to April 1. Investors who are investing in Fixed.Income Funds in India make investments in debt securities that have been issued either by the banks. The debt securities in which Fixed. It could be worth paying the load.
Another important feature of the value funds is that.Study and Research on Mutual Fund Mid-Cap Funds Mid-cap funds are a special type of mutual fund wherein. International mutual funds can offer its investors with high returns if chosen properly. Midcap funds bear high risk factors and thus offer high returns in case of positive movements of the indexes International Mutual Funds International mutual funds are a very special type of mutual fund. they generate income from the dividends and they also offer long term growth from capital appreciation. In general. the corpus accumulated is invested in types of other mutual funds. companies with a market capitalization up to Rs 500 crores are regarded as small and companies with a market capitalization over Rs 500 crores but below Rs 1. Furthermore. the International mutual funds also help in capitalizing on some of the world's best opportunities. One of the significant features of the International mutual funds are that it accrues profit when some markets are rising and others are falling in the international market. etc. In other words sector funds invest in a single type of industry. Further. Telecommunication. The popularity of the International mutual funds has gone up in the recent years since it provides a high level of diversification of the portfolio. these stocks of the value funds utilize their earnings to pay off dividends to the investors. value funds is a type of mutual fund wherein the main focus is on the safety of the investment and not on the growth of the investment made on such funds. One of the typical characteristics of the value fund is that. Fund of Funds Amongst the wide variety of mutual funds are available in India. Infrastructure. Further. Pharmaceuticals. the corpus accumulated is invested in small or medium sized companies. Funds of funds are structured in such a way so as to attain a more diversified approach than what the other types of mutual funds offer. the Fund of Funds costs higher than any other type 10 DBIM. Further. whose growth has become stagnant. each mutual fund classifies small and medium sized companies according to its own policies. In the absence of any standardized definition or definite classification of small or medium sized company. like Information Technology. The Sector Funds are structured in this particular manner in order to take advantage of growth of particular type of industry. The Sector Funds can offer tremendous profit to the investor if the funds are carefully chosen. wherein investments are being made in the non-domestic securities markets across the world. they invest in stocks of companies that have lesser appeal to the mainstream investors and the stocks have lost its sheen. fund of funds is a type of mutual fund wherein. the most significant feature of fund of funds is that it holds shares of a variety of mutual funds. SURAT . Value funds represent stocks of mature companies. Sector Funds The Sector Funds are those types of mutual funds which accumulate stocks of particular sector. The returns on Value funds are more conservative in nature. A strict vigil on the foreign currencies and world markets is needed while investing in the International mutual funds.000 crores are defined as medium sized by the mutual fund industry. Generally. Value Funds Amongst the wide variety of mutual funds are available in India.
This ensures that the investments of the investors are relatively safe. In other words. This is the reason that the investors that have invested in Sector. The exchange traded funds employ the process of arbitration during trading. The amount of returns that Sector. The main objective of investing in the Regional Mutual Funds is to take leverage of the geographical growth of that particular area. wherein the investment made in such funds are confined to the securities from a specified geography.Specific Funds in India give depends totally on the performance of the industries or sectors in which investments have been made.Specific Funds in India usually make investments in sectors such as power. is a special type of mutual fund. an Exchange traded fund investments are being made either on all the securities or on a sample of the representative securities that are being traded in the said index. in order to keep its trading value in sync with the values of the underlying stocks. pharmaceuticals. The large cap companies in which Large Cap Funds in India makes investments are usually companies that have a market capitalization that is more than Rs. The Regional Mutual Funds picks up securities that are not confined to geographical criteria. SURAT . This is due to the fact that the cost of Fund of Funds involves part of the expense fees charged by the component funds.Specific Funds in India give very high returns but at the same time they are also very risky in comparison to the funds that are diversified. Exchange Traded Funds Exchange traded funds popularly also known as ETFs. Index Funds The Index funds are those types of funds which accumulates stocks of each and every company that make up a particular index. petroleum. Investments in Index funds are cheaper and are regarded as passive form of investments. Sector. 1000 crores. which is being traded on an exchange.Specific Funds Sector. Large Cap Funds Large Cap Funds in India are a kind of mutual fund that looks for appreciation of capital by investing mainly in the shares of companies that are big blue chip. the investments made in the Regional Mutual Fund are dependent on the geographical origin of the fund.Specific Funds in India are those funds that make investments only in those industries or sectors that have been specified in the prospectus of the funds.average potential for growth in earnings. Further. the corpus is invested in a basket of securities. is a type of mutual fund wherein. These funds are created on regions which are supposed to undergo tremendous modernization. Sector. Another advantage of investing in the Index funds is that their values are so high that 11 DBIM. and technology. The main advantage of Large Cap Funds in India is that they are considered to be of low return and low risk category. The big blue chip companies in which Large Cap Funds in India make their investments have above. which makes up the portfolio Regional Mutual Funds The Regional Mutual Fund as the name suggests. The most important feature of this fund is that it invests in portfolio of companies operating in a particular geographical area. Sector.Specific Funds in India need to carefully watch the operation of those industries or sectors and then at the correct time make an exit.Study and Research on Mutual Fund of mutual fund. The performance of the Index fund thus depends on the performance of that particular index.
Banks v/s Mutual Funds Banks Returns Administrative exp. Mutual Fund can give higher returns then a Bank.Study and Research on Mutual Fund most of the other funds fail to supersede the value of the Index funds. 12 DBIM. C. Investments in index funds are subject to income tax exemptions B. Of every month Maximum Rs. Risk Investment options Network Liquidity Quality of assets Interest calculation Guarantee Low High Low Less High penetration At a cost Not transparent Minimum balance between 10th. (2) Past performance The past performance of fund manager should be checked even though it does not: assure about or indicate the future performance. while generally giving lower returns. Choosing a Mutual Fund Investors should note the following points while choosing a mutual fund: (1) Investment objective The schemes offered by mutual funds should be chosen based on investment objectives such as: • Regular income • Pure growth oriented • Balanced fund • Tax savings • Period of scheme • Liquidity/Open-ended schemes/listing. SURAT . It can be seen that the Banks are not totally free from risk.1 lakhs on deposits Mutual Funds Better Low Moderate More Low but improving Better Transparent Everyday None From the above table we can say that in overall comparison Mutual Fund is becoming strong option as investment against the Banks. & 30th. even if there is no contractually guarantee as in a Bank. The risks are however lower if the fund manager’s capability is superior. The most popular type of Index funds is the Standard & Poor's 500. Mutual Fund provides better investment options as well as high liquidity compare to Banks.
(5) Transparency in fund accounting Choose a mutual fund which assures full transparency of the investments made and discloses NAV periodically to assist the investor in understanding the value of investment. diversification. (4) Global linkages The fund manager’s understanding of Indian capital markets and the global linkages is critical to the process of investment decision making. Only after the crises of 1992 and the introduction of free market pricing of shares.Study and Research on Mutual Fund (3) Equity research Equity research capability and other fund management techniques are important factors in deciding about a fund. portfolio. This form of high-risk investment was not perceived as such because of the under-pricing of primary share issues. (6) Investor service Funds which pay emphasis to investor servicing help in sorting out procedural grievances. and there is consistent growth in dividend and capital appreciation. However. E. and paying out comparable though slightly higher dividends. Faced with the risks of direct investing. The only Mutual Fund scheme UTI’s US-64 Scheme was perceived by investors and managed as a fixed return investment. Indian investors had bank deposits as virtually the only investment option. bonus. the investors were introduced to direct investing on the stock markets including direct purchases of capital market securities in the primary markets. etc. and the area where investments have been/are to be made. Until 1980s. Comparison by Nature of Investment and By Performance 13 DBIM. as safe as banks. Returns — Assured or otherwise Management approach — Risk taking. Liquidity — whether the schemes offer liquidity by way of their listing on stock exchange. Comparison of Investment Product Investors tend to constantly compare one form of investment with another. such comparisons ought to be done carefully. the virtual guarantee of secondary market prices being higher than issue prices ended. comparing only options that are comparable. D. Later. if any. SURAT . the investors are now turning to indirect investing through Mutual Funds that provide the benefits of professional management and lower risk through diversification. return maximization. Credibility of issuer — Previous track record of issuer should be checked. Growth — whether the mutual funds are offering increase in net asset value. Judged the Efficiency of Mutual Fund The test of efficiency of a good mutual fund shall comprise of evaluation of mutual fund on the basis of it’s: Stability — whether a mutual fund is stable or not so far as its schemes are concerned.
Deposit rates offered by banks vary as per RBI directives and the interest rate scenario in the economy. However. From this comparison at a given point of time will emerge the options considered superior to others for a given investor. Besides returns. Bank deposits score high on safety. liquidity and convenience. as the return of capital is guaranteed to the depositor by the bank. liquidity and convenience. age. benefits and risks. equity investing is fraught with risk and is not ideal for every individual investor. 1) Comparison by Nature of Investment Investors certainly look for the best returns on different options. For this reason. However. The secondary market in corporate bonds in India is also very thin. one needs to look at the specifics of each investment option in terms of its current performance and its suitability for the investor in the light of the investor’s specific situation (taxability. return. and are recommended for the risk-averse investor. From this comparison will emerge certain types of investment which may be considered superior to other types. In the absence of credit rating. etc. the financial soundness of the bank is important to look at. leading to lack of liquidity for the investors who wish to sell. bonds can lose value when general interest rates go up. particularly now with the liquidity that accompanies their listing on stock exchanges. individual stocks can give varied performance. 14 DBIM. one must compare the options by the nature of investments — their characteristics. Next. The table below compares the investment options discussed in the previous section under the broad heads viz. Company fixed deposits fall short on several counts and recommended only if the issuing company and the deposits on offer are rated highly by credit rating agencies. Bonds are a stable option in terms of fixed returns. to determine which option is better. SURAT . other potential benefits of any investment also include the safety of the capital. the comparison should also be made in terms of other benefits that the investor ought to look for in any investment. Banks are usually willing to give loans against fixed deposits at a nominal charge over the interest rate applicable to the deposits.Study and Research on Mutual Fund There are tow kinds of comparisons possible among different investment options. However.). It is clear from the above that equity investing in general has good potential in terms of return. as discussed in the previous section. the comparison serves as a useful guide toward determining the best option. It is recommended only for investors who are willing to invest the time required for research in stock selection (or have access to sound financial advice) and possess the capacity to bear the inherent risk. Bonds issued by institutions are an attractive option. In indicated by the credit rating assigned to the bonds. safety. However. Although the table provides a qualitative evaluation of various financial products. the liquidity of access to the funds when needed. it is extremely difficult for the investor to decide on the quality of the bonds or debentures. volatility. the risk or the stability of returns. one stock being more liquid than another or one stock giving lower return that another. Bonds are also subject to credit risk or risk of default by the borrower. and the convenience with which the investment can be managed. The major advantage of bank deposits relative to other product is the liquidity they offer. First.
Comparisons among different investment options are not valid for all time as the financial markets are now deregulated and dynamic. That will make a difference in his after-tax return on different options. SURAT . and by investing even a small amount in a Mutual Fund. a practical evaluation reveals that Mutual Funds are indeed a more recommended option for the individual investor. reap the benefit of diversification. • Identifying stocks that have growth potential is difficult process involving detailed research and monitoring of the market. Mutual Funds pool the resources of many investors and thus have the funds necessary to build a diversified portfolio. Mutual Funds specialize in this area and possess the requisite resources to carry out research and continuous market monitoring. it is recommended that the specific comparisons of different investment options be made at a given point of time. the individual taxpayer’s situation may change. the Mutual Funds and other options may give different returns. diversification requires substantial investment that may be beyond the means of most individual investors. particularly during the early years of the scheme. again there will be an impact on the comparative status of different options. PPF scores very high on safety. the lock in period involved in PPF means that the investor loses out in terms of liquidity. the opportunity cost in terns of return is too high for insurance to be compared on even terms with the other options. though safety is considered high at present for the government-owned LIC as the only insurer. Its liquidity is also extremely low. However. This is clearly beyond the capability of most individual investors. 2) Comparison by Current Performance Besides the inherent advantages of investing through Mutual Funds. an investor can. However. Clearly. when the banks increase or reduce the deposit interest rates. through his proportionate share. In today’s scenario. using the then prevalent return data. • Another critical element towards successful equity investing is diversification. Each year. That is why. compared even to bank deposits. Dividends distributed by Mutual Funds are exempt from tax in the hands of the investor. Its tax-exempt status makes it an attractive mechanism for the small investor to build his saving portfolio.Study and Research on Mutual Fund PPF combines stability with a respectable return. whereby he may pay higher or lower tax on his income. Direct Equity Investment versus Mutual Fund Investing Investors have the option to invest directly in equities through the stock market instead of investing through Mutual Funds. the Mutual Funds performance may look better or worse. Being a government supported investment. Similarly. If the government changes the PPF interest rate. For example. A diversified portfolio serves to minimize risk by ensuring that a downtrend in some securities/sectors is offset by an upswing in the others. recent tax amendments have also helped to enhance the attractiveness of Mutual Funds. Insurance could become a serious investment vehicle once the insurance market in India is opened to private players. Investments in recognized Mutual Funds also qualify for tax rebate under section 88 and as approved investments under Section 54EAJEB. causing frequent changes in comparative returns form time to time. 15 DBIM.
Many funds allow investors the flexibility to switch between schemes within a family of funds. An investor can choose a fund that has investment objectives in line with his objectives.end funds) and repurchase options (for open-end funds). funds provide the investor with a vehicle to attain his objectives in a planned manner. while Mutual Funds charge a management fee. Professional management ensures that the best investment avenues are tapped with the aid of comprehensive information and detailed research. etc. Other Products Investment option Equity Fl Bonds Debentures Deposits Bank Deposits PPF Life Insurance Investment Objective Capital Appreciation Income Income Income Income Income Risk Cover Risk Tolerance High Low H-M-Low The Same Generally Low Low Low Investment Horizon LongTerm Medium to Long Term The Same Medium Flexible All Terms Long Term Long Term 16 DBIM. SURAT . • Mutual Funds focus their investment activities based on investment objectives such as income. Mutual Funds score over direct equity investing. They also offer facilities such as check writing and accumulation plans. growth or tax savings. and therefore employ professional management for carrying out their activities. • Mutual Funds offer liquidity through listing on stock exchanges (for closed. but also through associates such as banks and other distributors. • In terms of convenience. stamp duty. It also ensures that expenses are kept under tight control and market opportunities are fully utilized. • Direct equity investing involves a high level of transaction costs per rupee invested in the form of brokerage. These benefits are not matched by direct equity investing. Funds serve investors not only through their investor services networks. Therefore. The Investor Perspective: Funds Vs. An investor who opts for direct equity investing loses out on these benefits. they succeed in keeping transaction costs under control because of the economies of scale they enjoy. commissions. This is in contrast to direct equity investing where several stocks are often not traded for long periods.Study and Research on Mutual Fund • Mutual Funds specialize in the business of investment management.
Study and Research on Mutual Fund Gold Real Estate Mutual Funds Inflation Hedge Inflation Hedge Capital Growth. Mutual Funds present the widest choice to the investors. Advantages of Mutual Fund Mutual funds serve as a link between the saving public and the capital markets. Today mutual funds are fast emerging as the favorite investment vehicle because of the many advantages they have over other forms and avenues of investing. but a high risk and without benefits of diversification and professional management offered by Mutual Fund. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.Flexible All Short term. medium term and long term The comparison above highlights the flexibility offered by Mutual Funds from the investor’s perspective. but only a fixed income. SURAT . An investor looking for capital growth has to consider Mutual Fund. Direct equity investment offers the capital growth potential. Other options are largely for the riskaverse. delayed payments and follow up with brokers and companies. 17 DBIM. F. Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries. Bank Deposits offer similar flexibility in investment horizon and risk level. Mutual Funds save your time and make investing easy and convenient. The major advantages offered by mutual funds to all investors are: Professional Management Mutual Funds provide the services of experienced and skilled professionals. An investors can choose from a wide variety of fund to suit his risk tolerance. Income Low Low H-M-Low Long Term Long Term. Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. income-oriented investor. investment horizon and investment objective. backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. They mobilize savings from the investors and bring them to borrowers in the capital markets. Return Potential Over a medium to long-term. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. Gold and real Estate are attractive only in high inflation economies. both equity and debt. Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.
the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Liquidity In open-end schemes. Affordability Investors individually may lack sufficient funds to invest in high-grade stock. you can systematically invest or withdraw funds according to your needs and convenience.Study and Research on Mutual Fund Low Cost Mutual Finds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage. Choice of schemes Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. 18 DBIM. custodial and other fees translate into lower costs for investors. The operations of Mutual Funds are regularly monitored by SEBI. the investor gets the money back promptly at net asset value related prices from the Mutual Fund. Flexibility Through features such as regular investment plans. regular withdrawal plans and dividend reinvestment plans. the proportion invested in each class of assets and the fund manager's investment strategy and outlook. Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme. Well Regulated All Mutual Funds are registered with SEBI and they function within the provision of strict regulations designed to protect the interests of investors. SURAT . A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. In closed-end schemes.
They do not have employees of their own. one should not lose sight of the fact that in the formal years of any institution.Study and Research on Mutual Fund G. (6) The increase in the number of mutual funds under various schemes has increased competition. as the fund is nothing bur a portfolio of different securities. the banks are supervised by Reserve Bank of India and the central government. it is too early to evaluate their operation. As there is no distinction made between sponsors. (8) The mutual funds have eroded the financial clout of the institutions in the stock market for which cross transaction between mutual funds and financial institutions not only allow speculators to manipulate price but also provide cash leading to the distortion in the balanced growth of the market. Thus. the trustees play the role of fund managers. The insurance company mutual funds are regulated under the central government regulations. mutual fund is allowed to hold only a fixed maximum percentage of shares in a particular industry. SURAT . There are multiple regulations while UTI is governed by its own regulations. (4) Many small companies did very well but mutual funds cannot reap their benefits because they are not allowed to invest in smaller companies. evaluation is very important as this reveals the real character of the systems. (3) Unrestrained fund raising by schemes without adequate supply of scripts creates severe imbalance in the market. As a result the funds lose their stabilizing factor in the markets. Not only this. (5) The mutual funds in India are formed as trusts. H. diversification does not protect the unit holders totally from an overall decline in the market. it also limits the larger gains if a single security increases dramatically in value. Shortcomings in Operation of Mutual Funds The mutual funds have been operating for the last twelve years in India. 19 DBIM. Apart from a few assured returns schemes. Drawbacks of Investing In Mutual Funds Potential loss Unlike a bank deposit. mutual funds are still not publishing the profit and loss accounts and balance sheets after their operation. However. the fund does not guarantee any minimum percentage of return. trustee and fund managers. the investment in a mutual fund could fall in value. (2) Many of the investors are not willing to invest in mutual funds unless there is a promise of a minimum return. The Diversification Penalty While diversification reduces the risk of loss from holding a single security. Also there is no specific law to supervise the mutual finds in India. Following are some of the shortcomings in operation of mutual funds: (1) The mutual funds are all externally managed. (7) While UTI publishes details of accounts about their investments. Also.
(16) Long-term capital gains have been reduced from 20% with indexation benefits to 10% without indexation. The cost factor is another problem facing the mutual fund industry. Moreover mutual funds till now. Most of the Indian companies and mutual funds have ignored this and failed to communicate to the investors about their organization and operation. most MFs have to depend on the broker networks. But till date no regulation specifies the formula to be used for computation of NAV. 20 DBIM. As a result. (12) Unlike banks. (18) There is a lack of access to call money market. But there is no such stipulation for bank fixed deposits and gilt securities. SURAT . (17) There is a restriction on corporate investments up to a maximum of 60% of net worth of mutual funds. (13) Mutual funds have not yet developed product structuring to tap target customers. But this is available only to securities under section 112 of the Income Tax Act. it is an edge for the listed funds. Regulation 45 of SEBI states that every mutual fund shall follow a formula approved by the SEBI for computing the NAV for each of the schemes. But mutual funds are only confined to urban and semi-urban markets. small entrepreneurs. (19) The cheque writing facility is available only to the money market mutual fund investors. mutual funds do not have a strong distribution network. Further. investors are not adequately informed about the available exist options which creates a lot of confusion for the investors and they are compelled to liquidate their investments in the market at a highly discounted price. So the mutual funds cannot issue cheques on behalf of another bank. (10) India is a vast country with a comprehensive demographic profile. Apart from few. For mutual funds. (11) Investor relations play a vital role in mobilizing the resources. sometimes in private limited companies to get better returns which lead to new risk profile. (15) Fund managers invest in unlisted securities.ended schemes arises could not be mitigated. (14) Most of the older schemes have been designed with complicated exit procedures. not have been able to introduce the schemes suitable to the needs of farmers. (20) The high cost of fruitless search for good buys or undervalued securities reduces the funds return to their shareholders to below what they could have expected if they had selected randomly. redemption risk which is the second most important risk of open. and merchants to tap the rural savings.Study and Research on Mutual Fund (9) Net asset value (NAV) is one of the important factors which decide the performances of a mutual fund scheme.
(27) Internet and thereby e-commerce which is inevitable now-a-days has not been introduced in mutual funds. the mutual funds enjoy ample resources at their disposal by mobilizing resources of the investors. But unfortunately. The mutual funds with the expert and experienced management cadre can secure large varieties of high yielding “Blue chip” securities and show better results to the investing public. (30) The absence of proper benchmarks against which performance can be measured. Therefore. than managing themselves. (29) Few mutual funds have already shown full portfolio disclosures but most mutual funds hesitate to declare their portfolios. This concept is already prevalent manufacturing but has not been introduced in fund management. operating economics and ability to commit large sums of money for long periods. 21 DBIM. the merchant banking industry in the Indian capital market is not sufficiently matured. the need and scope for mutual fund operation. the investors now prefer investing their resources in various mutual fund schemes. Constitutes another big problem plaguing mutual fund research in India. (26) The lack of proper marketing and distribution system is another problem facing the mutual fund industry in India. mutual funds are not making efforts in investor awareness programme which is the need of the day. (28) The biggest problem the mutual funds face today in India is the lack of investors’ confidence. SURAT . (23) The most important aspect for success of a mutual fund is the ability to outsource certain critical activities. (24) Lack of well-informed institutional market is the cause of market inefficiencies. (25) Perhaps mutual funds are the most misunderstood financial products in India. The following reasons can be stated for the rising popularity of mutual funds: (1) With an emphasis on increase in domestic savings and improvement in deployment of investment through markets. The basic purpose of reforms in the financial sector was to enhance the generation of domestic resources by reducing the dependence on outside funds. (22) There is a lack of product conceptualization and innovation in mutual fund industry. Further. This calls for a market-based institution which can tap the vast potential of domestic savings and channelize them for profitable investments. Mutual funds are not only best suited for this purpose but also capable of meeting this challenge. Possible causes for nonsatisfactory performance of mutual fund I. Importance of Mutual Funds Owing to the size. Neither the investor nor the corporate finance manager perceives the product in a proper perspective. has increased tremendously.Study and Research on Mutual Fund (21) The development of mutual fund industry depends upon the maturity of the merchant banking industry.
(7) Mutual fund creates awareness among urban and rural middle class people about the benefits of investment in capital market through profitable and safe avenues. being set up in the public sector.A. (10) Lastly. Due to all the benefits. another notable thing is that mutual funds are controlled and regulated by SEBI and hence are considered safe. This risk is reduced by diversification of portfolio in terms of companies and industries. Many investors have fell prey to misleading and motivated “headline” leads and lips. liquidity. Even a small investor in mutual fund can get the benefit of diversification. In view of recent liberalized economic and industrial policies and concessions such as excise and customs given in recent budget for the growth of industrial sector. the capital market— both primary issue market and secondary—have been witnessing unprecedented boom. Therefore. (9) Risk of loss due to ill-informed and misinformed purchase/sales is reduced as the managers of mutual funds have better access to information. Dave. they bring a certain competence to their job. J. mutual fund could be able to mop up a large amount of the surplus funds available with these people. presently all schemes of mutual funds provide tax relief under section 80L of the Income Tax Act and in addition. The automatic reinvestment nature of a mutual fund is a form of forced saving and can make a big difference in the long run. (8) The mutual fund attracts foreign capital flow to the country and secures profitable investment avenues abroad for domestic savings through the opening of offshore funds in various foreign countries. Hence mutual funds have been able to speed their wings by spreading their funds in various industrial sectors. the importance of mutual funds has been increasing. (5) Another important thing is that the dividend and capital gains are reinvested automatically in mutual funds and hence are not fritted away. Mutual funds. Besides. Besides. Hence mutual funds help develop confidence among the investors. (4) As mutual funds are managed by professionals. Besides. S.Study and Research on Mutual Fund (2) An ordinary investor who applies for share in a public issue of any company is not assured of any firm allotment. they are considered to have a better knowledge of market behavior. have given the impression of being as safe a conduit for investment as bank deposits. and security. later sell these shares in the share market and to the promoters of the company at a much higher price. The mutual funds. (3) The psyche of the typical Indian investor has been summed up by Mr. those subscribe to the capital issue made by companies get firm allotment of shares. in three words—yield. the assured returns promised by them have been great for the typical Indian investors. (6) The mutual fund operations provide a reasonable protection to the investors. But mutual funds. Defining Mutual Fund Risk 22 DBIM. They also maximize gains by proper selection and timing of investment. some schemes provide tax relief under section 88 of the Income Tax Act which leads to the growth of mutual funds. former chairman of UTI. SURAT .
Also called default risk. Income risk is greater for a short term bond fund than for long term bond fund. Of all the asset classes. Even though both funds have low risk for their respective categories. Bond income is also affected by the change in interest rates. A stock fund that invests across many industries is more sheltered from this risk. securities are bought. cash investments (i. such as telecommunications) is at risk that its price will decline due to developments in its industry. Bond values are inversely related to interest rates. Income Risk: The possibility that a fixed-income fund’s dividends will decline as a result of falling overall interest rates. or natural disasters (an earthquake. Credit Risk: The possibility that a bond issuer will fail to repay interest and principal in a timely manner. a bonk fund faces interest rate risk and income risk. If interest rates go up. 23 DBIM. Following is a glossary of some risks to consider when investing in Mutual Funds: • • Call Risk: The possibility that falling interest rates will cause a bond issuer to redeem-or callits high-yielding bond before the bond’s maturity date. and in turn have generated higher long term returns. Bond yields are directly related to interest rates falling as interest rates fall and finding as interest rise. For example. Inflation Risk: The possibility that increases in the cost of living will reduce or eliminate a fund’s real inflation-adjusted returns. For example should not be compared t a stock fund with below average risk. Mutual funds face risks based on the investments they hold. Similarly. A bond fund with below average risk. a poor harvest) will waken a country’s economy and cause investments in that country to decline.Study and Research on Mutual Fund Different Mutual fund categories as previously defined have inherently different risk characteristics and should not be compared side by side. money markets) offer the greatest price stability but have yielded the lowest long-term return. dollar against foreign currencies. Bond typically experience mote short term price swings. a sector stock fund (which invests in a single industry. Also called exchange-rate risk. However. financial problems (rising inflation. SURAT • • • • • . Investors looking for a fund which incorporates ass asset classes may consider a balanced or hybrid mutual fund width different asset classes.e. sold and shifted between funds with different asset classes according to market conditions. bonk values will go down and vice versa. government default).S. stocks historically have been subject to the greatest short term price fluctuations and have provided the highest long term returns. stock funds overall have a higher risk/return potential than bond funds. At the discretion of the manager(s). Industry Risk: The possibility that a group of stocks in a single industry will decline in price due to developments in that industry. Currency Risk: The possibility that returns could be reduced for Americans investing in foreign securities because of a rise in the value of the U. Country Risk: The possibility that political events (a war. national elections).
NAV is required to be disclosed by the mutual funds on a regular basis –daily of weekly.Mutual fund invest the money collected from the investors in securities markets. then the NAV per unit of the fund is Rs. SURAT . with periods when prices rise and other periods when prices fall. So NAV is equals toMarket / fair value of schemes (+) Receivables (+) Accrued income (+) Other assets (-) Accrued expenses (-) Payables (-) Other liability (/) Number of unit outstanding. Principal Risk: The possibility that an investment will go down in value. The NAV per unit is the market vale of securities of a scheme divided buy the total no of units of the scheme o any particular date. Measurements of Performance 1) Total return is generally regarded as the best measure of fund performance because it is the most comprehensive. Net Assets Value (Nav) The performance of a particular scheme of mutual fund is denoted by Net Assets Value (NAV). Stock and bond markets tend to move in cycles.Study and Research on Mutual Fund • • Interest Rate Risk: The possibility that a bond fund will decline in value because of an increase in interest rates.10 each to the investors. or “lose money”. The net assets value (NAV) is the actual value of one unit of a given scheme n any given business day. from the original or invested amount. Total return includes dividend and capital gains distributions along with any changes 24 DBIM. Manager Risk: The possibility that an actively managed Mutual Fund’s investment adviser will fail to execute the fund’s investment strategy effectively resulting in the failure of stated objectives. The NAV reflect the liquidation value of the funds investments on that particular day after accounting for all expenses. In simple word. NAV of a scheme also varies on day to day basis. It is calculated by deducting all liabilities except unit capital of the fund from the realizable value of all assets and dividing it by number of units outstanding.depending on the type of scheme. 200 lakhs and mutual fund has issue 10 lakhs units of Rs. For example if the market value if securities of a mutual fund scheme is Rs. 20 . Since market value of securities changes every day. L. Market Risk: The possibility that stock fund or bond fund prices overall will decline over short or even extended periods. • • K. Net Asset Value is the market value of the securities held by the scheme.
a capital gains distribution represents any net gains resulting from the sale of the securities held by a fund. 2) Yield is the measure of net income (dividends and interest less expenses) earned by the securities in the fund’s portfolio during a specified period. assuming any distributions were reinvested in the fund. However.Study and Research on Mutual Fund in the fund’s share price. Residents Including: • Resident Indian Individuals • Indian Companies • Indian Trusts / Charitable Institutions • Banks • Non-Banking Finance Companies • Insurance Companies • Provident Funds 2. SURAT . Non Residents Including: • Non-Residents IncludesOther Corporate Bodies (OCBs) 3. Mutual Funds in India are open to investment for. 1. A dividend distribution comes from the interest and dividends earned by the securities held by a fund. Fund distributors are a very important link between the fund management industries and the investors. Eligibility for Investing In Mutual Funds In India Mutual funds have been emerging as big financial intermediary in India. In a vast country like India it is a challenge to market these funds. in the investment’s value over a given period. Total return. if any). Foreign Entities: • Foreign Institutional Investors (FIIs) registered with SEBI • Foreign citizens and other foreign entities are not allowed to invest in Mutual Funds India 25 DBIM. it is equally essential to know who can invest in Mutual Funds in India. represents the change in that investment’s value over a given period. Yield does not include the change. Yield is expressed as a percentage of the fund’s NAV (including the highest applicable sales charge. expressed as a percentage of an initial investment in a fund. if any. M.
000 agents. LIC foreign banks. ICICI Prudential Mutual Fund 26 DBIM. Today it has 54 branch offices. 266 chief representatives and about 67. The contributors of initial capital of Rs. with a high quality of fund management. sales and customer service. UTI manages funds over Rs.221 crore as on 30/6/2001 and over 41. profit and gain accruing to corporation from the acquisition. have made a strong impression especially in the larger cities. The first scheme was Unit scheme 1964. Under the provision of the act. 58.80 million investors account under 85 schemes. SBI and some contributors of initial capital of Rs. UTI is a trust without ownership capital and independent Board of trustees. after an indifferent start in the early years. UTI Mutual Fund UTI was set up in 1964 by an act of parliament and commenced its operation from July 1964.Study and Research on Mutual Fund 4 BRIEF INTRODUCTION OF MF COMPANIES Classification of Indian Mutual Fund Industry The private sector players. LIC. Unit trust of India (UTI) is the India's largest Mutual Fund organization. 5 crore for US-64 scheme were RBI. It provides complete range of services to its investors. SURAT . the Government of India would appoint chairman of the board. with a view to encouraging saving and investment and participation in the income. This sector has dented UTI's dominance resulting in a falling market share towards the end of the last millennium. management and disposal of securities. 5 crore for US-64 scheme were RBI. holding.
Study and Research on Mutual Fund
The Industrial Credit and Investment Corporation of India Limited (ICICI) was founded by the World Bank, the Government of India and representatives of private industry on January 5, 1995 to encourage and assist industrial development and investment in India. The sponsors of the Fund are prudential plc of the United Kingdom (UK) and ICICI Limited. Prudential is one of the largest life insurance companies in the UK and one of the leading life insurance companies in the world. It operates on over 15 countries and markets medium to long-term savings product, including life insurance, pensions and unit trusts. It has a total of over 10 million customers worldwide. ICICI is a premier financial institution and its principal business is to provide medium and long-term project financing/leasing, consumer finance and other types of financial services to industry and individuals in India. The total financial assistance extended by ICICI since inception is Rs. 1,46,167 crores as of March 31,2001.Prudential ICICI Asset Management Company Limited, the investment Manager to the Prudential ICICI Mutual Fund, manages assets over Rs.6242.07 crores as of July 31, 2001 through 13 schemes.
IDBI Principal Mutual Fund
The Mutual Fund is sponsored by two leading names in the financial services industry- Industrial Development Bank of India (IDBI) and Principal Financial Services Inc. IDBI is a premier financial institution of India and one of the largest development banks in the world. Principal Financial Services Inc. is a member of the Principal Financial Group - a leading global provider of financial products and services, including Retirement and Investment Services, Mutual Funds, Life and Health Insurance, Annuities and Mortgage Banking, to business and individuals.IDBI Mutual fund has been constituted as a Trust in accordance with the provisions of the Indian trust Act,1882.The Mutual fund is registered with SEBI under registrationno.MF/019/94/0 dated December 13, 1994. The Fund was set up by Industrial Development Bank of India (IDBI) in 1994 by execution of a Trust Deed dated November25, 1994 under which IDBI was the sole Sponsor, Settler and Principal Trustee. IDBI, as sponsor to the fund, has irrevocably settled a Sum of Rs. 25 crore as the Trust corpus, which is held and managed as per the provisions of the Trust Deed. The Board of Trustees with IDBI as principal trustee discharges the Trusteeship functions of IDBI Mutual fund. The trustee had appointed IDBI mutual fund, since inception. IIMCO was a wholly owned subsidiary of IDBI and is registered under the Companies Act, 1956. Since March 31, 2000, the principal Financial Services Inc. has acquired 50% stake in the paid up equity capital of IIMCO through its subsidiary, Principal Financial Group (Maturities) Limited. With this move, the name has been changed to IDBI-PRINCIPAL Asset Management Company Limited (IDBI-PRINCIPAL) to reflect the change in ownership. IDBI was established in 1964 by the Government of India under IDBI Act. It is the premier development financial institution in the country and one of the largest development banks in the world with an asset base of over Rs 72,000 crore (US$ 16 billion) and net worth of over Rs 9,000 crore (US$ 2 billion). It currently has an investor base of 3.3 million. It has played a major role in institution building by setting up various specialized institutions to cater to the changing needs of Indian industry and capital market.
27 DBIM, SURAT
Study and Research on Mutual Fund Birla Sun Life Mutual Fund
The sponsor of Birla Mutual Fund is Birla Global Finance Ltd. (BGFL) is an Aditya Birla Co. engaged in asset based financing, corporate finance, trade finance, treasury and capital market operations. The Birla Global Finance Ltd. Was responsible for setting up and establishing the Mutual Fund to be called Birla Mutual Fund. Birla Mutual Fund has been constituted as a trust under the provisions of the Indian Trust Act, 1982 with SEBI. The objective of the Mutual fund is to offer to the public and other eligible investors units in one or more schemes in the Mutual Fund for making group or collective investments primarily in Indian securities in accordance with and as permitted under the directions and guidelines issued from time to time by SEBI.
ABN AMRO Mutual Fund
ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorporated on November 4, 2003. Deutsche Bank A G is the custodian of ABN AMRO Mutual Fund.
Bank of Baroda Mutual Fund
Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the AMC of BOB Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the custodian.
HDFC Mutual Fund
HDFC Mutual Fund was setup on June 30, 2000 with two sponsorers nemely Housing Development Finance Corporation Limited and Standard Life Investments Limited.
HSBC Mutual Fund
HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund.
ING Vysya Mutual Fund
ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It is a joint venture of Vysya and ING. The AMC, ING Investment Management (India) Pvt. Ltd. was incorporated on April 6, 1998.
Sahara Mutual Fund
Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. as the sponsor. Sahara Asset Management Company Private Limited incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs 25.8 crore.
State Bank of India Mutual Fund
State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch off share fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes out of which 15 have already yielded handsome returns to investors. State Bank of India Mutual Fund has more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread over 18 schemes. 28 DBIM, SURAT
Study and Research on Mutual Fund Tata Mutual Fund
Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsorers for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset Management Limited and its Tata Trustee Company Pvt. Limited. Tata Asset Management Limited's is one of the fastest in the country with more than Rs. 7,703 crores (as on April 30, 2005) of AUM.
Kotak Mahindra Mutual Fund
Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is presently having more than 1,99,818 investors in its various schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk return profiles. It was the first company to launch dedicated gilt scheme investing only in government securities.
Reliance Mutual Fund
Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities.
Standard Chartered Mutual Fund
Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated with SEBI on December 20,1999.
Franklin Templeton India Mutual Fund
The group, Frnaklin Templeton Investments is a California (USA) based company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world. Investors can buy or sell the Mutual Fund through their financial advisor or through mail or through their website. They have Open end Diversified Equity schemes, Open end Sector Equity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer.
Morgan Stanley Mutual Fund India
Morgan Stanley is a worldwide financial services company and its leading in the market in securities, investmenty management and credit services. Morgan Stanley Investment Management (MISM) was established in the year 1975. It provides customized asset management services and products to governments, corporations, pension funds and non-profit organisations. Its services are also extended to high net worth individuals and retail investors. In India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMF). This is the first close end diversified equity scheme serving the needs of Indian retail investors focussing on a long-term capital appreciation.
Escorts Mutual Fund
29 DBIM, SURAT
(UII) and is constituted as a Trust in accordance with the provisions of the Indian Trusts Act. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act. viz. is the Trustee Company and AMC is Cholamandalam AMC Limited. 1994 with Alliance Capital Management Corp. Ltd. Ltd. was setup on January 3. as the sponsored and Benchmark Trustee Company Pvt. of Delaware (USA) as sponsorer. Ltd (OIC) and United India Insurance Co. 1882. GIC Mutual Fund GIC Mutual Fund. is the AMC. incorporated on March 2. National Insurance Co. Canbank Investment Management Services Ltd. Canbank Mutual Fund Canbank Mutual Fund was setup on December 19. and AMC. (NIA). Benchmark Mutual Fund Benchmark Mutual Fund was setup on June 12. 1995 with the name Escorts Asset Management Limited. The Corporate Office of the AMC is in Mumbai. 2000 and headquartered in Mumbai. Benchmark Asset Management Company Pvt. 1997. 1993 is the AMC. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund.Study and Research on Mutual Fund Escorts Mutual Fund was setup on April 15. The Trustee Company is Escorts Investment Trust Limited. Ltd (NIC). The Trustee is ACAM Trust Company Pvt. sponsored by General Insurance Corporation of India (GIC). 1882 30 DBIM. SURAT . Chola Mutual Fund Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance Company Ltd. Ltd. Ltd. as the Trustee Company. The New India Assurance Co. with the corporate office in Mumbai. . Ltd. 2001 with Niche Financial Services Pvt. The Oriental Insurance Co. Incorporated on October 16. the Alliance Capital Asset Management India (Pvt) Ltd. 1996 with Excorts Finance Limited as its sponsor. a Government of India undertaking and the four Public Sector General Insurance Companies. Cholamandalam Trustee Co. Alliance Capital Mutual Fund Alliance Capital Mutual Fund was setup on December 30. Ltd. It contributed Rs. 2 Crores towards the corpus of the Fund. The Company started its business on 29th April 1994. LIC Mutual Fund Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. Ltd. 1987 with Canara Bank acting as the sponsor. Its AMC was incorporated on December 1.
Our saving rate is over 23%. Some facts for the growth of mutual funds in India 100% growth in the last 6 years. The SEBI (Mutual Funds) Regulations. Today most of the mutual funds are concentrating on the 'A' class cities. administration and management of mutual funds in India were clearly laid down. Number of foreign AMC's are in the que to enter the Indian markets like Fidelity Investments. are now regulated by the capital market regulator. highest in the world. Emphasis on better corporate governance. US based. 1998 and 1999. SEBI allowing the MF's to launch commodity mutual funds. all mutual funds are regulated by SEBI. with over US$1trillion assets under management worldwide. Only channelizing these savings in mutual funds sector is required. Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products.Study and Research on Mutual Fund 5 MUTUAL FUND REGULATION There was no uniform regulation of the mutual funds industry till a few years ago. The Securities & Exchange Board of India (SEBI) was formed in 1993 as a capital market regulator. The rules for the formation. Today. 'B' and 'C' class cities are growing rapidly. There is a big scope for expansion. The revised guidelines tighten the accounting and disclosure requirements in line with recommendations of The Expert Committee on Accounting Policies. One of its responsibilities was to regulate the mutual fund industry and it came up with comprehensive regulations for the industry in 1993. Trying to curb the late trading practices. Mutual Funds – Organization 31 DBIM. 1996 have been further amended in 1997. The UTI was regulated by a special Act of Parliament while funds promoted by public sector banks were subject to RBI Guidelines of July 1989. Regulations also prescribed disclosure requirements. The regulations were thoroughly reviewed and re-notified in December 1996. We have approximately 30 mutual funds which is much less than US having more than 800. Soon they will find scope in the growing cities. with the exception of Unit 64. Efforts have been made to bring UTI schemes under SEBI's ambit with the result that all schemes. SURAT . Net Asset Values and Pricing of Mutual Funds.
The fund managers had no experience in the activity making a mockery of "professional management". The CEO’s of the AMCs did not have any clue of the mutual fund business and neither were they interested in it – the entire effort was spent in getting a posting back in the parent. The management of the banks also did not allow these AMCs to become independent viable businesses. the commitment to service quality and overall supervision.This is also a problem that has afflicted some of the AMCs floated by nationalized banks. Since mutual fund business did not have access to too much money. This is the last place where high quality persons would want to remain and work. a sponsor which is financially weak or which cannot capital to the business either because of its inability or unwillingness will result in an unhealthy operation. It looks extremely likely that some of these AMCs will no longer exist in a few years. This is exactly what has happened with some AMCs promoted by Indian business houses. The sad results are there to see. these losses are much more than the capital requirements stipulated by SEBI. This is because most AMCs lose money in the first few years of operations. a posting in the AMC became punishment postings for some personnel who were not doing well in the parent organization or who lost out in the organizational politics.Study and Research on Mutual Fund There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund: How important is an AMC (Asset Management Company) behind a mutual fund? AMC controls the operations and functioning of a mutual fund. Some of the parents had to provide funds to bridge the gap in "assured return schemes". The AMC then remains stunted and the sponsors lose interest. 32 DBIM. There will be a tendency to cut corners and unwillingness to spend money to expand operations. SURAT . In these organizations. It is very critical to the performance of a mutual fund as it decides on the style of functioning. the traditional thinking is prevalent which can be summarized as "money is power". Hence. The worst affected are the investors. people who are going to manage the funds. In most cases. The financial strength and the commitment of the AMC sponsors to the business are very key issues.
Study and Research on Mutual Fund 33 DBIM. SURAT .
Study and Research on Mutual Fund Organization structure of a Mutual Fund 34 DBIM. SURAT .
SURAT . buying a home or finance a wedding or educate your children or a combination of all these needs. You can begin by defining your investment objectives and needs which could be regular income. the first step is to assess your needs. Other factors could be the portfolio allocation. the dividend yield and the degree of transparency as reflected in the frequency and quality of their communications. You can also avail the systematic investment plan facility offered by many open end funds.Identify your Investment needs Your financial goals will vary. lifestyle. Step four . Some factors to evaluate before choosing a particular Mutual Fund are the track record of the performance of the fund over the last few years in relation to the appropriate yardstick and similar funds in the same category. Step Five. you buy fewer units when the price is higher and more units when the price is low. thus bringing down your average cost per unit. For selecting the right scheme as per your specific requirements.Start early 35 DBIM. and level of income and expenses among many other factors. Therefore. family commitments. financial independence. Step Two . the quantum of risk you are willing to take and your cash flow requirements.Choose the right Mutual Fund The important thing is to choose the right mutual fund scheme which suits your requirements. say every month.Invest regularly The best approach is to invest a fixed amount at specific intervals.Study and Research on Mutual Fund Steps for Investing In Mutual Fund Step one . The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed by the same Fund Manager.Select the ideal mix of Schemes Investing in just one Mutual Fund scheme may not meet all your investment needs. Step Three . based on your age. This is called rupee cost averaging and is a disciplined investment strategy followed by investors all over the world. By investing a fixed sum each month. You may consider investing in a combination of schemes to achieve your specific goals.
The role of Association of Mutual Funds in India The Association of Mutual Funds of India works with 30 registered AMCs of the country. 4. you will make more than if you wait and invest later. Receive dividend within 42 days of their declaration and receive the redemption or repurchase proceeds within 10 days from the date of redemption or repurchase. 1995. The objectives are as follows: 36 DBIM. The dissenting unit holder has a right to redeem the investment. Receive unit certificates or statements of accounts confirming the title within 6 weeks from the date of closure of the subscription or within 6 weeks from the date of request for a unit certificate is received by the Mutual Fund.The final step All you need to do now is to Click here for online application forms of various mutual fund schemes and start investing. growth oriented or income seeking. Association of Mutual Funds in India (AMFI) With the increase in mutual fund players in India. 5. Receive information about the investment policies. The power of compounding lets you earn income on income and your money multiplies at a compounded rate of return.whether starting a career or retiring. Mutual Funds are suitable for every kind of investor . Approve or disapprove any change in the fundamental investment policies of the scheme. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August. Wind up the schemes. It functions under the supervision and guidelines of its Board of Directors. Inspect the documents of the Mutual Funds specified in the scheme's offer document. Rights of a Mutual Fund Unit holder A unit holder in a Mutual Fund scheme governed by the SEBI (Mutual Funds) Regulations is entitled to: 1. 3.AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. Change the Asset Management Company. b. investment objectives. If you start now. conservative or risk taking. You may reap the rewards in the years to come. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders. financial position and general affairs of the scheme. which are likely to modify the scheme or affect the interest of the unit holder. a need for mutual fund association in India was generated to function as a non-profit organisation. Step Six .Study and Research on Mutual Fund It is desirable to start investing early and stick to a regular investment plan. Vote in accordance with the Regulations to:a. Till date all the AMCs are that have launched mutual fund schemes are its members. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. SURAT . 2. c.
37 DBIM. Cholamandalam Asset Management Co. Ltd. Ltd. Can bank Investment Management Services Ltd. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. AMFI undertakes all India awareness programme for investors in order to promote proper understanding of the concept and working of mutual funds. Association of Mutual Fund of India do represent the Government of India. Capital Management Pvt. The sponsors of Association of Mutual Funds in India A BANK SPONSORED BOB Asset Management Co. Pvt. Tata Asset Management Private Ltd. 5. Ltd. Ltd. Ltd Sundaram Asset Management Company Ltd. AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. Jeevan Bima Sahayog Asset Management Co. 6. Escorts Asset Management Ltd. It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. Reliance Capital Asset Management Ltd. This mutual fund association of India maintains a high professional and ethical standards in all areas of operation of the industry. SURAT B C1 . J. INSTITUTIONS GIC Asset Management Co. Ltd. It implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry. SBI Funds Management Ltd.Study and Research on Mutual Fund 1. 4. At last but not the least association of mutual fund of India also disseminate information’s on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies. Sahara Asset Management Co. Ltd. the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. Kotak Mahindra Asset Management Co.M. Pvt. 7. It develops a team of well qualified and trained Agent distributors. 2. UTI Asset Management Company Pvt. Ltd. PRIVATE SECTOR Benchmark Asset Management Co. 3. Ltd.
AMCs are also allowed to do other fund based businesses such as providing investment management services to offshore funds. (Source: Association of Mutual Funds in India Publications) C3 SEBI Regulations Regarding Mutual Fund The SEBI regulations for the establishment and issue of schemes by mutual funds are as follows: Mutual fund shall be established in the form of trusts under the Indian Trust Act and managed by separately formed asset management company. The minimum amount to be raised with each closed-end scheme should be Rs. Ltd. This stipulation is not applicable to banks sponsoring mutual funds. and insurance companies. For each scheme. ING Investment Management (India) Pvt. Fifty per cent members of the board of AMC must be independent directors and must have no connection with sponsoring organization. The SEBI has the authority to withdraw the authorization of AMC if they fail to work for the interest of investors. DSP Merrill Lynch Fund Managers Ltd. there should be a separate and responsible fund manager. For openended schemes. venture capital funds. Principal Asset Management Co. Ltd. HDFC Asset Management Co. the first 45 days should be considered for determining the target figure. Ltd. Ltd. Deutsche Asset Management (India) Pvt.Study and Research on Mutual Fund C2 JOINT VENTURES.PREDOMINANTLY INDIAN Birla Sun Life Asset Management Co. JOINT VENTURES . Each scheme of the mutual fund is registered with SEBI before it is floated in the market. Ltd. Pvt. 10 crores. If the minimum amount or 60% of the target amount is not raised. Pvt. Ltd. SURAT . the entire subscription has to be returned to the investors. The directors should have at least 10 years experience in the field of portfolio management. Ltd. Ltd. Prudential ICICI Asset Management Co. Closed-end schemes should not be kept open for subscription for more than 45 days. Money market mutual fund would be regulated by the RBI and other mutual funds would be regulated by SEBI. Franklin Templeton Asset Management (India) Pvt. Credit Capital Asset Management Co. 20 crores and for the open-ended scheme Rs. Ltd. other mutual funds. Standard Chartered Asset Mgmt Co. An AMC cannot act as the AMC for another mutual fund.PREDOMINANTLY FOREIGN Alliance Capital Asset Management (India) Pvt. financial administration. etc. Morgan Stanley Investment Management Pvt. Ltd. 50 crores. The AMC should have a minimum net worth of Rs. HSBC Asset Management (India) Private Ltd. 38 DBIM. Ltd.
The SEBI shall lay down a common advertising code for all mutual funds to comply with. The SEBI after due investigation may impose penalty on mutual funds for violating the guidelines 39 DBIM. Every mutual fund is required to send the audited annual statements of accounts and six months un audited accounts of net assets for each of its schemes to the SEBI. SEBI increased the maximum investment limit for MFs in listed companies from 5 to 10% of NAV in respect of the open-ended funds. The initial issue expenses should not exceed 6% of the funds raised under each scheme. SURAT . All mutual funds must distribute a minimum of 90% of their profits in any given year.Study and Research on Mutual Fund The SEBI guidelines (1999) restrict MFs to invest not more than 10% of NAV of a scheme in shares or share related instruments of a single company.
In the U. In the U. A research agency that specializes in internet technology estimates that over the next four years Mutual Fund Assets traded on. 04. SURAT . On. the total number of schemes is higher than that of the listed companies while in India we have just 277 schemes Internationally.S. Out of the top 10 mutual funds worldwide.line will grow ten folds from $ 128 billion to $ 1. Many have debated about the success of e.S. lower intermediation costs and better services for all.Study and Research on Mutual Fund 6 Global Scenario Some basic facts • • GLOBAL & INDIAN SCENARIO The money market mutual fund segment has a total corpus of $ 1.2005) 40 DBIM.2005) • • • • • Internationally. mutual funds cannot be left far behind.7 million households will manage their assets on-line by the year 2003.48 trillion in the U. are expected to trade on-line by 2003. (Source: The Financial Express: September. In India fund managers do not have such leeway.sponsored.line trading is a great idea to reduce management expenses from the current 2 % of total assets to about 0.75 % of the total assets. on-line investing continues its meteoric rise. but it is true that this aspect of technology could and will change the way financial sectors function.561 billion. about 9.S. mutual funds are allowed to go short.A. They have realized the potential of the Internet and are equipping themselves to perform better.S.commerce and its breakthroughs. such a facility is not yet of avail in India. while in India the Net is used as a source of Information. whereas equity assets traded on-line will increase during the period from $ 246 billion to $ 1. eight are bank.S. However. mutual funds buy. Only Fidelity and Capital are non-bank mutual funds in this group.sell transactions have already begun on the Net. 72% of the core customer base of mutual funds in the top 50-broking firms in the U. against a corpus of $ 100 million in India. Such changes could facilitate easy access. This will increase the share of mutual funds from 34% to 40% during the period.227 billion . In fact in advanced countries like the U. (Source: The Financial Express : September 04.
• • • • • Indian scenario Why had mutual funds in India performed so poorly in the past? Most investors associate mutual funds with Mastergain. The Internet users are going to increase dramatically and mutual funds are going to be the best beneficiary. bond funds can charge a maximum of 2.6 million net users who are prime target for these funds and this could just be the beginning. With smaller administrative costs more funds would be mobilized .A fund manager must be ready to tackle the volatility and will have to maintain sufficient amount of investments which are high liquidity and low yielding investments to honor redemption. It is only the performance of equity funds. which has been poor.line. In India . As per SEBI regulations . Investors feel that after 5 years. Mutual funds could bring down their administrative costs to 0. sites like AOL offer detailed research and financial details about the functioning of different funds and their performance statistics. Morgan Stanley Growth Fund units still trade below the original IPO price of Rs 10.5% as administrative fees. Here are some of the basic changes that have taken place since the advent of the Net. In the U. New investors would prefer online : Mutual funds can target investors who are young individuals and who are Net savvy.Study and Research on Mutual Fund Such increases in volumes are expected to bring about large changes in the way Mutual Funds conduct their business. since servicing them would be easier on the Net. India has around 1. a is witnessing a genesis in this area. If one looks at some income funds. 41 DBIM. SURAT . Therefore if the administrative costs are low . with a fund like Morgan Stanley having more than 1 million investors.75% if trading is done on. • Lower Costs: Distribution of funds will fall in the online trading regime by 2003 . units of these funds quoting at sharp discounts to their NAV resulting in an even poorer return to the investor. This is so because these funds truly had participation from masses. Their poor performance has been amplified by the closed end discounts i.25% and equity funds can charge 2. they have come with reasonable returns. brokers could get more Net savvy than investors and could help the investors with the knowledge through get from the Net. Direct dealing with the fund could help the investor with their financial planning. It is incorrect to think that all mutual funds have performed poorly. UTI and Canbank Mutual Fund and of course Morgan Stanley Growth Fund. Better advice: Mutual funds could provide better advice to their investors through the Net rather than through the traditional investment routes where there is an additional channel to deal with the Brokers. Monthly Equity Plans of SBI Mutual Fund. Net based advertisements: There will be more sites involved in ads and promotion of mutual funds. the benefits are passed down and hence Mutual Funds are able to attract mire investors and increase their asset base.e.S.
Good funds can beat returns in their asset class to some extent but that’s all. 42 DBIM. UTI would not be able to meet them without support of outside bodies like the RBI. Let us extend this example to an analysis of the investment climate in the last 7 years. Further. the prices of all stocks in the sector could fall substantially resulting in a severe erosion in the NAV of the fund. if all investors wanted to redeem their US 64 units on the same day. What went wrong with US64? Basically. take the case of a sector specific fund like a Pharma fund which invests only in shares of pharmaceutical companies. the total return has been almost zero. existing in 1992. for a seven-year investment period. This problem was compounded by the persistent fall in the prices of shares. No one can do anything about it. Many people felt that if there were large-scale redemptions. The entire exercise in fund raising was centered on the hype of the fund being the first fund promoted by an internationally acclaimed asset management company. it set a panic amongst investors of US 64. have been substantially negative. The following table gives some of the prices of stocks considered "blue chips" in 1992. What went wrong with Morgan Stanley? Morgan Stanley raised large corpus (more than Rs10bn) in around early 1994. for a period of 2-3 years. If the Govt. and shares of public sector units. The stock markets have done very badly in the last seven years. when the NAV of US 64 was going down.Study and Research on Mutual Fund One must remember that a Mutual Fund does not provide assured returns and neither can it "manufacture" returns out of thin air.g. steel. Since then it has gone up and come down several times but has remained in the same range. theoretically.providing them the service of investment advice and management. No one explained to them that they were not investing in a share of a company – in fact the artificial gray market premium served to perpetrate this feeling. which resulted in the erosion of the scheme’s book reserves and a wide difference between the actual NAV and the sale/repurchase price. the US 64 simply did not have the money to meet the redemptions on its own (due to the difference between NAV and the repurchase price). the NAV of the fund would fall to a lesser extent – but fall it will. the UTI distributed more dividend to the unit holders of US 64 than the return earned from the investments in the scheme. Throughout this period. The stock market collapse after the Pokhran II nuclear tests was the last straw. If one considers the fact that the Sensex has been changed several times. comes with new regulation that severely restricts the pricing freedom of these companies resulting in negative outlook for the sector. E. The BSE Sensex crossed 3000 for the first time in early 1992. in 1994 and the prices prevailing at present. his personal investments may have depreciated to a larger extent. the effective returns on the old Sensex. especially the shares of companies in basic commodity industries like cement. in all probability. Effectively. Returns provided by mutual funds are a function of the returns in the underlying asset class in which the fund invests. A good fund manager would probably sell part of the fund before prices fall too much and wait for an opportune time to reinvest at lower levels once the dust has settled. No one bothered to explain to them that Morgan Stanley AMC was a service provider . If the investor in the fund has invested in some stocks in the sector on his own. When this became known. In that case. The prices of many leading stocks of yesteryear have fallen by more than 50% in these seven years. SURAT . This reduced the value of the residual investments in the scheme. It was marketed like any other public issue and fund investors rushed to invest in the scheme hoping to get superior returns. with all the weak stocks having been weeded out. manmade fibers etc. UTI kept increasing the sale and repurchase prices of US 64 units.
Study and Research on Mutual Fund The IPO was a great success. The fund managers were compelled to invest in equities in a big hurry as a number of Foreign Institutional Investors were investing huge sums of money in the country resulting in a mad rush for equity stocks. SURAT . The fund raising exercise. Indian stock markets lack depth and are quite illiquid. Crisis of confidence led to its price on the stock exchange crashing and it started quoting at a steep discount to its NAV. And in this crash. Many corporates and banks started redeeming their holdings in the Unit Trust of India and other mutual funds. In fact. the biggest losers were the smaller capitalization stocks. There were also massive private placements of equity shares and GDR issues at huge premiums. Many of these stocks lost more than 90% of their peak prices. unfortunately. The market position started changing from late 1994. investors’ confidence was shattered. the fund invested considerable amount of money in FMCG. This deluge of paper soaked up money and reduced the amount available for fresh investment both from resident Indians. To top it. Most of the stocks in the Sensex have performed poorly with markets punishing commodity companies and companies with non-transparent Indian managements. What followed was the great crash. The fund started buying back units in order to reduce the discount and also to boost the NAV (buying back units at prices below the NAV results in a profit. The boom in the market made it possible for many companies to raise equity capital and literally hundreds of public/rights issues opened for subscriptions every week. Money supply tightened and bond yields started increasing dramatically. There were very few companies which did not wash their hands in this great gravy train. which was already showing signs of weakness. either through the secondary market or through private placements. It ensured that the name "Morgan Stanley" was now a part of the dreams of more than 1 million Indians. Since then the equity markets have gone nowhere with the index still below the level at which the fund was invested. the NAV of MSGF mirrors this gory saga of the Indian markets. Being a closed-ended scheme the Morgan Stanley’s mutual fund unit is also listed on the stock markets. At this time. coincided with the peak of stock market boom. Morgan Stanley AMC restructured the funds portfolio at big losses. many erstwhile blue chips have reported disastrous financial performances. As the NAV went below par. These companies had experienced the highest appreciation in prices in the immediate past. Consequently. which will reduce the NAV). This put major pressure on the market. High industrial growth and tight money created a shortage for credit and rates started going sky high. domestic mutual funds and from foreign institutional investors. 43 DBIM. Given its large corpus size no amount of buy back or otherwise support could help boost the investor confidence. the RBI commenced on its tight money policy in a bid to control inflation from raising its head. The fund’s managers invested a considerable amount of money in smaller companies with low floating stock and low market capitalization. many of them at high issue prices. pharmaceutical and software companies at the right time which improved the NAV from 1998 onwards.
4% 3.243.965.36 4. Number of foreign AMC's are in the que to enter the Indian markets like Fidelity Investments.87 9.205.983. There is a big scope for expansion.4% 3.0% 1.3% 100. Only channelizing these savings in mutual funds sector is required.9% 4.0% Some Facts for the Growth of Mutual Funds In India 100% growth in the last 6 years.237.35 2. 'B' and 'C' class cities are growing rapidly.037.30 6.Study and Research on Mutual Fund Mutual Fund in various Sectors of India Sector Engineering Banking/Finance Oil & Gas Metals & Mining Cement Information Technology Telecom Pharmaceuticals Automotive Manufacturing Utilities Media Chemicals Conglomerates Services Miscellaneous Food & Beverage Tobacco Real Estate Consumer Non-Durables Consumer Durables TOTAL Investment (Rs. cr) 22.3% 3.1% 3. highest in the world.799.35 4.037.800.31 140. 44 DBIM. US based.01 10.316. with over US$1trillion assets under management worldwide.40 4. Our saving rate is over 23%.8% 4.0% 3.664.158.2% 15.072.20 3.2% 2.4% 1.18 Weightage 16.854.93 4.8% 10.9% 1. Today most of the mutual funds are concentrating on the 'A' class cities.6% 4.33 2.816.43 1.01 4.141.5% 1.766.6% 3.644.0% 2. Soon they will find scope in the growing cities.7% 6.138.24 4.68 355. SEBI allowing the MF's to launch commodity mutual funds.39 1.813.55 6.0% 0.85 14.30 6. Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products. SURAT .06 22.1% 7. We have approximately 29 mutual funds which is much less than US having more than 800.435.27 2.
which offer high opportunities. risk-free products are the proffered option for retail investors. Mutual Fund players are formulating their strategies to have a share of the growing market.Study and Research on Mutual Fund Emphasis on better corporate governance. government-sponsored. To realize the potential of the retail segment. In contrast. middle-ages people by pension schemes and retired people by income schemes. Usually. But intensifying competition and steady growth of Mutual Funds has forced AMCs to increase their reach in non metro cities and small towns. The big opportunity The Indian mutual fund industry is worth around Rs. For the mass-market. considering clients financial goals.3%. It is poised to grow by a CAGR of 89%. Until now. whereas demographic segmentation helps in launching specialized or niche products. They are meticulously segmenting and targeting their needs. Savings contribute about 25% of the GDP to Mutual Fund assets. The segmentation is based on the customers’ psychographic profile. risk-taking ability and time duration. Trying to curb the late trading practices. SURAT . where the potential is high and penetration is low. This is mainly attributed to the huge saving tendency among Indians. Market Penetration Redefining distribution The Indian mutual fund industry is going through a phase of transformation since liberalization. distribution has been confined to the metros. The miniscule penetration among retail investors can be attributed to their lack of awareness and risk aversion attitude. MF AMCs are beefing their distribution channel. These has increased the pace of evolution in the industry and made more products and services available to investors. demography/ socio-economic condition. 45 DBIM. which is one of the highest in the Asia region. wider product mix. institutional investors prefer to invest in mutual fund schemes because of the professional management of the funds. where as retrial investors’ accounts for only 1. Institutional investors dominate these industry. They hold about 65% of the Indian Mutual Fund assets. Small families are being targeted using the balanced schemes. their investment is lower. which helps in innovating and developing new products by analyzing customer’s expectancy gap. In contrast. Liberalization has paved the way for foreign investors in the MF industry.000 cr. They are targeted by institutional schemes and money market schemes. which aill help them expand their reach. 150. AMCs perform psychographic segmentation. They are developing their products for both the mass and the niche market. high liquidity and cost efficiency.
Study and Research on Mutual Fund 7 PEST ANALYSIS ENVIRONMENTAL ANALYSIS 1. It issues guidelines for all Mutual Fund operations including where they can invest. how they should make disclosures of information to the investor and generally acts in the interest of investor protection. as the apex regulator of all entities that either raise funds in the capital markets or invest in capital market securities such as shares and debentures listed on stock exchanges.The Capital Market Regulator The Govt. stock exchanges and brokers in the secondary markets. custodians. bankers in the primary markets. being primarily capital market players. the operations of bank-owned Mutual Funds are governed by guidelines issued by the Reserve Bank of India. and foreign and institutional investors such as FIIs. how they should account for income and expenses. RBI — The Money Markets Regulator • RBI as Supervisor of Bank-Owned Mutual Funds The first non-UTI Mutual Funds were started by public sector banks. Therefore. Subsequently. Mutual Funds have emerged as an important institutional investor in capital market securities. SURAT . it has been clarified that all Mutual Funds. Political and Legal Factors : Regulators in India SEBI. SEBI requires all Mutual Funds to be registered with them. Other entities that SEBI also regulates are companies when they issue equity or debt. Banks come under the regulatory jurisdiction of the RBI. what investment limits and restrictions must be complied with. come under the 46 DBIM. offshore Mutual Funds with dedicated Indian Mutual Funds or venture capital investors. share registrars. Hence they come under the purview of SEBI. by an act of Parliament in 1992. of India constituted SEBI.
or the trustee company as the case may be is in compliance with all companies act provisions. They also. the bank-owned funs continue to be under the joint supervision of both the RBI and the SEBI. therefore. while any issues concerning the ownership of the AMCs by banks fall under the regulatory ambit of the RBI. The primary legal interface for all companies is the Registrar of companies (R0C). in such 47 DBIM. if a Mutual Fund manager offers a Money Market Mutual Fund scheme. Ministry of Finance The Ministry of Finance. The R0C ensures that the AM. The overall responsibility for formulating and modifying regulation relating to companies lies with the DCA.in particular any cases of insider trading or merger and acquisition.Study and Research on Mutual Fund regulatory umbrella of SEBI. such MMMF has to abide by the policies laid down by the RBI. which is part of the Ministry of Law and Justice of the Govt. Department of company affairs and register of companies Mutual Fund Asset Management Companies corporate trustees are companies registered under companies act 1956 and therefore answerable to regulatory authority empowered by the companies act. For this reason. The DCA has legal power to prosecute company directors for failure to comply with any of company’s law provisions as also for non repayment of deposits or frauds and other offences. RBI would have to review the capital adequacy and financial implications of the guaranteeing bank. of India. Thus. Rocs in turn are supervised by the department of company affairs. The company Law Board is a body specially constituted by the central Government for carrying out judicial proceeding with respect to company affairs. Any fund mergers of bank-sponsored funds with others will also involve RBI approvals. the MOE has also been playing the role of an appellate authority for any major disputes over SEBI guidelines on certain specific capital market related guidelines. if banks as funds sponsors have offered assured return schemes. who may demand additional information and documents from the company. SURAT . be it banks and companies that issue securities such as certificates of deposit or commercial paper. or banks and Mutual Funds who are allowed to borrow from or lend in the call money market. Company Law Board. which is charged with implementing the government policies. It is generally understood that all market related and investor related activities of the funds are to be supervised by SEBI. Since Mutual Fund AMOs are companies. For example. However. The DCA forms part of the company law board. While the CLB guides the DCA. have the sole supervisory responsibility over all entities that operate in the money markets. Member of a company who feel that the company is being managed in a manner which is oppressive to any member or which is against public interest or the company’s interests can appeal to the CLB for redressal. The RoC plays the role of a watch dog with respect to regulatory compliance by companies. ultimately supervises both the RBI and the SEBI. All AMC accounts and records are filled with the RoC. the RBI guidelines on bank funds avoid issuing instructions on investment and market operations that may conflict with SEBI instructions. another arm of the CLB called the company law bench is the appellate authority for corporate offences. The CLB. the CLB’s role assumes importance. Besides being the ultimate policy making and supervising entity. The company law board (CLB) is the apex regulatory authority under the companies Act. • RBI as Supervisor of Money Market Mutual Funds Reserve Bank of India is the only government agency that is charged with the sole responsibility to control the money supply in the country.
transfer and settlement of the buying and selling of Mutual Fund units on the markets. Bank sponsored mutual finds are jointly regulated by SEBI and RBI permission. UTI is governed by the UTI act. Exchange Rules and the companies Act provisions would generally decide on trading clearing. Since the AMC and trustee co. Office of the Public Trustee Mutual Funds. have the shares of the aggrieved members purchased by other members and/or terminate/modify the company’s arrangement with the managing director. Stock Exchanges Stock Exchanges are self regulatory organization supervised by SEBI. SROs cannot do any legislation on their own. All stock exchanges are SROs. These Regulators enforce provisions of the Indian Trusts Act. 1882. 1963 and is voluntarily under SEBI regulations. SEBI is the regulator of all funds. except offshore funds. Investors cannot sue the trust.s they are regulated by the department of co affairs. as they are the same as the trust and cant sure themselves. being Public Trusts are governed by the India Trust Act. AMFI is an industry association of mutual funds. As the members of AMC or Trustee companies will usually be the sponsors and their joint venture partners or associates. AMFI has created code for mutual funds. enforce attendance and examine witness on oath and pass judgments in the same manner as a civil Court. and may call for inspection of documents. it is unlikely that Mutual Fund investors will have anything to do with any of these regulators. Many closed-end schemes of Mutual Funds are listed on one or more stock exchanges.Study and Research on Mutual Fund cases. Listed mutual funds are subject to the listing regulations of stock exchanges. Such schemes are subject to regulation by the concerned stock exchanges through a listing agreement between the fund and the stock exchange. The CLB has the legal standing of a civil court. SURAT . The authorities would generally regulate the AMCs whose shareholders may have recourse to them in specific cases. 1996. UTI can borrow as well as lend and also engage in other financial services activities. The Board of Trustees or the Trustee Company is accountable to the Office of the Public Trustee. AMFI is not yet a SEBI registered SRO. encouraging best practices and bringing about high standards of professional behavior in the industry. other director(s) or senior officials. they have to send periodic report to the roc and the co law board is the appellate authority. may regulate the conduct of the company’s affairs. to be complied with by the fund trustees. RBI regulates money and govt securities in which mutual fund invest. Any person aggrieved by a decision of the CLB may appeal to the High Court. Legal and Regulatory Framework Mutual funds are regulated by the SEBI (Mutual Fund) regulations. SROs are the second tier in the regulatory structure. which in turn reports to the Charity Commissioner. If there is a bank sponsored find. as the registrars handle all such transfers as in case of shares. Funds or AMCs do not get directly involved with purchase and sales of units of such listed closed-end schemes. are Co. it cannot provide a guarantee without RBI permission. AMFI aims at increasing investor awareness about mutual finds. Mutual Fund regulation – How is it important? 48 DBIM.
Regulatory guidelines relating to insider trading. Many regulatory changes have been implemented to improve surveillance and protect the rights of investors. 2. Regulatory environment in India.Sebi has also been closely monitoring investment decisions in unlisted securities and mergers between schemes and fund houses. After the UTI debacle the marker regulator Sebi has taken several measures to develops a comprehensive regulatory framework for mutual funds in association with AMFI.What has been done so far? Late trading: Guidelines have just been issued by sebi (after consultation with AMFI) for uniform cut-off times. late trading. Minimum of 20 investors.Study and Research on Mutual Fund While the Mutual fund industry in India is four decades old major developments in improving regulatory framework haves taken place only during the past five years. switching assets. SURAT . Guidelines issued with respect to non-traded/thinly-traded debt and equity securities. minimum number of investors for each scheme and marketing of mutual funds have now been issued to protect small investors. to bring uniformity in valuation across funds. marketing an investor – service activities required to be AMFI-certified. Comprehensives risk management systems put in to place with which mutual funds most comply. no single investor should hold more than 25% of the scheme’s corpus. All individuals involves in mutual fund selling. Economical Environment 49 DBIM.
During the seventies and the eighties. contributed to the rising share of Asia in world GDP. which is now the fourth largest economy in terms of purchasing power parity. 50 DBIM. followed by the US and Japan with a decline of about 1 percentage point each. with the Indian economy only a little smaller than the US economy but larger than that of Western Europe. India. Notably in the past few years the cities in India have undergone tremendous infrastructure up gradation but the situation in not similar in most part of rural India. India is likely to be a larger growth driver than the six largest countries in the EU. Availability of both physical and social infrastructure is central to sustainable economic growth. Issues and priorities for India As India prepares herself for becoming an economic superpower. ASEAN countries and during the eighties South Korea. Within Asia. The transformation into a tri-polar economy will be complete by 2035. In order to attain the status that currently only a few countries in the world enjoy and to provide a more egalitarian society to its mounting population. By 2035. Simplifying procedures and relaxing entry barriers for business activities. the share of the US in world GDP is expected to fall (from 21 per cent to 18 per cent) and that of India to rise (from 6 per cent to 11 per cent in 2025). along with China and India.Study and Research on Mutual Fund Indian Economy Overview Economics experts and various studies conducted across the globe envisage India and China to rule the world in the 21st century. Currently Indian economy is facing these challenges: Sustaining the growth momentum and achieving an annual average growth of 7-8 % in the next five years. By 2025 the Indian economy is projected to be about 60 per cent the size of the US economy. leading to the shift of focus from the US and the rich countries of Europe to the two Asian giants. showing a wide range of regional inequalities with urban areas getting most of the benefits. SURAT . the rising share of China and India has more than made up the declining global share of Japan since 1990. Similarly in the realm of health and education and other human development indicators India's performance has been far from satisfactory. The rich countries of Europe have seen the greatest decline in global GDP share by 4. For over a century the United States has been the largest economy in the world but major developments have taken place in the world economy since then. appropriate measures need to be taken. it must expedite socio-economic reforms and take steps for overcoming institutional and infrastructure bottlenecks inherent in the system. and hence the latter will emerge as the third pole in the global economy after the US and China.9 percentage points.India and China. Since independence Indian economy has thrived hard for improving its pace of development. According to some experts. though its impact will be a little over half that of the US. will overtake Japan and become third major economic power within 10 years.
Allowing foreign investment in more areas Effecting fiscal consolidation and eliminating the revenue deficit through revenue enhancement and expenditure management. as at 127 it is way below many other developing countries' performance. Due to a high population growth.A Growing Economy 51 DBIM. by at least 10% per year to integrate not only the surplus labour in agriculture but also the unprecedented number of women and teenagers joining the labour force every year. Boosting agricultural growth through diversification and development of agro processing. GNI per capita remains very poor. However in terms of density India exceeds China as India's land area is almost half of China's total land. telecom and insurance sector in the future. India is the second highest populated country in the world after China. The UPA government is committed to furthering economic reforms and developing basic infrastructure to improve lives of the rural poor and boost economic performance. Expanding industry fast. Government had reduced its controls on foreign trade and investment in some areas and has indicated more liberalization in civil aviation. It was only $ 2880 in 2003 (world bank figures).Study and Research on Mutual Fund Checking the growth of population. India needs to improve its HDI rank. India . Empowering the population through universal education and health care. Developing world-class infrastructure for sustaining growth in all the sectors of the economy. SURAT .
Thus.8% since 1994 ( the period when India's external crisis was brought under control). there is a paramount need to move Indian agriculture beyond its centuries old dependency on monsoon. 52 DBIM. However. Another positive feature was that the growth was accompanied by continued maintenance of relative stability of prices. In fact. agriculture fell sharply from its 2003-04 level of 9 % to 1. Indian economy has been predicted to grow at a level of 6. it is still among the high growth rates seen in India since independence.Study and Research on Mutual Fund A growth rate of above 8% was achieved by the Indian economy during the year 2003-04 and in the advanced estimates for 2004-05. the Indian growth experience lags behind.1% in the current year primarily because of a bad monsoon.7% per year in the 23-year growth record. SURAT . The tenth five year plan aims at achieving a growth rate of 8% for the coming 2-3 years. averaging 5.9 %. However. the growth rate for 2004-05 is less than that of 2003-04. Many factors are behind this robust performance of the Indian economy in 2004-05. High growth rates in Industry & service sector and a benign world economic environment provided a backdrop conducive to the Indian economy. the Indian economy has posted an excellent average GDP growth of 6. having growth rates above 7%. This can be achieved by bringing more area under irrigation and by better water management. in comparison to many East Asian economies. Growth in the Indian economy has steadily increased since 1979. Though.
2 in 2002-03.0 per cent of BE in the corresponding period last year.4 per cent (exclusive of conversion of non-banking entity into banking entity. 2004) increased by 7. 16. A strong BOP position in recent years has resulted in a steady accumulation of foreign exchange reserves. However.5 per cent (exclusive of conversion. registered a growth of 20.5 per cent (exclusive of conversion.4 per cent during the same period of the last year indicated a positive outlook. with bank rate standing at 6% as on Dec 10. 16. Rupee depreciated against other major non-dollar currencies. The latest Re/$ Exchange rate (March 2005) stood close to 44. SURAT . Having given the broad picture of Indian economy. Fiscal deficit of states & center was decreasing in early 90s but due to rise in fiscal deficit in recent years. During the current financial year (up to December 10. India's exports during AprNov registered a growth of 24% from the last period but India's position was down from 30th to 31st rank in the top exporting countries of the world.9% in 2004-05 from a 9. During the current financial year 2004-05. The downward trend in interest rates continued in 2004-05. fiscal deficit in April-October 2004 is 45. driven entirely by the increase in the net foreign exchange assets of the RBI.2 per cent of BE compared with 56. foreign institutional investments and other capital inflows.3 per cent) as compared with the growth rate of 10.4% of GDP in 2003-04.3% in 2003-04 from 9. broad money stock (M3) (up to December 10. Alike current account. The main contributors to capital account surplus were the banking capital inflows. Growth momentum in exports was maintained. The capital inflows. Though. 2005. the sensex crossed 6800 mark in March 2005 but high stock market volatility remained higher in India compared to other Asian countries. turned into deficit in the first half of the current year( April-September 2004-05). corrective measures have been adopted. Thus. With continued higher corporate earnings in 2004-05. second highest in Asia. the Real Effective Exchange rate of the Rupee depreciated and this trend continued until end 2004. it declined to 6. 2003 and was $142. 53 DBIM. 2004.6 per cent) as compared with a growth of 5. this trend saw a brief reversal during may-august 2004. Despite strengthening nominally against US $. The expectation of sensex crossing 7 K mark is not yet realized. current account surplus and the valuation gains arising from appreciation of the major non-US dollar global currencies against US dollar contributed to such a rise in Forex reserves. According to recent estimates.3 per cent registered during the corresponding period of the last year. Equity market return was 85% in 2003-04. we now turn to the sectoral performance.13 billion on March 18. Indian Rupee has steadily appreciated vis-à-vis US dollar. The current account of BOP having been in surplus since 2001-02.Study and Research on Mutual Fund Because of the weakening of the US dollar for the last two years.5 per cent) as compared with an increase of 8. Non-Food credit during the financial year so far. The fiscal deficit decreased to 7. Banks recovery management improved considerably with gross NPAs declining from Rs 70861 crore in 2001-02 to Rs 68715 in 2002-03. 2005. capital account too witnessed decline. 2004) incremental gross bank credit increased by 20. The capital account surplus in April-September was also down by around US $ 1.5 million. Reserve money growth had doubled to 18.4% in the current year to January 28. The level of foreign exchange reserves crossed the US $100 billion mark on Dec 19. (caused mainly by widening US deficits). 7.9 per cent in the same period of the previous year. Such a reversal was observed on the back of rise in POL and non POL imports which overwhelmed the growth of exports in US dollar terms at over 23 per cent.
growth would need to be financed mainly through higher public saving. this would result in a saving rate of about 28 percent of GDP after 2000. Financial liberalization--in particular. has found little evidence that policy efforts to boost saving have been very effective. If the growth target is to be achieved. Ogaki. which--even with higher recourse to foreign saving--would require a domestic saving rate of around 30 percent by the turn of the century. For example. reform of long-term saving instruments--would help to ensure that private saving was efficiently allocated. A key question is whether India will be able to finance the investment necessary to reach this target through increased domestic saving and avoid a much greater recourse to foreign saving with its associated risks on the external front. Although these results were established mainly for industrial countries. policies aimed directly at mobilizing saving are not necessarily the best instrument to achieve this target. including financial liberalization.Study and Research on Mutual Fund The Saving Pattern of India The double task of alleviating poverty and keeping up with fast-growing Asian neighbors prompted the Indian government to announce a target of 7 percent or more for annual GDP growth over the next 10 years. including privatization and financial liberalization. initially. stronger action on both the public and private saving fronts is called for. Taking into account likely developments in public saving. driven by rising per capita income and continued financial deepening. Moreover. a lower share of agriculture in the economy and an increase in the age dependency ratio would tend to increase private saving. it may be more effective to increase domestic saving by rising public saving and implementing a strong structural reform program. the growth target implies that the investment rate would need to increase to well above 30 percent. it has been argued that growth has suffered less from a low saving rate than from inefficient investment. Over the past few years. 54 DBIM. In the case of India. responding to higher growth. there are no estimates of total factor productivity growth). based on cross-country studies. But this is not likely to be enough to finance the investment needed to reach the government's growth objective. would follow with a lag. in part because of the dominant role of the public sector in the economy. Under such a strategy. A strategy to improve India's saving performance needs to take account of recent insights in the saving literature. SURAT . In addition. Sufficient savings? Econometric regression analysis suggests that private saving is likely to continue to increase--albeit gradually--over the coming years. There is also a growing literature that. Even assuming some improvement in investment efficiency (in the absence of reliable employment and capital stock data. In light of this evidence. they are likely to apply just as forcefully in developing countries. Strategy for higher saving While higher domestic saving is needed to finance faster growth. The case for an indirect approach to higher private saving is supported by recent findings that traditional saving policy instruments--like higher interest rates or special tax incentives--fail to raise the private saving rate in the long run. Private saving. This research suggests that the main policy focus should be on initiating a virtuous growth-saving circle by fostering growth through fiscal consolidation and strong structural reforms. which eventually would have to provide the bulk of additional investment financing. several studies of saving in developing countries have found that tax and interest rate incentives have been largely ineffective. empirical studies suggest that higher growth generally tends to precede higher saving.
55 DBIM. as a higher share of income must be devoted to subsistence consumption. which was 17 percent in 1970-71. Interest rate policy was also geared to encourage household savings and for the past ten years or so. Moreover. What is more. An important feature of the increase in the aggregate savings rate is that it has occurred entirely because of the rapid growth in private household savings as a percent of GDP. The gross domestic savings rate. Financial & Economical Development An important aspect of performance. had increased to 23 percent by 1985-86. There is certainly need and scope for further increased the rate of savings and thereby also the rate of investment. is the ability to mobilize resources for investment. Changes in the tax regime would therefore affect only a small part of the population. especially in the form of financial assets. which increased only marginally from 17 percent in 1960-61 to 18 percent in 1970-71. rates paid on term deposits with banks and other government-sponsored small savings schemes have yielded positive real rates of return for savers. India’s recent performance in this dimension is commendable. and would be unlikely to significantly alter overall saving behavior.7 percent in 1980-81. This rapid growth reflects the cumulative impact of a conscious policy of giving strong incentives for private household savings. testifying to the success of self-reliance in this sense of the term. but perhaps even to achieve some further acceleration. Chelliah (1996) and others have pointed out that most Indian households do not pay income tax. This is because all available evidence suggests that the incremental capital-output ratio is higher in India than in other countries. This investment rate is not high compared with rates achieved in the more rapidly growing middle-income countries. especially for maturities of three years and above. including also rural areas. The ratios of private corporate sector savings and public sector savings to GDP have remained more or less constant at 2 percent and 3 percent of GDP respectively. SURAT .Study and Research on Mutual Fund Ostry. while private sector savings increased from 12 percent of GDP in 1970-71 to 18 percent of GDP in 1985-86. a possibility which is confirmed by recent studies of total factor productivity such as Ahluwalia and Goldar which show slower growth in these indices of industrial productivity in India compared with other developing countries. But the levels already achieved. Following nationalization of the Indian commercial banks in 1969 (foreign banks were not nationalized) there was a massive expansion of the banking system spreading bank branches to all parts of the country. the high rate of investment is being financed almost entirely from higher domestic savings. but it is much higher than the rates achieved in all the other low-income countries except China. Even if the investment rate is only maintained at around 24-35 percent. which has a direct bearing on the longer-term growth potential of the economy. This points to the scope for increased efficiency in resource use. More recently positive real rates of return have been available even for shorter maturities. and their evident sustainability. then increased sharply thereafter to reach 24. reflect on important structural transformation in the economy in terms of its resource mobilization capability. The spread of bank branches definitely helped to mobilize private savings for investment in the organized sector. either because their income is too low or because they fail to report to the tax authorities. The rate of gross domestic investment in the economy. It has stayed at that level in the eighties. They estimated that the response of saving to changes in interest rates in India was among the lowest in the developing world. it should be possible not only to maintain the present 5 percent growth rate. and Reinhart (1996) have found that the responsiveness of private saving to changes in real interest rates is less at lower levels of per capita income.
have had the effect of raising the effective pretax return on eligible financial investments. They certainly encouraged the flow of savings into these investments and on the whole probably also stimulated total savings. and hitherto a conservative income-oriented operation at that. The term lending financial institutions. It will also serve as a forum for the development and implementation of ideas aimed at developing a healthy capital market. The 1986 and 1987 budgets liberalized the treatment of long-term capital gains on sale of shares so that the maximum tax on capital gains on shares is only 20 percent for shares held for more than one year. in particular. The Unit Trust of India. 3. An advertisement shall be truthful. In the area of resource mobilization therefore. It is also inadequately regulated in terms of rules for full disclosure and restrictions on trading malpractices. including. This weakness has been widely recognized and it is to be hoped that the various measures being taken to improve public sector performance will correct this problem. The Government also proposes to set up a National Securities and Exchange Board which will serve as an agency supervising the functioning of the stock markets and setting clear rules on issues such as disclosure. These incentives. 56 DBIM. floated a second fund aimed at capital appreciation. The capital market remains thin and vulnerable to manipulation. Social Environment Rules regarding Advertisement .Study and Research on Mutual Fund This favorable interest rate policy was reinforced by fiscal incentives for savings built into the direct tax structure which provide deductions from taxable income of the interest earned on a wide range of financial instruments. including institutional investors. until now the only mutual fund operating in India. The institutional mechanisms for mobilizing household savings for productive investment have been further strengthened in the eighties by the remarkable development of the domestic capital market. a deduction is aloes allowed for a part of the amount invested. which have been steadily strengthened and expanded in the past ten years. Until about 1980 the volume of funds sought to be raised directly from the capital market through equity and bonds was only about Rs 500 crores per year. It lacks adequate depth in terms of the existence of large numbers of active participants. SURAT . promise or forecast which is untrue or misleading. to protect the investor. By 1986-87 this had increased more than tenfold. have been more active in it in the past two years. insider trading. The principal weak area has been the generations of investable surpluses form the public sector. etc. For certain types of long-term savings instruments. insider trading. These limitations are fully recognized and a number of initiatives have been taken to overcome these problems.Social Aspects The advertisement for each scheme shall disclose investment objective for each scheme. The process is as yet far from complete. The State Bank of India is to float a second mutual fund to complete with the Unit Trust. which up to now have played only a limited role in the capital market. fair and clear and shall not contain a statement. which would have very important implications for mobilizing capital and allocating it efficiently. This is an impressive rate of expansion by any standard and is indicative of a structural transformation taking place in an important area. the economy has shown a reasonably good performance with important structural changes taking place which have strengthened its capability to mobilize and allocate resources efficiently.
The mutual fund shall not borrow except to meet temporary liquidity needs of the mutual funds for the purpose of repurchase. implicitly or explicitly. The offer document and advertisement materials shall not be misleading or contain any statement or opinion.Study and Research on Mutual Fund Advertisements shall not be so framed as to exploit the lack of experience or knowledge of the investors. General Obligations 57 DBIM. shall state "all investments in mutual funds and securities are subject to market risks and the NAV of the schemes may go up or down depending upon the factors and forces affecting the securities market". The mutual fund shall not advance any loans for any purpose. All advertisements issued by a mutual fund or its sponsor or asset management company. which are incorrect or false. redemption of units or payment of interest or dividend to the unit holders. Investment objectives and valuation policies The moneys collected under any scheme of a mutual fund shall be invested only in transferable securities in the money market or in the capital market or in privately placed debentures or securitised debts. The Net Asset Value of the scheme shall be calculated and published at least in two daily newspapers at intervals of not exceeding one week: The price at which the units may be subscribed or sold and the price at which such units may at any time be repurchased by the mutual fund shall be made available to the investors. unless the comparison is fair and all information relevant to the comparison is included in the advertisement. The advertisement shall not compare one fund with another. Every mutual fund shall compute and carry out valuation of its investments in its portfolio and publish the same in accordance with the valuation norms specified in Eighth Schedule Every mutual fund shall compute the Net Asset Value of each scheme by dividing the net assets of the scheme by the number of units outstanding on the valuation date. Provided that moneys collected under any money market scheme of a mutual fund shall be invested only in money market instruments in accordance with directions issued by the Reserve Bank of India. SURAT .
more customized and personal advised to customers and reaching out to growing young and net-savvy population of India. It’s never easy to find the time to review your investment plan when you’re in the midst of any of these life changes. records and documents. records and documents are maintained. and entering college or paying tuition for a child. both short term and long-term. but it’s worth making the effort. starting your own business.Study and Research on Mutual Fund Every asset management company for each scheme shall keep and maintain proper books of accounts. for each scheme so as to explain its transactions and to disclose at any point of time the financial position of each scheme and in particular give a true and fair view of the state of affairs of the fund and intimate to the Board the place where such books of accounts. By staying on course with your asset allocations. SURAT . having a child. whenever you make a major life change. Some common examples of life changes: switching careers. which have transform many industry in how they operates and survive has also come to the aid of MF industry to widen its reach. buying a house. Still MF industry requires some sort of technological innovation to tap the market of small town and cities so as to grow in a rapid manner. offers flexibilities to investors. Most of these events are likely to affect your ability to invest. Every mutual fund or the asset management company shall prepare in respect of each financial year an annual report and annual statement of accounts of the schemes and the fund as specified in Eleventh Schedule. Technology plays an important role especially to the MF industry. Technological Factor: The technology wave. Market reach ness is also possible through the technologies. retiring. your time horizon. Changing Lifestyles In addition to the annual review. Every mutual fund shall have the annual statement of accounts audited by an auditor who is not in any way associated with the auditor of the asset management company. July 2005) 58 DBIM. You don’t want to enter a new phase of your life with a plan that was designed for different circumstances. The MF transaction become fast and it provides the services to the client very rapidly the technology is the only reason to meet such kind of qualitative service. and your overall financial picture. 4. getting married or divorced. (Source: Analyst. The advantage includes lower distribution cost through online transactions. it’s time to reassess your overall financial situation. you will help ensure that your overall portfolio continues to work effectively toward achieving your investment goals. The financial year for all the schemes shall end as of March 31 of each year.
s. Second is strict control on cost.fifth is new product innovation. Then banks. So. Thus we can see the entry of new competitors is high. II) The Potential Entry Of New Competitors Until 1987. That is really driving growth in this industry. 59 DBIM. we can at last say that the rivalry among competitor is high. First is performance. LIC.Study and Research on Mutual Fund PORTER’S FIVE FORCE MODEL Suppliers of Key Inputs I) Rivalry Among Competitor The competition of competitor will depend upon 5 pillar where MF cos really compete. SURAT Substitute Products (Of firms in other industries) Rivalry Among Competing Sellers Buyers Potential New Entrants . phone call or by walking in to an investor serviced center. Forth is a brand . Banking co. In the past 1992 public and private financial institution with foreign collaboration came in the mkt. and GIC floated MF. People should get their statement on time through e-mail. insurance cos are now entering in the MF as the purpose of diversified business. Third is good service transparency reliability and timely service. AMCs need to think about new products.AMCs has to spend marketing building awareness about and the co as such . So. NBFCs. In the MF industry the investor’s loyalty level is very low.s. the UTI was the sole mutual fund in India. AMCs have to have a good enough performance at least in the top quartile. AMCs don’t really splurge that much or AMCs don’t charge so high for the fund. Merchant bankers. So. New entrance increased in the competition and decline market share of existing co. the investors will switch over the new co which gives them higher return. which AMCs have to maintain.
who are totally of some what unaware about MF. bullion market are substitute of Mutual fund. the threats from new entry are very high due to potentiality of market and favorable government policy. So consolidation. all this dill continue. Banks. insurance. is always welcome. Bank deposits. post office. So. Indians hold around a seventh of the total global stocks gold i. Mergers entry of new strong players form aboard and new Indian players getting in . SURAT . real estate investment. Again still today people would like to invest in real estate which gives even higher returns than the equi9ty market or even equity fund of mutual fund.50. insurance. According to the world gold council. the association of world’s leading gold producers. Now interesting things to consider that the total investment consumption on gold can be 85% utilized for jewel purpose 10%-15% for investment purposes and 5% for production usages. Competition will only intensify. The MF industry will have to educate the investors. So. New insurance companies give better product and securities for the long term plan. FIIs movements toward stock market which lead to boom in the stock market. Risk aversion people prefer to invest in Bank fixed deposits. A large pool of money in sasvingi9n India is still with the state bank and Pvt. one can say that MF industry still behind.. annually on gold jewelry and investment. Completion is nothing as compared t the size of market and if all of them co-operate and growth the marker will still be large enough to accommodate all of them and many more. 15000 tons worth Rs 9. The size of market is very large.000 cr. So.579 cr.22.537 crores in dece. still 10%-15% is huge investment proportion with bullion market 60 DBIM. and post scheme. which constitute the major investme5tn sources in other developed MF market.Indians spend around Rs 40000 crs.1.2004 while bank deposits figure was a mammoth re 16. There will always be people who find India valuable at a particular point and people who will want to exit out at that point. Recently there is boom period prevail in the stock market as investor prefers to invest directly to stock market.50. . On really need to have an industry wide focus on build8ing the retail corpus and the saving habit. The biggest hindrance to the growth of industry lies in its inability to attract the saving of the public. Bullion market is one of these competitive pressures for MF industry.e. When we try to compare bank deposit an mutual fund AUM . India enjoys the distinction of being major consumer of gold. company deposit. III) Competitive Pressure From Substitute Products Capital Market.Study and Research on Mutual Fund Competition is most welcome because Mf is an underserved marker long term competition coming in. the AUM of the Indian Mutual fund industry worth Rs.
There are many MF companies. but the investment volume is very high that is why the bargaining power of buyers is high. high return. So. (V) Bargaining power of buyers (Investors) We can consider Indian investor as a buyer and supplier both as the supply of money to AMCs and investment from AMCs both done by investor only.50% (Source: Reliance Capital Asset Management Book let. these are the substitute product which should be taken care by MF industry. Investors choose those schemes. safety against investment.50% 4 %. the no of AMCs are very low.) So. Investor can not easily switch over form one scheme to another. But when we see over all situations then companies are facing threats from investors. SURAT .Study and Research on Mutual Fund Let’s compare various Investment option with MF. through over all situations we can say that the bargaining power of investor is high.6% 10. 61 DBIM. who are now a day busy in promoting the various schemes so as to fulfill the investor’s need and tap as much market as possible. the investor having a strong bargaining power So in a nut shell we can say that. (IV) Bargaining Power of Supplier (Investors) We can consider the investor investing in MF is the supplier for the AMCs. low risk.50% 9. AMCs provide various schemes of MF so as to reach or facilitate the objective of investor like high liquidity. On the other way round investor full utilizes their bargaining power which choosing a fund. Investors prefer those schemes which fulfill their investment objective. As there are around 31 mutual fund company and there are large cluster of investor to supply and invest in various schemes of AMCs So. which best suit to his/her investment objective and bargain for the same.50% 5%-6% 6%-8% 8% 9. The switching cost in the form of entry load and exit load is high. Investment Classes 1) Bank Saving 2) Bank Fixed Deposits 3) RBI Bond 4) NSC 5) LIC 6) PPF 7) Debt MF 8) Diversified and Equity MF Returns (%) 3. And that is why the threats from substitute product is very high.
strategy behavior and same profitability. various AMCs have apparently 62 DBIM. Strategic groups can shift over time. they introduce newer and newer scheme in the market by days lapses. it is difficult for rival to distinguish them selves easily from another. These phenomenons result from the fact that firm within the same strategic group display similar product characteristics.Study and Research on Mutual Fund Strategic Map of Mutual Fund Industry In strategic group mapping. SURAT . Competition within a strategic group is often more heated than that between strategic groups. In the recent years. ICICI and UTI are within the same strategic group they are facing same kind of situation. The reason why these AMCs within the same strategic group tend to compete more fiercely within each other is their similarities or their lack of opportunities to make themselves distinctive. As Franklin Templeton. so manager must continue to be aware of how AMCs may differ in their future competitive postures and strategies. They are following the same kind of strategy to penetrate in the new market. generally same strategic groups compete against one another more intensely than against firm in different strategic group. The players of strategic group are likely to pursue a similar competitive strategy for a similar type of buyer. As a result. Pru. they all try to make awareness in the market.
Similarly TATA having a slight less than UTI. while the foreign players like Pru. of player around 31 AMCs.e. they are Birla and TATA. we can say that pvt. Reliance AMC and SBI AMC having a opportunity to increase their scheme to compete the huge giant like UTI.Study and Research on Mutual Fund decided to enter in to the new geographical region especially the semi-urban area where the huge market is prevail.e. TATA AMC.As we see that UTI only the AMC who is bank sponsor other two. Now. of schemes. although UTI having a huge market share around 71% with in the bank sponsored AMC which having a highest share of 13. Now when we concentrate on that players which is having a medium level of AUM even though higher no. But as we discuss they are facing a stiff competition with in the same strategic group . This is quick wondering situation that even though Birla having a more scheme than the leader UTI. it is the reason because there is a more no. of firm within a group can also change. So.ICICI both are “joint venture pre-dominant foreign AMC”.ICICI are dominating the industry. And Pru. HDFC and Pru. So. as some of the firm in the recent year coming with “new scheme offering” . the market share of leader is only 13. Franklin Temp.36% which is very negligible. player dominate the industry. when we see the strategic map then we find that UTI.23% and Franklin contend with 10. which is still untapped. SURAT .16% over all marker share. They are fall in “High-High” quadrant i. that may possible that their AUM can be increase and they can shift from one strategic group to another. Franklin.ICICI. 63 DBIM. ICICI to increase their AUM. even though the AUM is medium in nature. Franklin and Pru. which are operating in MF industry. Birla AMC. they are having high AUM as well as high plans (schemes).ICICI contend 10.36% considering overall MF industry. even though the AUM is medium in nature. i. AMCs should considered that the no. Franklin and Pru. HDFC AMC.
So. So. regarding taxation. it is incredible but the growth in the rural areas is very low as well as the market is very huge but partly untapped which the opportunity for the mutual fund industry is. pharma sector. So this is good opportunity to MF to tapped with. banking sector. Sensex now cross the limit of 9000 (as on13th December. automobile sector and so on. The objective of MF is minimize risk and increase the mutual benefit leads it to the way of success. 6) Market Risk Now a days investment is being riskier. As Mutual Fund’s one of the scheme which specifically invest in particular sector only. 3) Rapid growth in Economy and Savings Indian economy is currently at growing stage. there is a boom period in the equity market. When we see the mutual fund industry growth in the urban areas. So. which can easily track the equity investors perspective. This fact has been one of the opportunity for the MF industry. there is huge opportunity with MF industry to invest in these growing sector and grow along with favorable situations. It provides long term capital appreciation as well as dividend. 7) Interest Rate 64 DBIM. But as far as budget 2005 is concern it is totally favorable to the MF industry. from these one can say that it is one of the greatest opportunity to the MF industry. 2005). Even MF industry should comply the regulation made by SEBI and AMFI. particular sector like power sector. especially in the metro cities.Study and Research on Mutual Fund OT Analysis Opportunities 1) Rural market is untapped One of the biggest opportunity with the mutual fund industry is the rural market. 2) Favorable Govt. 4) Sectoral Growth Along with economy. growing very rapidly. Policy Mutual fund industry should follows the rules and regulations made by Indian govt. the investment is very risky. SURAT . which is removed in these year. 5) Bull Capital Market Since couple of years. Private bank and company went in to scam or bankruptcy. Earlier there is tax on long term capital gain (LTCG). The equity holder getting a huge return. India is in the category of developing countries. That means dividend and LTCG is totally tax exempt in the hand of investors. and other rules related to mutual fund industry. MF industry has good potential especially for equity oriented schemes. which is almost untapped. Again the saving ratio of Indians’ are 28% which is also favoring to the MF industry. Investor has to be very careful at the time of choosing right investment media. The GDP growth rate growing around 8%.
But still MF is one of the preferable option for the investors. 11) Technology Related Opportunity Technology plays an important role in capital market as well as in the MF industry. Investor have lower awareness regarding the companies concerning with Mutual Fund. Reach ness 65 DBIM. Even though banking is 10 times bigger than MF industry. Investor can get more return than he can anticipate. The literacy level in India is growing. These is an opportunity for the MF that it can give the more return on diversified portfolio management. With the application of technology and wider use of telecom facilities MF are attempting to reach of wider cross section of our society. MF is the only investment media where one can have all type of investment pattern so these can be stated for investors attractiveness to the industry. The rate was around 13%. Now a days economic condition is strong which has let interest rate down to 5% -6%. The literacy level is very important especially for the investment . Investors are being educated so they consider all facts and have good investment opportunity. So. These unawareness was proved to be failure aspects for the industry. These can lead to success of MF. Today investors is more trust worthy with government banks and post office. So there is a 10 time more growth opportunity for the MF industry in near future. 12) Mutual Fund is 1/10th of banking sector When we see the bank rate. Even though there is a huge potential for the MF industry but due to lack of awareness these potential turns in to the threats for the industry. So biggest opportunity with MF industry is to develop and grow the industry along with the favorable execution of AMFI and SEBI. MF provides more return than banks. 10) Investor’s Profile The growth of any AMCs is depends upon the investors profile. has let the interest rate down. Now. it is only 5-6%. Threats 1) Fail to Aware the investor Still investors are not well aware about investment in MF and its schemes.Study and Research on Mutual Fund Govt. 9) Sound Execution of Regulation from SEBI and AMFI SEBI and AMFI’s initiative for registration. Before some years. Some investors still feel difficulty in understanding MF concept and its schemes objectives. certification and code of conduct have been vital in building a strong and informed selling forced for the industry. investors were preferred to invest in the bank deposits for getting a higher return. it is opportunity for the industry. So MF concept can be well explain to the qualified investors. 8) Investment Pattern In the present scenario investors investment pattern is getting higher return with a less risk. SURAT .
insurance and so on. to the volatility in international markets. Investments in technology take up huge capital and are pretty risky for the MF companies to invest in. Managing risk in such a scenario will be a key threats and challenge for the Indian MF industry. the awareness level in India about MF industry is largely restricted to high income investors and A class cities. A large pool of money in saving in India is still with the state-run and private banks.Study and Research on Mutual Fund For the MF industry the reach ness is very much important. Industry is in lack of reach ness which is a big threat and hindrance for the growth of industry. distribution models and advisors in these areas have blocked out a large pool of potential investors for the industry. 6) Lack of investment advisors The lack of investment advisors. 66 DBIM. Lack of access. When we see the growth of MF in metro cities it is very good but the rural areas and semi urban area are still untapped by the MF industry. Bank Dominance The biggest hindrance to the growth of industry lies in its inability to attract the saving of public. These rules out the potentially huge B. 7) Competition from various investment option One of the great threats to the MF industry is the competition from various investments options available in the market like post office. these also expose Indian financial market. which have strong growth potential. Still the way to the small town and villages is open. Fluctuation in the global markets and financial system will now be evident as the Indian markets get link to other foreign markets. 4) Impact of Global Developments Though the economic reforms have brought India on the global investment map. Currently major players have their market from metro and big cities. 5) Operational Hassles Operational inefficiency are still hampering the growth prospects of the industry. As insurance and post office provides the return which is comparable to the MF industry with less risk so these is one of the huge threat to the MF industry which should be taken care of. which constitute the major investment sources in other developed MF markets. The rapid obsolescence of technology huge up front investment costs are also getting in the way of mutual funds from embracing the technology waves. including Indian MF industry. Further. especially to give personalize investment advice to the investor is creating road blocks for the growth in MF.C class cities and rural areas. Lengthy transaction cycles and old fashion distribution models like cheque based returns are preventing the industry to grow at good rate. MF is failed to reach the interior of the country. SURAT .
Study and Research on Mutual Fund 8 8 C's Model MARKETING & MUTUAL FUND Commodity (Scheme) Planning Customer Service Marketing Plan Cost Campaign Commodity Branding Customization Channels Convenience 1. Therefore. 67 DBIM. Most of the schemes launched in India are either income or income-cum-growth schemes. and so on. tax benefits. New commodities must be aimed at satisfying one or more objectives. due care needs to be taken while designing particular commodity taking into account excepted changes in capital / stock market in view of future investment returns. There is little scope for flexibility. Tax laws and other related regulations also play an important role in designing a new product because benefits can be offered to investors within the exiting framework of tax regulations. SURAT . Different segments of the potential savings market have different expectations-long term growth. few are pure growth schemes. The changing profile of customers (investors) must be taken into account in identifying the savings market. regular income. This has probably happened on account of lack of experience and the risk-averse. debentures) projected in the schemes. Commodity (scheme) Planning Mutual fund commodity (scheme) are basically investment-oriented and the savings mobilized by the Mutual Fund are invariably invested in the instruments (shares. Investor's options have been restricted due to limited commodity range. conservative attitude of mutual fund managers.
While deciding on the price. Brand name highlights the market segments. Cost The cost of Mutual Fund products is inextricably linked with returns. Brand identity is an important marketing factor because it facilitates product identification at the market place. It signifies the realizable value that the investor will get for each unit that one is holding. where there is an additional channel to deal with the Brokers. Mutual Fund Management should also ensure that the difference between the sale and repurchase price does not exceed 7% of the sale price. Direct dealing with the fund could help the investor with their financial planning. The Internet users are going to increase dramatically and mutual funds are going to be the best 68 DBIM. Commodity Branding An important function of scheme development is the selection of brand name and pricing of the scheme. inherent benefits and investment objectives. The net asset value of the fund is the cumulative market value of the assets fund net of its liabilities. availability of existing schemes and future growth in demand. In India. The scheme may also declare the price at which such units may at any time be purchased by the Mutual Fund. Mutual Fund is also to publish the sale and repurchase prices at least once in a week. since servicing them would be easier on the Net. commodity planning. Market research can help to assess the needs of potential customers. test marketing can be conducted. 2. and commissions are also to be decided in advance because the expenses towards these items will affect the ultimate returns to investors.Study and Research on Mutual Fund Like. and ensures customer loyalty. most of the schemes are linked to the names of organizations: the "DHAN Series" is identified with LIC Mutual fund. incentives. The scheme may provide for the price (cost) at which the units may be subscribed or sold to the independent participants in the scheme. 4. Before formally launching a new commodity. brokerage charges. It is computed by deducting all liabilities (except unit capital) of the fund from the realizable value of all assets and dividing it by number of units outstanding. In India. 3. SURAT . India has around 1. Many Indian Mutual Funds have performed poorly due to wrong timing of launch.6 million net users who are prime target for these funds and this could just be the beginning. brokers could get more Net savvy than investors and could help the investors with the knowledge they get from the Net. "Master Series" with Unit Trust of India and "Magnum" with SBI Mutual Funds. Convenience Better advice: Mutual funds could provide better advice to their investors through the Net rather than through the traditional investment routes only. New investors would prefer online: Mutual funds can target investors who are young individuals and who are Net savvy. Indian Mutual Funds follow the historic costing structure. commodity launching is a crucial element in marketing. It can be said that Indian funds have been quite successful in brand policy and brand identification. if the scheme is liquidated on that date. This repurchase price (cost) is based on the Net Asset Value (NAV).
Underwriters / distributors are prohibited from buying mutual funds shares for themselves unless it is for a bona fide investment account. With smaller administrative costs more funds would be mobilized. A fund manager must be ready to tackle the volatility and will have to maintain sufficient amount of investments which are high liquidity and low yielding investments to honor redemption. Channel A new mutual fund scheme may have all the qualities but that does not ensure its spontaneous acceptance by customers.In the case of direct sales funds are offered to investors directly at NAV and no sales load is charged. merchant bankers. The identification of appropriate market segment for the product. Mutual Fund is mainly sold through marketing intermediaries whose job is really marketing of these types of financial services. Many companies operate this plan that allows shareholders to authorize a fund to debit their bank accounts monthly for the purchase of bank shares.This is a very convenient way to acquire mutual fund shares.many underwriters for maximum market penetration practice Group selling. Some of the innovative distribution channels to attract prospective investors are: Direct sales:. Mutual funds are also marketing of these types of financial services. The entire members get shares at reduced prices. Investors can also buy units through direct subscription. SURAT . UTI have an edge over others due to their well-established agency network. selection of channel and promotional aids are essential. which enable distributors to realize economies of scales. They are also marketed by distribution of application forms through a tie-up with newspapers. institutional. Sales through Underwriters:. Through the corporate offices formulated the overall marketing strategy and co-ordinate the activities relating to publicity and product distribution. An underwriter purchases shares at NAV and sells them to the investing public. 5. 69 DBIM. Automatic Monthly Investing:. Share exchange plan:. mutual fund are paying greater attention to rural marketing.Mutual fund investor can exchange there existing investment in the mutual fund with another mutual fund of similar amount. Success would greatly depend on appropriate channel. local level activities are supervised and coordinated by the zonal and branch offices. Mutual funds are also marketed through stockbrokers who are members of stock exchanges.Shares can be purchased over telephone or through mail by sending filled application forms along with cheques to the mutual fund. Telephone or mail purchase:. Public sector mutual funds like LIC MF. In order to tap the savings tendency of the rural India. corporate agents etc.Study and Research on Mutual Fund beneficiary. The commission of the underwriters depends on the spread of bid and offering price. Group selling:.Shares of open-ended mutual funds are available through distributors (also called brokers / dealers / sponsors) who act as underwriters.
specially chocolates come in impulse purchase category.3500 rupees. but only to the extent of 100 to 150 rupees. Customer Service The marketing of services is significantly influenced by the quality of service and the interpersonal relationship between customers and the service organization. although they rely on external agencies and internal agencies (transfer and registrar agents) who are specialized in these jobs. and level of income and expenses among many other factors. 70 DBIM. Many mutual funds offer incentives for early subscription. some mutual fund also offers insurance benefits to attract investors. here you would need to make only 10. financial independence. the probability of holding on to your target group through direct contact is fairly high.Study and Research on Mutual Fund 6. Mutual fund does need to develop to in-house expertise to render after-sales service more promptly and cost effectively. its comparative advantages and future potential. And hence. Expected return being more or less same for all the schemes. In India most mutual funds provide after-sales service through both external agencies and internal service department. FMCG products. 7 Customization The financial goals will very. it is the quality of services which becomes the deciding factor. Prompt and timely service in issuing certificates / cheques and in attending to any customer problems would make a distinct difference. it is higher. family commitments. 8. buying a home or finance a wedding or educate your children or combination of all these needs. Therefore. In case of a financial product. One can being by defining the investment objectives. In gifting yes. SURAT .two million transactions in FMCGs. Servicing has great significance in mutual funds. as in any other financial service industry. lifestyle. past performance of similar products and superiority of the fund in relation to others in terms of assets. management and performing servicing. which may mislead the investing public. the first step should be to assess your needs. Mutual fund advertisements are regulated by SEBI. Minimum outlay is 3000 . which prohibits material and contents of publicity. Advertisement campaigns mainly aims at creating awareness of the product.000 transactions. The need to use the other mediums beyond TV is fantastic. Campaign Scheme campaign / promotion in India has taken the usual routes of advertisement and publicity. based on investor's age. Also the risk appetite of the investor and his cash flow requirements need to be mentioned clearly. Usually 15 to 20 rupees is the maximum outlay that you would want from a consumer in one go. it is a totally different ball game. While you would be making million . Marketing of FMCG v/s Financial Product FMCG is a low outlay area. which could be regular income.
or forecast which is false or misleading. Investors are actually going to invest your money into it. (2) Advertisement should be true. trustees. etc. (9) Mutual funds shall indicate in their advertisements—the settlers. (7) The mutual funds. it should also indicate the resources available to back such guarantee. assurance. SURAT . As Prudential ICICI was new.Study and Research on Mutual Fund Importance of Brand in Mutual Fund Most important thing that people see is longevity of the company's offerings. (8) If the advertisement guarantees a minimum return. company started off with building basic awareness. and financial advisors to the fund. (3) The sale offer should contain only information. which advertise yield must use standardized computations such as tax/value. they have been in India for five years now. annual yield. (10) Mutual funds which advertise past performance should state that these are not indicative of future returns. managers. fair. the accuracy of which is dependent on an assumption. at the first level they build brand awareness. and clear. they have already attained that. stands for trust and care. 71 DBIM. it is very important to have good brand name to develop trust in people's minds. (6) It should not compare on fund with another unless comparison is fair. The brand. so the brand becomes very important. And one of the things right at the top is getting the consumer to invest in your brand. promise. It should not contain a statement. (5) It should not contain any information. Mutual Fund Guidelines on Advertisements SEBI has prescribed an advertisement code for mutual funds. Has the brand been able to build realistic expectations? Has it performed up to the expectations? How many have considered it? It is like an education program. (4) The advertisement should not be so framed as to exploit the lack of experience or knowledge of the investors. If company look at the standard pyramid. substance of which is included in the fund’s current prospectus. And it is extremely important to get people to invest with company. Secondly. the important features of which are as follows: (1) Advertisement should not be published unless approved by the designated person. more so in financial sector.
they will use television and print. so he would get a far higher accumulation of wealth five or ten years later than he would by investing in any other financial tool. On weekend. he is looking at building assets for himself. and half of that time I would not be present on other media. So media multiplier works. and through magazines. at taking a new house. so use outdoor and radio and maybe again print. A Role of Advertising Message A very important aspect where an agency comes in is to move away from only obvious benefit to a benefit that addresses particular needs of a customer. maybe buying a second car and henceforth. They want to target him at home. Research shows that weekend reading of magazines is far higher than weekday reading of magazines. may be he travels a lot during weekdays. If companies want to use one medium. SURAT . they get him through in-cinema advertising. sheer outlays that you need to put to create enough impact tends to be very high. because he is looking at a number of things. again company get him through television advertising. is the jump an agency has to take. Indian Television Advertisements for Mutual Fund 72 DBIM. so the company get him in office through the Web.Study and Research on Mutual Fund Media vehicles chosen by Mutual Fund Industry Companies have very synergistic view on media planning. And as research shows that 60% of all surfers check net from office. Over a period of five years. For example if you plan to invest in equity. and measure the effect that you would have in terms of increased brand recall and other fronts. if they say that I would have presence six months an year and be present in all the mediums v/s I will have a presence all the twelve months. They try and are there in all the mediums at the same time. they get him wherever he is. If they feel that their target audience is male thirty plus. equity outperforms all other investments. So. Companies believe that it actually gives them synergies. the obvious benefit would be I would take care of your investment you don't need to worry about taking calls on stocks etc. From the obvious reason for investing to a 'state of need' that leads to investment. So this is a need state that 10 years later he will get a larger chunk of money. That is what we as a mutual fund are supposed to do anyway. What is not so obvious is that a person from 25 to 35 age group is willing to take a high degree of risk. But he also wants a high degree of returns. first option works far better.so that is the obvious benefit.
. SURAT .. Finally managing to trace it... MVO: "Invest karte wakt bhi. Everything seems hazy as we see the world through his eyes." Going up to the table.. aasan nahin hota.. a man turns off the shower and dries himself.Birla Sun Life Mutual Fund.' 73 DBIM... he trips and hurts his foot.ki aagey kya hai. MVO: "Isiliye aapko sahi raah dikhaye. yeh dekh paana. he puts them on and gets back his vision..Study and Research on Mutual Fund 1. . Fumbling through the house. our friend gropes for his glasses. The name that inspires trust. . Birla Sun Life Hearing a child cry." Super: 'Birla Sun Life Mutual Fund.
Appeal used in Advertisement. MVO: "Aisa naam jo vishwas jagaye. Standard Chartered Mutual Fund Enjoying the privacy under the bed. 2. Message / Theme of the Advertise. Future safety of investment is emphasized with message that we are driving you to proper direction for that you just trust on us. Target Segment of advertisement. as one of them revises and recites his table of five using one rupee coins. 30 seconds. two children walk in. with great reverence and offer their gurudakshina to their music teacher. 74 DBIM. upper middle class and upper middle class." Finally in the arms of her father the baby quietens down and smiles cheerfully. In the next shot. SURAT . two kids carry on with their study.Study and Research on Mutual Fund Entering a room we find the baby howling away. Middle class. Emotional (sentiment) Appeal Time duration of Advertisement.
MVO: "Looking for a safe place for your money. the boys put them back safely into a box. 75 DBIM. The woman then rushes into her kitchen and hides the money inside her sugar jar. Having finished with the coins. Next we get to see a kabadiwala handing over the money from the sale of the papers to a woman. SURAT . Standard Chartered Mutual Fund. the guru safely puts the money under the cover of his harmonium." Message / Theme of the Advertise. An old man receives some money through post and he too quietly conceals it in his armchair.Study and Research on Mutual Fund Accepting his due.
60 seconds. "Meri rai to kaayam hai." informs the young man. UTI Mutual Fund An old man plays with his grandson in their garden when his son approaches..... Rational (Safety & Security) Appeal Time duration of Advertisement. General people (who seeks for secured investment option) Appeal used in Advertisement.... Kahi suni baaton par mat jaana. Target Segment of advertisement..Aaj mutual fund agent se milke hi aaunga. 3.. ..haasil karta hai saalon se. Sada kaayam. 37 salon se..UTI to UTI hai.. .' Message / Theme of the Advertise. Yuhin nahin koi croron ka vishwaas. SURAT . ." Super: 'UTI Mutual Fund. Vishwaas. 76 DBIM.Study and Research on Mutual Fund We know you are always seeking for a place where you feel your money is safe and we care for you to provide safety to your investments.
. Ad also shows the satisfactory trust of old man and his emotional touch with Unit Trust of India. .. SURAT .Study and Research on Mutual Fund Ad simply shows they are having trust of lacs of people from about last 37 years.. MVO: "Just as you are taking care. He interrupts and decides to help her out. Appeal used in Advertisement.. Target Segment of advertisement. 15 seconds. After much uproar. In ad young earning son and retired father is shown in such a way they indirectly shows that we are providing service to both generation. 5. spots his wife trying to tie a diaper for their newborn with one hand. he begins. Prudential ICICI Mutual Funds A man about to leave for the office. as the other is in a cast. Emotional (trust) Appeal Time duration of Advertisement. Shushing her protests. Prudential ICICI Mutual Fund." 77 DBIM. the deed is done and the three of them rejoice. The people who seeks trustable AMC for their investments. but is rewarded with a smack from the little feet. Prudential ICICI is taking care of your investments.of your loved ones.
Franklin Templeton Investments The film opens with a man in a restaurant." 78 DBIM. Emotional (Sentiment) Appeal Time duration of Advertisement. . Our man is so busy with a paper that he realizes his half-empty glass much later. SURAT . MVO: "Isi tarah bina aapke jaane.and leaves comfortably.Study and Research on Mutual Fund Message / Theme of the Advertise. A little later another man comes from behind.. The person who seeks for good take caring of their investment is targeted. Appeal used in Advertisement.. aur tax aapke fixed deposit ko ghata dete hain. 5... “As parents takes care for their child in similar way we take care for investments”.. Mehangai aur tax ka dat ke saamna keejiye. The message shows their core value for presenting themselves as a takes care of their customers. Franklin Templeton Mutual Funds mein invest keejiye.. mehangai.. is the message of this ad. 10 seconds. enjoys the first one's tea. .. Target Segment of advertisement. A waiter serves the tea he had ordered for.
Target Segment of advertisement. Converting the uniform into a dacoit's dress he comes out shattering his dad's dreams and shouts. "Ab to. The company emphasizes on security of fund and also makes trust in the mind set of customers that we are here to make your investments safe. SURAT . Appeal used in Advertisement. The ad simply shows the safety of investment against the outer risks. Rational (Safety + Security) Appeal. UTI Mutual Fund A boy is all smiles celebrating his birthday. The person who seeks for good take caring of their investment is targeted. 79 DBIM.. His dad wishes him and gifts him a police uniform.. while dad dreams of his son growing up to be a police officer. 6.Study and Research on Mutual Fund Message / Theme of the Advertise. Time duration of Advertisement. 10 seconds.. The excited child rushes to change into it. ad execution technique Humour.
gabar main hi banoonga. Rational (Security) Appeal. The persons who seek for good results for their efforts are to be directly targeted. Target Segment of advertisement. The person shows for dreaming in good results of his efforts and suddenly he founds the invert result for it.khel nahin.. 80 DBIM.. SURAT ." MVO: "Bachchey to nadan hai. Tyar rahe UTI Mutual Fund ke children's career plan ke saath.. The ad simply shows the security for investment against the uncertain future. ad execution technique Humour.. The News Paper Advertisement of Mutual Fund Although they may look pretty cryptic. The person who seeks for good future for their child is targeted. You can determine the value of your portfolio by multiplying the number of shares you own by the "NAV. 15 seconds. fund listings are very easy to read and can tell you a great deal about the fund in a small amount of space.Study and Research on Mutual Fund . par unka bhavishya koyi. Time duration of Advertisement." Message / Theme of the Advertise.. .. Appeal used in Advertisement. After that the message shows that like a child one should not carefree for their future and company promise to give secured future of their child.." Multiplying the number of shares you own by the Offer Price tells you how much you would pay to buy those same shares.
so don't reject funds for consideration based only on these tables. Symbols after the fund names provide you with important information about the fund and the charges associated with it: Funds designated with an "r" charge a fee when you redeem (sell) your shares. "NL" means it is a no-load fund and you would pay the same price per share to buy it as you would receive if you were to sell it. Mutual fund newspaper listings are most useful for keeping track of what is happening to the funds you own. An "e" signifies prices are quoted after capital gains distributions are deducted. and "x" means quotes are based on ex-dividend values. and a minus (-) value means each of your shares has fallen by that amount. you will probably not find it necessary to check on the daily value of your fund shares. If the most recent day's numbers are not available for a fund." plus any sales charges.Study and Research on Mutual Fund Funds are listed alphabetically by Fund Company with specific funds listed under each company. "NAV" shows how much each share in the fund is worth. "NAV" means "Net Asset Value" and is the value of stocks being held in the portfolio divided by the number of the shares in the fund being held by the shareholders. This tells how much the net asset value of the fund has changed since the previous trading day. A plus (+) value means your shares have increased in value since the close of the last trading day by the amount indicated. "Offer Price" is the amount you would pay if you wanted to buy the shares and is the same as the "NAV. Change shows the amount by which the net asset value of one share of the fund increased or decreased the day before. Some newspapers provide more detail than others and include investment objectives and total return data. newspaper listings can give you some idea about fund families and provide some indication about fees and expenses. However. But they don't provide all of the information you need. whenever you want to check the progress of your fund. you can obtain performance data and daily share prices directly from the fund company by calling their toll-free 81 DBIM. "p" means a fund has a 12b-1 fee. As a long-term investor. SURAT . the previous day's prices will be listed and an "f" entered after the fund name. "t" means a fund has both a 12b-1 fee and a deferred sales charge or redemption fee. If you are trying to make a decision about buying a fund.
sub-broker and agents. An agent is an essential channel between investors and the mutual fund products. However. To control increasing operational costs. AMCs are opting for the services of large distributors to sell their products by leveraging their value chain. it is difficult for AMCs to manage and monitor a large agent force. by a sales staff employed by the fund management. Relationship play an important role while selling Mutual Fund products. they take shelter in third party distribution AMCs like Karvy. 82 DBIM. or a low one. by financial planners. These AMCs. SURAT . and such funds are called no-load or low-load. referring to current prices of mutual funds listed daily in most newspapers. which comprises of a broker. product innovation or development has become a necessity for mutual fund to stay ahead. In either model. Increasing commoditization and growing needs of the customers are forcing players to shift to solution-based models form product-based ones. So. All funds have management fees regardless of distribution methods. The last-named process carries no sales charge. or directly by the fund to the investor. or visit their website. in turn. the role of the distribution channel remains critical as it is helps stave off competition by maintaining relationship providing advisory services and customizing need-based solutions. To unload their work. appoint their agents to sell the MF AMCs products. Distribution Model of Mutual Fund In a highly competitive environment.Study and Research on Mutual Fund number. Bajaj Capital etc. Distribution Channel for Mutual Fund Industry AMCS DIRECT SALES BROKER BANKS TIED AGENCY INTERNET INSTITUTIONAL BROKERS LARGE CORPORAT E IFAs CORPORA TE HNW CUSTOMERS RETAIL CUSTOMER CUSTOMER SEGMENT Open-end mutual funds may be sold by securities dealers and brokers. the companies bear huge market expenses in the form of higher commission to lure investors. Agents advice the customers on the kind of needs of the client.
Challenges With Regard To Distribution of Mutual Fund Lack of awareness and a risk aversion among retail investors are the major challenges for the industry. enhancing the reach through the existing distribution model will require more investments. restricts it’s use on a large scale. So. Changing paradigms about Mutual Fund Distribution To overcome the distribution bottleneck and increase penetration. is marking the process fast and reducing delay in fund transfer across cities. technological advancement of remittance instruments such as Electronic Clea Servicing (ECS). scaling up the operation by increasing the volumes through increasing investment in other cities doesn’t seem feasible. The post office is also being used as a channel of distribution by mutual funds AMCs. mutual fund investments are confined to the metros. Allotment of units Net Asset Values (NAVs) is done before the realization of funds. Besides. However. The extensive availability of the central Government’s assured return on small savings products are restricting the competition as well as the penetration of a wide variety of mutual fund products. UTI is distributing its offering through selected branches of the Indian Bank of India and Allahabad Bank. Mutual fund AMCs are also using bank and non banking financial AMCs (NBFC) as distribution channels to leverage their reach and huge client base. existing collection center will be replaced by the Depository Participants (DP) as the point where investors and depositors submit the application form. tier 1 and tier 2 cities (about 50 cities). It will be helpful to investors who will be 83 DBIM. This poses a great challenge for the industry to realize its potential. given the fact that the post office has the largest distribution network than any other institution or bank in the country. where it can be 3-5 days or more. As far as retail penetration is concerned. the transaction cost of establishing collection centers. but the cost burden is huge. The depository model is expected to transform the model of distribution. So. the fact that the internet has its limits in providing customized investment advise to individuals. Electronic Funds Transfer(EFT) and real-Time Gross Settlement System (RTGS). delay in fund transfer and tardy inter city payment system are the major problem.Study and Research on Mutual Fund However. However these problem is resolved with appointment of adapt registrars to meet the time lines of recording the transactions. As of now. Such hassles could prevent investors from investing in mutual funds. SURAT . Inaddition. except in the liquid and money market schemes. Mutual Fund players have to break splurging marketing expenses to push their products against others. they are also appointing sales personnel to meet investors. In the proposed depository model. According to the securities Market Infrastructure-Leveraging Expert (SMILE). Educating investors about the advantages of investing in mutual funds compared to risk-free saving instrument is a big task for the industry. The contribution of direct marketing to the total sales is miniscule. Such delay is quite pervasive in the smaller towns. Mutual Fund player are also using the internet to distribute products because of the cost advantages and increased communication. the post office plays a vital role because its offices are distributed through throughout the country. educate them and sell their products. There is also a regulatory entanglement in fund realization. A major reason for this is the high cost of developing retail infrastructure. AMCs are exploring distribution models like depository models and distributor model in lieu of the existing collection centers model. In addition. particularly in the smaller towns. where investors are not willing to take risk.
The depository model can take advantage of already established equity market infrastructure and increase penetration. As a consequence. adoption of such a model will lead to channel conflict between distributors and DPs. investors will become more aware of the product frames. Sebi has recommended the conversation of the exixting collection centers and registrar and mutual fund offices into limited purpose DPs. 84 DBIM. It will lead to more demand for specialized/ niche products. SURAT . They will help investors buy products as per their financial needs. While it is easy to change from the collection center model to the depository model. The fund can be distinguished or preferred by the buyers on the style of fund management such as value investing style or growth investing style. This will reduce the apprehension of distributors about approaching DPs. It will be very difficult to replace the depository model with the distributor model. who are also a part of the distribution channel.Study and Research on Mutual Fund able to transact different kind of mutual fund through a single point. distributor is linked with the registrar through the depository. However. then Independent Financial advisers’ (IFAs) not only be critical in giving advisory services to investors but also in pushing their products. If the distributor model is the proffered mode of distribution. In This new model. To avoid such conflict of interest.
Sample design Sample Size The sample size for my research is 150. Sources of data Source of data collected are: i) Primary Source:Primary sources includes survey of the respondent residing in the Surat city ii) Secondary Source:Secondary Source includesInternet. Problem Definition RESEARCH METHODOLOGY The Mutual fund industry flourishes in the present scenario. The unexpected Growth in the mutual fund industry is due to lot many factors like suitable budget for the mutual Funds. doctors. . To know the investment pattern of small and medium size enterprises. To analyze the individual preferences about mutual fund b. Primary Objective: The main objective of this study is to gain the in knowledge about mutual fund industry as a whole & to know the attitude of investors towards the mutual funds. Charted Accountants (CAs). 4. So I have selected Surat city as sample area. 2. 85 DBIM. Sampling Area My research objective is to know attitude of investors towards mutual fund in Surat city. Secondary Objective: The secondary objectives of this research study are… a. Agents and stock brokers. SURAT a. Sampling Method I have selected the convenient sampling method for my research study. To know thrust area for mutual fund industry i) ii) 3. mindset of the investor now a Days change & they are ready to take little risk towards their investment in Which deal to growth in the mutual fund industry? The main problem for which the research work in this management research project has conducted to know the various factors hinder the growth of mutual fund in the same area.Study and Research on Mutual Fund 9 1. Objective of the study Here I can segregate my research objective in to the two categories. c.
Most of the time in order to save my time I used to ask question verbally and as per answer of resonance. The questionnaire was frame with the help of faculty member and finance students of my college. 2) Lack of Resources. 3) Cost constraint. 4) The research is solely based on respondents’ discretion. Method of Contact: The method which we have adopted in my research is Personal Interview 6. Secondary data collected from various books. Various Magazines & bulletins Related books 5. 86 DBIM. I fill the questionnaire accordingly. and websites. SURAT . The method adopted for primary data collection in this study is personal interview method at the respected place. Limitation 1) Time constraint.Study and Research on Mutual Fund b. c. The questionnaire was frame in such a way to bring out the relevant information along with allied information in minimum possible time. magazines. Research techniques Data Collection The research instrument in this study to collect primary data is questionnaire. Method of Data collection: The data collection approach adopted in this study is survey method.
Thus. SURAT . but not good on a hot summer evening when one wants to sleep).. his or her total. He or she believes that coffee tastes very good. or aggregated. Conceptual Framework Attitudes Definition. the product here is 4(6)=24.g. he or she believes that the potential of a drink to stain is extremely important (7). On the other hand. we take the weight.g. or a 4 on a scale from 1 to 7. consumers tend to have many more beliefs that must each be added to obtain an accurate measurement. Sometimes these feelings are based on the beliefs (e. on this attribute (since this is a negative belief. or a 6 on a scale from 1 to 7. The behavioral intention is what the consumer plans to do with respect to the object (e. buy or not buy the brand). we now have 7(-4)=-28. coffee tastes good) as well as negative beliefs (e. this is sometimes a logical consequence of 87 DBIM. Consumers also hold certain feelings toward brands or other objects.g. Note also that the beliefs that consumers hold need not be accurate (e. of course. for each belief.Study and Research on Mutual Fund 7.g. but may have positive affect toward Christmas trees because he or she unconsciously associates these trees with the experience that he or she had at Christmas as a child. a consumer believes that the taste of a beverage is moderately important. be contradictory (e. The first component is beliefs. and coffee fares moderately badly.. In practice.g. some beliefs may be neutral (coffee is black). The Multiattribute (also sometimes known as the Fishbein) Model attempts to summarize overall attitudes into one score using the equation: That is. Consumer attitudes are a composite of a consumer’s (1) beliefs about. Beliefs. or importance (Wi) of that belief and mutiply it with its evaluation (Xib). Affect. a person feels nauseated when thinking about a hamburger because of the tremendous amount of fat it contains). For example. Since a consumer holds many beliefs.. with -7 being worst). and some beliefs may. coffee is hot and stimulates--good on a cold morning. it may often be difficult to get down to a "bottom line" overall belief about whether an object such as McDonald’s is overall good or bad. As with affect. usually a brand or retail store. we now take negative numbers from -1 to -7. Thus. that a historical figure was a good person but also owned slaves). A consumer may hold both positive beliefs toward an object (e. at a score -4. In addition. behavioral intention.. but there may also be feelings which are relatively independent of beliefs. These components are viewed together since they are highly interdependent and together represent forces that influence how the consumer will react to the object. (3) and behavioral intentions toward some object--within the context of marketing. For example. and some may be differ in valance depending on the person or the situation (e.. attitude would have been 24+(-28)=-4. that pork contains little fat).g.. (2) feelings about. upon closer examination. Had these two beliefs been the only beliefs the consumer held.g. coffee is easily spilled and stains papers). an extreme environmentalist may believe that cutting down trees is morally wrong..
One way to get people to switch to our brand is to use temporary price discounts and coupons. One strategy uses the approach of classical conditioning try to "pair" the product with a liked stimulus. he or she will go there because it is a hangout for his or her friends. Consumers are less likely to use this availability as a rationale for their purchase and may continue to buy the product even when the product is less conveniently located. she would rather have a computer. consumers do not consciously set out to enumerate how positively or negatively they feel about mopeds.g. In many situations.g. we "pair" a car with a beautiful woman. SURAT . Changing affect. which may or may not involve getting consumers to change their beliefs.. but since his friends think it’s disgusting. A better way to get people to switch to our brand is to at least temporarily obtain better shelf space so that the product is more convenient. it attempts to create a warm. • Measurement problems. the more it will generally be liked. Alternatively. products which are better known. particularly when consumers suspect that the marketer has a self-serving agenda in bringing about this change (e. by the way. thus. Finally. tend to be better liked--that is. For example. but may sometimes reflect other circumstances--e. One approach is to try to change affect. Measuring attitudes is difficult. that this represents a case of shaping). through the mere exposure effect. Although the above student would like to buy a pickup truck on her sixteenth birthday. Consumers often do not behave consistently with their attitudes for several reasons: Ability. Although Energizer Bunny ads try to get people to believe that their batteries last longer. and when a market researcher asks them about their beliefs about mopeds. (Notice. once they use our products. although a consumer does not really like a restaurant. and their evaluation of the performance of mopeds with respect to these beliefs. to get the consumer to buy more or to switch brands). A student thinks that smoking is really cool... consumers often do not give very reliable answers. they may justify the purchase based on that deal (i.Study and Research on Mutual Fund beliefs (or affect).e. He or she may be unable to do so. the Pillsbury Doughboy does not really emphasize the conveyance of much information to the consumer. • Competing demands for resources. and has money for only one of the two. even if consumers to do not develop any specific beliefs about the product. Attitude-Behavior Consistency. • Attitude Change Strategies. chances are that they will continue unless someone is able to get them to switch. the consumers may act consistently with their true attitudes. the low price) and may then switch to other brands on deal later. he does not smoke. Changing behavior. fuzzy image. which were never uncovered because an erroneous measurement was made. however. she may lack a driver’s license. we can try to get people to like the advertisement and hope that this liking will "spill over" into the purchase of a product. Thus. 88 DBIM. the more a product is advertised and seen in stores. For example. People like to believe that their behavior is rational. when consumers buy a product on deal. how important these beliefs are. • Social influence. Changing attitudes is generally very difficult. the main emphasis is on the likeable bunny. Although junior high school student likes pick-up trucks and would like to buy one. instead.
It usually difficult. the "but" part must be emphasized. Consumers were suspicious and rejected this information. Attitude research has shown that consumers often tend to react more favorably to advertisements which either (1) admit something negative about the sponsoring brand (e. the beef industry has added beliefs that beef (1) is convenient and (2) can be used to make a number of creative dishes.Study and Research on Mutual Fund Changing beliefs. On 89 DBIM.. particularly those that are strongly held." or compatible. and the endorser is expected to be "congruent.. but offers less service and selection). • Change the importance of beliefs. in the above examples. The ELM suggests that consumers will scrutinize claims more in important situations than in unimportant ones. Several approaches to belief change exist: Change currently held beliefs. Hard Candy may have attempted to change the ideal away from traditional beauty toward more unique self expression. with the product. The Elaboration Likelihood Model (ELM) and Celebrity Endorsements. The ELM suggests that for "unimportant" products. a basket ball player is likely to be effective in endorsing athletic shoes. even if they are inaccurate. why.. For example. it may be possible to strengthen beliefs that favor us--e. SURAT . contain overriding arguments why the sponsoring brand is ultimately superior--that is. and only few firms succeed. but the belief can be made stronger.g. Although the sugar manufacturers would undoubtedly like to decrease the importance of healthy teeth. we found that in the study of people trying to get ahead of others in a line to use photo copiers. particularly when consumers hold unfavorable or inaccurate ones. Consumers are less likely to resist the addition of beliefs so long as they do not conflict with existing beliefs. this is often difficult to achieve because consumers tend to resist.. because I have to make copies" was added. • Add beliefs. Since the reason offered really did not add substantive information. Two-sided appeals must. which sounds quite plausible to most people. however. It is generally very difficult to attempt to change beliefs that people hold. would you bother bringing them up in the first place? However. the compliance rate was about fifty percent when people just asked to get ahead.g. a pain reliever given to a child that could be harmed by using dangerous substances).. Although attempting to change beliefs is the obvious way to attempt attitude change. the Volvo is a clumsy car.g.. we conclude that it was not extensively analyzed--in the jargon of the theory. compliance increased to 80%. For example. However. the petroleum industry advertised for a long time that its profits were lower than were commonly believed. then. For example. However. a competing supermarket has slightly lower prices. elaboration is likely to be more extensive.g. • Change ideal. but very safe) or (2) admits something positive about a competing brand (e. Thus. Most consumers already agree with this. elaboration will be low. and thus Bill Cosby is able to endorse Coke and Jell-O without having any special credentials to do so. and very risky. "elaboration" was low. For example. and provided extensive factual evidence in its advertising to support this reality. • One-sided vs. to attempt to change ideals. when the justification ". it is usually not feasible to make beliefs less important--consumers are likely to reason. Vitamin manufacturers attempt to add the belief that stress causes vitamin depletion. for products which are either expensive or important for some other reason (e. two-sided appeals. but not in endorsing automobiles. a vitamin supplement manufacturer may advertise that it is extremely important for women to replace iron lost through menstruation.
90 DBIM. All of them. In addition. a more favorable attitude toward the advertisement may be created by humorous advertising. often increases sales for the sponsoring brand. which is illegal in many countries. Fear appeals appear to work only if (1) an optimal level of fear is evoked--not so much that people tune it out. gingivitis and tooth loss can be avoided by using this mouth wash. Humor appears to be effective in gaining attention.Study and Research on Mutual Fund the other hand. but may backfire in certain cultures. a nationally syndicated auto columnist would be successful in endorsing cars. Several approaches to appeal may be used.. SURAT . Appeal approaches. could endorse fast food restaurants effectively. but enough to scare people into action and (2) a way to avoid the feared stimulus is explicitly indicated--e. which may in turn result in increased sales.g. but not athletic shoes. The use of affect to induce empathy with advertising characters may increase attraction to a product. but may backfire if consumers believe that people’s feelings are being exploited. but does not appear to increase persuasion in practice. however. Comparative advertising.
of respondents 120 100 80 60 40 20 0 Post Office Insurance BFD NSC B&D Recurring UnOrganized Sector Mutual Fund Equity PPF Options 91 DBIM. Data analysis 1) Investment Tool That Respondent Used To Invest In Findings: Investment Options BFD Post Office Insurance Mutual Fund Equity NSC B&D Recurring PPF Un-Organized Sector Respondents 38 88 100 92 76 48 10 14 18 5 Investment Tool No.Study and Research on Mutual Fund 8. SURAT .
Insurance. Then the other reason why people invest in Mutual Fund because it takes care about varied needs of investors and provides tax benefits. because of declining return from Bank. Banks proportion of respondents’ investment is too low.71% of respondents in Mutual Fund. This is just because respondents’ main objective of investment after tax benefit is return which they receive higher in Post Office & Equity compared to other investment avenues. SURAT . But when we compare Mutual Fund and Insurance with Bank. Equity etc.. 70% because saving risk for contingencies’ reduces and it provides tax benefit to investors which is one of the main & important criterions for investors while investing in different avenues. Respondent investing in Post Office & Equity is 62.28% respectively. 92 DBIM. Post Office also provides tax benefit .85% & 54.14% of respondents invest in Banks. we can see that nearly 70% of respondents invest in Insurance polices & 65. Only 27. Equally there are a high number of respondents investing in Mutual Fund.Study and Research on Mutual Fund Data interpretation: From the above data.71% because it helps in making calculated and diversified investment. There are a high number of respondents investing in Insurance. So we can say that there is definitely a shift towards other investment avenues like Mutual Fund. approx. approx 65.
93 DBIM.33% of respondents return Benefit as the most important criterion while investing in different avenues.Study and Research on Mutual Fund 2) Objective of Investment (Rank according to investors) Findings: Rank 1 2 3 4 5 Tax Benefit 30 79 13 25 3 Return 80 30 19 9 12 Liquidity 10 25 68 24 23 Saving 11 7 28 53 51 Safety 19 9 22 39 61 Data interpretation: From the above data. saving & safety. followed by Tax benefit. People give more preference to tax benefit and return as we already saw that there are number of people investing in Insurance & Mutual Fund. As return is one of the main objectives of investment we can see that there are number of respondents investing in Post Office & Equity where they receive higher return. liquidity. SURAT . 53.
94 DBIM. because saving risk for contingencies’ reduces and it provides tax benefit to investors which are one of the main & important criterions for investors while investing in different avenues.Study and Research on Mutual Fund 3) Investment options Findings: Ranks 1 2 3 4 5 6 7 8 BFD 9 13 13 9 11 19 42 34 Insurance 35 28 29 12 14 2 18 12 B&D 10 7 15 34 10 28 22 24 Post Office 23 15 32 20 23 28 2 7 NSC 25 25 16 34 24 15 4 7 Mutual Fund 32 38 15 8 22 17 11 7 Recurring 8 2 13 8 19 15 38 47 Equity 8 22 17 25 27 26 13 12 Data interpretation: The data reveals the fact hat generally people prefer to invest first is in Insurance. SURAT . because it helps in making calculated and diversified investment. Then the other reason why people invest in Mutual Fund because it takes care about varied needs of investors and provides tax benefits. People prefer last option to BFD as the return is very low in BFD. Equally there are a high number of respondents investing in Mutual Fund.
SURAT . So Mutual Fund can target these long term investors which are nearly 76% of sample of Ahmadabad region. of Respondents 114 36 Data interpretation: From the facts & figure we can easily judge that almost 76% respondents invest their fund for Long term. That means the investor may go for those investment which has maturity of more than one year.Study and Research on Mutual Fund 4) Average Tenure of Investment Findings: Investment Tenure Long Term Short Term No. So this kind of result is very much favorable for Mutual Fund Industry. 95 DBIM. it requires lock in period of three or more years. When we take into consideration Equity fund.
7% 7% . i. This because people prefer to invest in Post office. NSC etc. Similarly the number of respondents expecting 10% to 13% return from portfolio.57% is also high because respondents one of the main criterion for investment is return. 96 DBIM.Study and Research on Mutual Fund 5) Expected Return on Port folio Findings: Return 4% .13% > 13% No. is nearly 38.e. Insurance etc. SURAT .10% 10% . of Res. So I order to get higher return people invest in equity. The number of respondents expecting high return of 10% to 13% from portfolio is more because they like to invest in equity market as the market is showing a positive growth from past few years. 17 62 58 13 Data interpretation: From the above data we can judge that most of the respondents i.e. nearly 41.42% of respondents expect 7% to 10% return from there portfolio.
In Investment Option like Insurance & Mutual Fund Respondents take advice from Agent that is almost 41. The least preferred advisor is Investment Analyst. Only 4.71% of respondents invest directly and nearly 51.Study and Research on Mutual Fund 6) Investment Advisory Findings: Advisor Bank Agent Direct Investment CAs Friends & Relatives Investment Analyst No. SURAT . 97 DBIM.28% of respondents take advice from Investment Analyst.43% of respondents. respondents generally invest directly or they generally take advice of friends & relatives. Almost 55. of Respondents 28 63 83 47 77 6 Data interpretation: Taking into consideration the advice which is taken by investors.43% of respondents take friends & relatives advice.
As we know the living standard. Only 18.57% of respondents are not aware about Mutual Fund. So due to which we can see the awareness among the respondents is far better. 122 28 Data interpretation: Considering the Awareness of Mutual Fund among investors.e. it basically depends upon the area in which the research is conducted. SURAT .Study and Research on Mutual Fund 7) Mutual fund Awareness Findings: Response Aware Not Aware No. 98 DBIM. level of education etc in the research area i. of Res. level of education prevailing in the city & so on. Ahmedabad is far better.43% of respondents are aware about Mutual Fund. almost 81.
so as to take the advantage of the opportunities. 99 DBIM. of Respondents 99 51 Data interpretation: Considering the awareness factor of Mutual Fund we find that almost 81% of respondents are about Mutual Fund but when we see how many of them invest in Mutual Fund its only 65.28% of respondents do not invest in Mutual Fund. So Mutual Fund companies should try to tap the untapped respondents nearly 34%. SURAT .Study and Research on Mutual Fund 8) Mutual fund Investment Findings: Response Invested Not Invested No.715 of respondents who invest in Mutual Fund while remaining 34.
Around 45% respondents do not invest in Mutual Fund due to lack of Knowledge while 20% of respondents do not invest due to lack of trust. lack of knowledge. 15.Study and Research on Mutual Fund 9) Reason for not Invest in Mutual fund Findings: Reasons Lack of Knowledge Lack of Trust in MF Difficulty in selecting the scheme Inefficient Investment Advisory Bitter past Exp. they should try to educate the investors.e. There are some reasons for this gap. 100 DBIM. SURAT . of Respondents 68 30 24 19 9 Data interpretation: As we find there is a wide gap between people who are aware about mutual fund & those who invest in mutual fund. So AMC’s in order to reduce the main hurdle i.71% of respondents do not invest due to difficulty on selecting schemes which the fundamental awareness of mutual fund. No.
The relative higher investment in Equity fund is due to positive movement of Capital market and the other reason is because respondents receive higher return.Study and Research on Mutual Fund 10) Type of MF.While 37% of respondents. invest in balance fund to have moderate return at moderate risk. 101 DBIM. of Res. 29 66 55 Data interpretation: Around 65.71% of respondents invest in Mutual Fund out of those 44% of respondents invest in Equity fund while 37% of respondents invest in Balance Fund and only 19% of respondents invest in Debt Fund. SURAT . Investors invest in Findings: Type of MF Debt Equity Balance No.
The other reason why MF is a safe investment too it helps investors to take calculated & diversified risk.Study and Research on Mutual Fund 11) Mutual fund as a safe Investment tool Findings: Response Safe Not Safe No. of Respondents 120 30 Data interpretation: The matter of safe investment is subjective. It also considers the varied needs of investors & provides tax benefit. The safe investment for one person may not be safe investment for another. SURAT . 102 DBIM. Only 20% of respondents believe that MF is not a safe investment tool for them due to systematic risk or due to their past experience. Around 80% of respondents feel that MF fund is safe investment tool as their fund can be well managed by qualified Fund Managers.
Study and Research on Mutual Fund 12) Reasons for thinking MF as a risky investment tool
Findings: Reasons Risk Factor Lack of trust on AMC Longer Procedure Load Charges No. of Respondents 13 7 6 4
Data interpretation: As we saw 20% of respondents don’t believe that Mutual Fund is a Safe Investment tool. There is certain reason for that. Around 44% of respondents out of 30 respondents who feel Mutual Fund is risky. Risk may be systematic or unsystematic risk. While around 23% of respondents do to believe Mutual Fund to be safe Investment due to lack of trust.
103 DBIM, SURAT
Study and Research on Mutual Fund 13) Awareness about Tax Benefit in MF
Findings: Response Aware Not Aware No. of Respondents 101 49
Data interpretation: Around 67% of respondents are aware that Mutual Fund provides tax benefit while around 33% of respondents do not know that Mutual Fund provides tax benefit. So Mutual Fund players should try to increase awareness about tax benefit because Tax Benefit is one of the main Objective of Investors Investment.
104 DBIM, SURAT
Study and Research on Mutual Fund
14) Objective to invest in MF Findings: Objective to invest in MF Long term capital gain Safety of Capital Short term capital gain Planned investment for occasion No. of Respondents 120 28 37 55
Data interpretation: From the above data we can see that the main aim behind respondents investing in mutual fund is Long term Capital gain. Around 80% invest in mutual fund with the objective of capital gain. The least considered objective while investing in Mutual fund is safety of Capital.
105 DBIM, SURAT
Study and Research on Mutual Fund 15) Awareness about various AMCs Findings: AMCs Tata SBI MF PRU ICICI MF Franklin Templton Kotak MF Reliance MF HDFC Birla Sundaram Fedility BOB JP Morgon Std Chartered No. of Respondents 49 79 84 45 37 28 47 6 13 24 2 28 8 106 DBIM. SURAT .
107 DBIM. Mutual fund industry has been evolving very well for an important reason that. but the target audience still needed to gain more awareness. provident fund etc. money will follow. It is important to gain mind-share rather than wallet share of the investors. But the level of awareness has not yet reached the rural and other smaller towns and it is more of a smaller towns and it is more of an urban phenomenon. The future is very bright. good regulatory mechanism.Study and Research on Mutual Fund 10 CONCLUSION Up till now sought after investment avenues like bank deposits. What is needed is the spread of awareness beyond regional limits. This Mutual Fund industry is playing an important role to provide Alternative Avenue to the entire gamut of investors in a scientific and professional manner. If Mutual Funds gain investors trust. use of technology. SURAT . Currently industry is gradually growing phase and Indian Mutual Fund industry has been definitely maturing over the last few years and the level of awareness today is much more than what it was in the past. today we have the best system and procedure. and Mutual Fund obviously become a viable alternative. Mutual Fund as a concept is well known. transparency and sharing of details and dissemination of information at an improved level. Mutual Fund is in the business of managing trust. especially due to fall in interest rates coupled with the rising inflation. real estate. gold.
So AMCs should reduce the risk which is involved in MF at the time of investing in MF by constructing the special effective risk management department. As we see that there is poor reach as far as mutual fund is concern. One of the great threats to the MF industry is the competition from various investments options available in the market like post office. 6. Lengthy transaction cycles and old fashion distribution models like cheque based returns are preventing the industry to grow at good rate. by providing the material for the basic concept of mutual fund. 5.AS we know that the situation at the time of US 64 and the today’s scenario is quiet different . 2. 108 DBIM. As insurance and post office provides the return which is comparable to the MF industry with less risk so this is one of the huge threats.Study and Research on Mutual Fund 11 RECOMMENDATION & SUGGESTION 1. 7. 3. Generally people know the concept of MF but they are not aware about the various schemes so AMCs should try to make awareness about various scheme. insurance and so on. Operational inefficiency is still hampering the growth prospects of the industry. Companies should educate the people by intimating about favorable budget impact on MF. SURAT . 4. So in short AMCs should understand the investor and make differentiate the both situation as a whole. As we know that the villages and town are the untapped market for them so for increasing their presence in more village and tap more investor they should aware the investor by conducting seminars. Try to avoid the bad and painful experience of US 64 by providing today’s situation of MF and the Advantages from MF. So industry should consider this point in to consideration and try to avoid the hindrance by investing in the technology like punch machine and cash management service(CMS). So AMCs should concentrate to make effective their distribution channel.As today there are 31 AMCs exist in the market and still there is expectation to increase more number of AMCs in near future.
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