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Submitted by: Vikas k. srivastava M.B.A 2012-014 Roll No: 1207670057

Faculty Guide: Prof.JAVED ALAM SHEIKH (G.B.A.M.S)

Industry Guide: Mr. VIVEK SHUKLA


Summer Project Certificate

This is to certify that Mr.vikas k. srivastava Roll No. 1207670057 a student of M.B.A has worked on a summer project titled Study of The Factors Influencing Distributor Perception ON MUTUAL FUNDS AT KARVEY after Trimester-III in partial fulfillment of the requirement for the Post Graduate Diploma in Management programme. This is his/her original work to the best of my knowledge.


Signature ________________

(_________________________) Name of Faculty

I would like to thank the management of KARVEY Mutual Funds for giving me an opportunity to intern with them. The training at the company was held over a period of 45 DAYS. During this period I was guided by the manager of the Investor Service Desk, Noida Mr. VIVEK SHUKLA. The project report and the learning process would not have been possible without his inputs and guidance at critical points of the project. He imparted to me the knowledge of mutual funds and shared with me the practical marketing techniques of mutual funds. He also made sure that I was exposed to all the distribution channels, the operational processes and also was exposed to the sale of mutual funds. Under his guidance I was able to enhance my marketing and interpersonal skills. During the course of the two months I also came across other people who put in their time and effort towards acclimatizing me towards the working of their organization. I express my thanks to every one of them. I would also like to Prof. JAVED ALAM SHEIKH for the help and guidance provided to make me learn and understand the concepts. His guidance was very valuable in transferring the class room concepts to the corporate world. These two months were very important to me as it helped me in going beyond the class room and get a practical feel of how things worked. I would also like to thank all the distributors, customers, clients and people at large who I have interacted with during the course of my training.

Executive Summary............................................................................................................................... 7 Concept of Mutual Funds....................................................................................................................... 8 1.1 Working of Mutual Funds:.................................................................................................... 9 1.2 Role of SEBI and AMFI:.................................................................................................... 11 1.3 Common Terms Used......................................................................................................... 11 1.5 Types of Mutual Funds Schemes in India........................................................................... 15 1.5.1 Overview of existing schemes in mutual fund category: By Structure.............................. 15 1.5.2 Overview of existing schemes in mutual fund category: By Nature.................................. 16 1.5.3 Overview of existing schemes in mutual fund category: By Investment Objective:.......... 17 Industry Analysis.................................................................................................................................. 20 Introduction to SBI Mutual Fund......................................................................................................... 23 Distribution Network of SBI Mutual Fund.......................................................................................... 26 4.1 Structure of KARVEY Mutual Fund.................................................................................. 27 4.2 The Distribution Channels.................................................................................................. 28 4.3 Structure of SBI Mutual Funds........................................................................................... 29 4.4 Work Done at the Distribution Center................................................................................ 30 4.5 Sales Contest:...................................................................................................................... 32 New Fund Offer (NFO)........................................................................................................................ 33 6.1 Stages involved in the launch of a New Fund Offer (NFO):.............................................. 34 6.3 Marketing of the PSU Funds............................................................................................... 36 Research Design................................................................................................................................... 38 Research................................................................................................................................................ 43 Conclusions........................................................................................................................................... 47 Limitations:........................................................................................................................................... 49 References............................................................................................................................................. 50

List of Figures
Figure 1: Working of Mutual Funds............................................................................................ 9 Figure 2: Risk Return Matrix..................................................................................................... 11 Figure 3: Growth in Assets under Management........................................................................ 15 Figure 4: Risk Return of Different Funds.................................................................................. 18 Figure 5: Distribution Network................................................................................................. 27 Figure 6: Distribution Channels................................................................................................ 28 Figure 7: Structure of SBI mutual Funds................................................................................... 30 Figure 8: Advertisement of the New Fund Offer...................................................................... 34 Figure 9: BSE PSU Index vs. Sensex....................................................................................... 35 Figure 10: Advertisement of the New Fund Offer on the economic times website.................. 36

List of Tables
Table 1: Top 10 asset management companies in India22 Table 2: Fund asset allocation pattern34 Table 3: Performance of PSU companies which have undergone disinvestment..36 Table 4: Questionnaire40 Table 5: KMO and Bartletts test...44 Table 6: Extraction method: Principal component analysis...44 Table 7: Rotated component matrix...45

Executive Summary
KARVEY MF wanted to identify the factors which influence the distributor opinion of an asset management company (AMC). This is very essential because most of the investors in our country are dependent on the distributors advice for their investment. An asset management company therefore looks to positively influence the distributors. During the course of the meetings with the manager at SBI MF and some distributors, we identified 5 factors which may influence how a particular AMC was perceived by the distributors. They were payout, performance, service level, relations and brand. A questionnaire was formed keeping these factors in mind. The questionnaire was then administered to a sample of distributors in MIRZAPUR. The distributors involved included individual financial advisors, national distributors and banks. On conducting the analysis of the data obtained, three factors were found to be critical in influencing the distributor opinion. They are performance, service level and relations. Since the ban on entry loads by the Securities and Exchange Board of India (SEBI) the amount of commission paid to the distributors has remained almost same across all companies. It has become unviable for them to pay a higher amount. In a situation such as this performance, service level and relations with the distributors become important for an asset management company. During interactions with the distributors it could be concluded that KARVEY Mutual Funds (KARVEY MF) had to focus more on improving their service level and performance of its funds. SBI Mutual Funds as a company relies upon its brand value for sales to be made to customers. However, majority of the distributors are of the opinion that there are other companies which are comparable with KARVEY MF in terms of brand recognition and hence the company should market itself more aggressively. Aggressive marketing would involve creating public awareness through the mass market medium and having tie-ups with other banks and national distributors for the sale of their funds.

Concept of Mutual Funds

Mutual Funds 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 then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. 1.1 Working of Mutual Funds:

The following figure explains the working of Mutual funds

Figure 1: Working of Mutual Funds

The important terms of the figure are explained as follows: Fund Sponsor: A sponsor is any person who, acting alone or in combination with another body corporate, establishes a MF. The sponsor of a fund is similar to the promoter of a company. In accordance with SEBI Regulations, the sponsor forms a trust and appoints a Board of Trustees, and also generally appoints an AMC as fund manager. In addition, the sponsor also appoints a custodian to hold the fund assets. The sponsor must contribute at least 40% of the net worth of the AMC and possess a sound financial track record over five years prior to registration.

Trustees: The MF or trust can either be managed by the Board of Trustees, which is a body of individuals, or by a Trust Company, which is a corporate body. Most of the funds in India are managed by Board of Trustees. The trustee being the primary guardian of the unit holders funds and assets has to be a person of high repute and integrity. The trustees, however, do not directly manage the portfolio securities. The portfolio is managed by the AMC as per the defined objectives, accordance with Trust Deed and SEBI (Mutual Funds) Regulations. Asset Management Company (AMC): The AMC, which is appointed by the sponsor or the trustees and approved by SEBI, acts like the investment manager of the trust. The AMC functions under the supervision of its own Board of Directors, and also under the direction of the trustees and SEBI. AMC, in the name of the trust, floats and manages the different investment schemes as per the SEBI Regulations and as per the Investment Management Agreement signed with the Trustees. Others: Apart from these, the MF has some other fund constituents, such as custodians and depositories, banks, transfer agents and distributors. The custodian is appointed for safe keeping of securities and participating in the clearing system through approved depository. The bankers handle the financial dealings of the fund. Transfer agents are responsible for issue and redemption of units of MF. Risk Return Matrix: The risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can expect higher returns and vice versa if he pertains to lower risk instruments, which would be satisfied by lower returns. For example, if an investor opts for bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases. Thus investors choose mutual funds as their primary means of investing, as Mutual funds provide professional management, diversification, convenience and liquidity. That doesnt mean mutual fund investments are risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets which involves a higher risk but can expect higher returns.


Figure 2: Risk Return Matrix


Role of SEBI and AMFI:

To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. Mutual Funds either promoted by public or by private sector entities including those promoted by foreign entities are governed by these Regulations. SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody. According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry. AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc. 1.3 Common Terms Used Net Asset Value (NAV): Net Asset Value is the market value of the assets of the scheme minus its liabilities. Per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.


Sale Price: Is the price you pay when you invest in a scheme. It may include a sales load. Repurchase Price: Is the price at which units under open-ended schemes are repurchased by the Mutual Fund. Such prices are NAV related. Redemption Price: Is the price at which close-ended schemes redeem their units on maturity. Such prices are NAV related. Sales Load: Is a charge collected by a scheme when it sells the units, also called Front-end load. Schemes that do not charge a load are called No Load schemes. Repurchase or Back-end Load: Is a charge collected by a scheme when it buys back the units from the unit holders. Diversification: Diversification is nothing but spreading out your money across available or different types of investments. By choosing to diversify respective investment holdings reduces risk tremendously up to certain extent. SIP: Is a plan where investors make regular, equal payments into a mutual fund. By using a systematic investment plan (SIP), investors are benefitting from the long-term advantages of d cost averaging and the convenience of saving regularly without taking any actions except the initial setup of the SIP. Beta: A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is calculated using regression analysis, and indicates the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. Expense Ratio: A measure of what it costs an investment company to operate a mutual fund. It is determined through an annual calculation, where a fund's operating expenses are divided by the average dollar value of its assets under management. Operating expenses are taken out of a fund's assets and lower the return to a fund's investors.

The largest component of operating expenses is the fee paid to a fund's investment manager/advisor. Other costs include recordkeeping, custodial services, taxes, legal expenses, and accounting and auditing fees. Sharpe Ratio: A ratio to measure risk-adjusted performance. The Sharpe ratio is calculated by subtracting the risk-free rate from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. The Sharpe ratio formula is:


The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been. A negative Sharpe ratio indicates that a risk-less asset would perform better than the security being analyzed. R-Squared: A statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index. R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by movements in the index. A high R-squared (between 85 and 100) indicates the fund's performance patterns have been in line with the index. A fund with a low Rsquared (70 or less) doesn't act much like the index.


History of Mutual Funds

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phases. First Phase 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management. Second Phase 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun


90), Bank of Baroda Mutual Fund (Oct 92). At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 crores. Third Phase 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds. Fourth Phase since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth.


Figure 3: Growth in Assets under Management


Types of Mutual Funds Schemes in India

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. Thus mutual funds have a variety of flavors. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below. 1.5.1 Overview of existing schemes in mutual fund category: By Structure Open - Ended Schemes: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. Close - Ended Schemes: These schemes have a pre-specified maturity period. One can invest directly in the scheme at the time of the initial issue. Depending on the structure of the scheme there are two exit options available to an investor after the initial offer period closes. Investors can transact (buy or sell) the units of the scheme on the stock exchanges where they are listed. The market price at the stock exchanges could vary from the net asset value (NAV) of the scheme on account of


demand and supply situation, expectations of unit holder and other market factors. Alternatively some close-ended schemes provide an additional option of selling the units directly to the Mutual Fund through periodic repurchase at the schemes NAV; however one cannot buy units and can only sell units during the liquidity window. SEBI Regulations ensure that at least one of the two exit routes is provided to the investor. Interval Schemes: Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

1.5.2 Overview of existing schemes in mutual fund category: By Nature Equity fund: These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund managers outlook on different stocks. The Equity Funds are subclassified depending upon their investment objective, as follows: Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS) Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix. Debt funds: The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as: Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government. Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities. MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes. Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures. Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in


short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds. Balanced funds: These are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameter viz, by investment objective and types of returns. Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.


Overview of existing schemes in mutual fund category: By Investment Objective: Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation. Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50). Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.

Other schemes: Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate. Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the


total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index. Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.

Types of returns There are three ways, where the total returns provided by mutual funds can be enjoyed by investors: Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

Risk Low

Sector Funds Diversified Equity Funds Index Funds Balanced Funds Debt Funds Gilt Funds MMMF High return potential
Figure 4: Risk Return of Different Funds



Pros & cons of investing in mutual funds

For investments in mutual fund, one must keep in mind about the Pros and cons of investments in mutual fund. Pros of Investing Mutual Funds 1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments. 2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. 3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors. 4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want. 5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis. Cons of Investing Mutual Funds: 1. Professional Management- Some funds dont perform in the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than the investor himself, for picking up stocks. 2. Costs The biggest source of AMC income is generally from the entry & exit load which they charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon. 3. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. 4. Taxes - when making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.


Industry Analysis

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Indian Mutual Fund Industry The financial market provides different investment options to the perspective investors. These include low risk and low return products like the Fixed Deposits, corporate debentures and bonds as well as high risk and high return options like stock market. But most of investors in India are not able to trust the stock market given its fluctuating nature. The recent financial crisis and stock market crash has added to that development. Mutual Funds provide a mid-way for getting returns better than FDs with more security than the stock market. There are a large number of schemes for investors to choose from based upon their investment requirements. The market regulator has also taken a number of steps to increase the transparency of the mutual fund operations. As the Indian Economy grows, there has been an increase in the personal financial assets and a rise in foreign participation. With these changes, the mutual fund industry is also witnessing a rapid growth. There are more investors with a growing risk appetite, rising income, increasing awareness and all see mutual funds as the most preferred investment option. The months of April and May of the year 2010 were characterised by a flurry of NFOs launched by AMCs. The funds launched included SBI PSU Fund, Canara Robeco Indigo Fund, Birla Sun Life India Reforms Fund, DSP Blackrock Focus 25 Fund, IDFC Nifty Index Fund etc. Previously, some fund houses came up with New fund Offers (NFO) to increase their assets under management (AMC), but the banning of entry load by the Securities and Exchange board of India has forced AMCs to identify and launch only those funds which have a good chance of performing well over the medium to long term because if the investors don t find the objective and theme of the fund captivating then might not be able to raise the minimum amount required to be collected to cover the expenses of a NFO. The banning of entry load has also resulted in dwindling distributor interest towards the sale of mutual funds and they prefer selling other financial products which give them a higher commission. With money flowing into mutual funds in a trickle, fund houses are focusing on other businesses like offshore advisory business and Portfolio Management Services to cover losses. According to a report from Research and analytics firm, Boston Analytics only 10 percent of Indian households have invested in mutual funds. The study also says that this is because mutual funds are perceived as high risk and a lack of information on how mutual funds work. Indian mutual funds industry currently manages assets worth 8.1 trillion rupees ($174 billion) and this is expected to grow to about $520 billion by 2015. In order to make sure that investors were fully informed about the working of an AMC before arriving at a decision, the Securities and Exchange Board of India (SEBI) has made it mandatory for companies to disclose investor complaints on their websites and in their annual reports. A SEBI panel also recommended retaining the expense ratio which mutual funds deduct annually from investors Net Assets value (NAV) at 2.25%.


As of now there are 38 AMCs in operation and some more companies are in the pipeline to launch their own AMCs which us gives an idea about the intense level of competition prevalent in the industry and on the other side it also tells us that there is tremendous scope for further growth. The top 10 Asset Management Companies in terms of assets under management (AUM), as on April 30, 2010 are:
Table 1: Top 10 Asset Management Companies in India

Sl No. 1 2 3 4 5 6 7 8 9 10

Asset Management Company Reliance Mutual Fund HDFC Mutual Fund ICICI Prudential Mutual Fund UTI Mutual Fund Birla Sun Life Mutual Fund LIC Mutual Fund SBI Mutual Fund Franklin Templeton Mutual Fund Kotak Mahindra Mutual Fund IDFC Mutual Fund

Corpus (Amount in Cr) 1,11,819.33 94,702.79 83,035.31 79,456.70 69508.69 40507.21 39,826.35 34,107.00 33,743.49 25,177.28

Mutual fund industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international Mutual Fund players have entered India like Fidelity, Franklin Templeton Mutual fund etc. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players. SEBI has also asked fund houses to disclose all complaints received by them on their websites and also in their annual reports. Besides, it has cracked down on the expensive gifts and payouts by fund houses to distributors. SEBI has directed the fund houses to disclose to investors the dividend in the form of Rs per unit in their future communications and advertisements and to benchmark returns on investment against the Sensex and Nifty instead of sectoral indices.


Introduction to SBI Mutual Fund

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In November 1987, SBI Mutual Fund from the State Bank of India became the first non UTI mutual fund in India. SBI Mutual Funds (SBI MF) is a partnership between India s largest bank State Bank of India and Frances Societe Generale Asset Management. State bank of India owns 63% in SBI MF and the rest 37% is owned by Frances Societe Generale Asset Management. As on April 30 2009, the company had assets of Rs 37213.06 Crs. It is currently operating a total of 46 schemes which includes Equity schemes, Debt schemes, Short term debt schemes, Equity and debt, Gilt fund. A total of over 6 million people have invested in the funds of SBI. The fund reaches out to investors through a network of over 150 points of acceptance, 28 investor service centres, 46 investor service desks and 56 district organisers. On the 17 of May, 2010 the company launched a PSU fund with the aim of investing in public sector companies which offer significant growth prospects for the investors and also take advantage of the unlocking of value of some of these companies due to disinvestment by the government. Products currently being offered by the company are as follows: Equity / Growth based products- The equity based funds offered by SBI Mutual Fund, are as follows: Magnum COMMA Fund Magnum Equity Fund Magnum Global Fund Magnum Index Fund Magnum MidCap Fund Magnum Multicap Fund Magnum Multiplier Plus 1993 Magnum Sector Funds Umbrella MSFU - FMCG Fund MSFU - Emerging Businesses Fund MSFU - IT Fund MSFU - Pharma Fund MSFU - Contra Fund SBI Arbitrage Opportunities Fund SBI Blue chip Fund SBI Infrastructure Fund - Series I SBI Magnum Taxgain Scheme 1993 SBI ONE India Fund SBI TAX ADVANTAGE FUND - SERIES I


Debt / Income based products-The debt based funds that are in operation now, are as follows: Magnum Children's Benefit Plan Magnum Gilt Fund Magnum Gilt Fund (Long Term) Magnum Gilt Fund (Short Term) Magnum Income Fund Magnum Income Plus Fund Magnum Income Plus Fund (Saving Plan) Magnum Income Plus Fund (Investment Plan) Magnum Insta Cash Fund Magnum InstaCash Fund -Liquid Floater Plan Magnum Institutional Income Fund Magnum Monthly Income Plan Magnum Monthly Income Plan Floater Magnum NRI Investment Fund SBI Capital Protection Oriented Fund - Series I SBI Debt Fund Series SDFS 15 Months Fund SDFS 90 Days Fund SDFS 13 Months Fund SDFS 18 Months Fund SDFS 24 Months Fund SDFS 60 Days Fund SDFS 180 Days Fund SBI Premier Liquid Fund SBI Short Horizon Fund SBI Short Horizon Fund - Liquid Plus Fund SBI Short Horizon Fund - Short Term Fund

Balanced funds - The balanced funds that are in operation now, are as follows: Magnum Balanced Fund. Magnum NRI Investment Fund - FlexiAsset Plan.

Key Personnel: Mr. Achal Gupta Managing Director and Chief Executive Officer. Mr. Didier Turpin Dy. Chief Executive Officer. Mr. Navneet Munoot Chief Investment Officer. Mr. R. S. Srinivas Jain Chief Marketing Officer. Mr. Vinaya Datar - Company secretary and Compliance officer.


Distribution Network of SBI Mutual Fund



Distribution Network

SBI Mutual Fund has a very wide and robust distribution network. It operates in 15 regions and has 29 investor service centres, 55 investor service desks, 45 district organizers and 1 overseas office in Dubai. This coupled with the reach of the State Bank of India which has close to 15600 branches in India and more than 147 million customers provides the asset management company (AMC) an opportunity to reach investors even in the remote parts of the country. The decision making structure of SBI mutual fund is designed to take advantage of this opportunity. Here, I will be explaining in detail the structure of SBI mutual funds in India.

Figure 5:

Strategic decisions regarding the direction of the company are taken by individuals at the corporate office level. This is then passed on to the investor service centers (ISC), in this case the Delhi ISC. The business head and his team at the ISC, in co-ordination with the various investor service desks (ISD) under them are responsible for the implementation of the strategic decisions. Individual targets are given to the investor service desks. The managers at these desks are held accountable by the business head of the corresponding investor service center, who in turn reports directly to the national sales head (NSD). The individual managers at the respective ISC or ISD is responsible for handling of the individual financial advisors (IFA), banks and national distributors (ND). The manager is expected to maintain friendly relations with the IFAs, Banks and NDs, handle complaints effectively, educate them about the company policies and encourage them to advice investors to avail of the companys services.



The Distribution Channels

Figure 6: Distribution Channels

Apart from the direct channel, there are three categories of distribution channels for the sale of mutual funds. Banks: The banking channel is categorized as SBI Banks and Other commercial Banks.SBI being the 63% stakeholder in the SBI Mutual Funds Pvt. Ltd. Provides its own banks for the sale of mutual funds. Other banks sell the funds of different AMCs based on the corporate relations that the company has with them or based on the demand for another fund houses product by their existing bank customer. SBI Banks: In Noida, out of the 25 odd branches, only 4-5 are considered as active in selling mutual funds. For a bank to be called active, they should have a certain number of clients. In such banks, special designated employees are appointed for the sale of mutual funds along with other bank offerings. These employees are given the training on the different aspect of the mutual fund product. They are then given targets which have to be met within a period of time. Other commercial Banks: These banks are not obliged to sell the mutual fund of another AMC but in order to serve the customer who may ask for a fund from a different company, the banks sell these also. In other cases, different banks may have tie-ups to sell particular funds of the other AMC. Brokerage amount is paid for each scheme sold based on the invested amount. Our observation when it comes to other commercial banks (especially ones which have their own asset management company) is that they do not sell the product of an another AMC unless the


customer asks for it or the fund has given consistently high returns over a period of time or there is a tie-up at the top management to sell the funds. Banks appoint Relationship Managers whose job is to provide investment related advice to the investors. These are a few Personal Bankers (PBs) who work under the relationship manager. PBs come in direct contact with the investors and gives advice about their various investments. All selling takes place through them. All AMCs try to maintain good relations with the RMs and PBs for promoting their funds. Independent Financial Advisors(IFA): These individuals are certified to advice on mutual funds to people. To become an IFA, one has to appear in an examination conducted by NSE called the AMFI Test for Mutual Funds Basic/Advisor. Once cleared, one can get empanelled with the AMCs and sell their products. IFAs get an upfront amount as a percentage of the invested amount and a trailing percentage. National Distributors: These are companies with national presence which provide all investment advice to their clients. The working model is similar to the IFAs but these operate on a larger scale and are present in multiple locations in the country under the same brand name.

Payout: The amount of commission to be paid to banks and distributors are decided at the corporate and it might vary for each bank and national distributor. The payout here depends on the reach of the bank (number of branches of the bank and national distributor) and the potential of the bank to get investments. The amount of commission for the individual financial advisors depends on the amount of business that they have previously generated for the company. 4.3 Structure of SBI Mutual Funds

SBI mutual fund has a very wide and robust distribution network. It operates in 15 regions and has 29 investor service centres, 55 investor service desks, 45 district organizers and 1 overseas office in Dubai. This coupled with the reach of the State Bank of India which has close to 15600 branches in India and more than 147 million customers provides the asset management company (AMC) an opportunity to reach investors even in the remote parts of the country. The decision making structure of SBI mutual fund is designed to take advantage of this opportunity. Here, I will be explaining in detail the distribution network of SBI mutual funds in India.


Figure 7: Structure of SBI mutual Funds


Work Done at the Distribution Center

SBI Mutual Fund Investor Care Points act as the distribution center for the mutual fund operations for the particular territory. The investors can deposit their applications at this center. Such applications come under the category of direct applications and hence do not incur any broker advice fees. All the mutual fund applications through the broker are also collected and forwarded from this center. All operations like local sales promotion, brokerage to the Channel partners, delivery of merchandise like application forms, leaflets etc are executed by the distribution center.


Everyday Operations: All transactions can be classified into financial and non-financial transactions. All Investor financial and non-financial transactions are received at this center and are sent to the Registrar and Transfer Agent which is a company called CAMS Pvt. Ltd. Financial and non-financial transactions: The financial transactions include new mutual fund applications by new or existing investors, redemptions of investments and switching from one scheme to another. The non-financial transactions include change of address, change of bank details, change of broker etc. Punching: An important difference between the two categories of operations is that Financial Transactions have to be punched and non financial transactions do not have to be punched. Each AMC has a punching machine which is used to provide the time at which the transaction is processed. All applications received before 3 pm are considered to be of same day. For these transactions, the current days NAV becomes applicable. This NAV value is updated at 8 pm on the same day. Any application received after 3 pm is considered as next days transaction. The output of the Punching machine is a Print line with four items: the name of the AMC, current date, current time and punch number. The Operations at SBI Noida Center can be shown as follows: The CAMs Noida is a Registrar for many AMCs and receives all financial and non-financial transaction from these companies. These applications are checked for error and sent to the main center at Chennai which executes these transactions. After executing the operation, all entries are fed into the web application CAMS eISC which is available with all AMCs registered with it.

CAMs eISC This web based application is used for retrieving all information regarding the status of all transactions executed in the investor account. When an investor makes an investment, an account number called Folio Number is allocated to him/her. All details regarding the investments, bank details, personal address are put into this allocation and can be obtained by filling the folio number of the customer into the application.



Sales Contest:

At the end of the month April a sales contest called SIP Impact was launched. The aim of the scheme was to motivate distributors to get more investors to invest in the companys funds. According to this scheme the commission paid to the investors would be higher during the contest period of two months. Also, the amount of commission that would be paid was directly proportional to the amount of money invested and the duration of investment. The contest was th to be open till 30 June, 2010. The contest was cleverly conceived in a way that the individual financial advisors (IFA) received more commission for getting a customer to invest in funds which were struggling to increase their corpus previously, while a lower commission was paid towards the sale of funds which were doing well previously. This duration of 2 months involved meeting distributors, educating them about the scheme, encouraging them to get involved in the scheme and asking them about their views on the scheme. The fact that SBI MF came up with such a scheme after a long period of time got the distributor community a little excited, but the dampener was that other asset management companies were already running their own contests. The amount of commission being paid during the contest was not significantly high as compared to the commission paid initially, as a result of this the response to the contest was muted and did not generate the kind of excitement, buzz expected out of it. The contest was th still on at the end our training period and the numbers could be determined only after 30 June, 2010.


New Fund Offer (NFO)

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On May 17, 2010 SBI Mutual Funds came up with a new fund offer (NFO) for a PSU fund. The objective of the fund is to provide long term capital appreciation along with the liquidity of an open ended scheme through investments in equity stocks of domestic public sector undertakings (PSUs) and in debt instruments floated by PSUs and others.

Figure 8: Advertisement of the New Fund Offer

Asset Allocation Pattern:

Table 2: SBI PSU Fund Asset Allocation Pattern

Instruments Equity and equity related instruments Debt and money market securities

Min (%) 65 0

Max (%) 100 35


Stages involved in the launch of a New Fund Offer (NFO): Stage 1: The top management of the company decides on the launch of a new fund. They also decide on the objective of the new fund, minimum amount to be invested, entry and exit loads, date of launch and end of the new fund offer etc. Stage 2: This decision is then communicated to the investor service centers, investor service desks located in different parts of the country. The respective branch heads are asked to educate the distributors about this new fund. Also, the branch manager is required to identify the distributors who have contributed to the success of the organization or have


the potential to do so in the future. In most cases, a member of the top management meets the selected and distributors and educates them on the advantages of the fund. Stage 3: Application forms for the new fund offer (NFO) are received by the investor service centers. These are then dispatched to various distributors. During the first week of the new fund offer (NFO) the relationship manager tries to meet all the distributors encouraging and motivating them to get as many investors as possible to invest in the fund. By the end of the second week, based on the response to the offer, a few distributors are identified and the relationship manager focuses on maintaining a better relationship with these distributors. 6.2 Why a PSU Fund? Public sector companies exhibit strong fundamentals and the stocks of these companies are less volatile as compared to their private competitors. Their resilience was in display during the recent downturn, where the BSE PSU index outperformed the BSE Sensex and was much more stable than the Sensex. Also, the PSUs have a lower P/E ratio as compared to other stocks in the BSE100. Therefore, we can say that the stocks of PSU companies are available at reasonable prices.

Figure 9: BSE PSU Index vs. Sensex

The government has recently declared IOC, NTPC, ONGC, SAIL as Maharatnas. This gives the boards of these companies authority to approve investment decisions upto Rs 5000 crore without seeking prior approval from the government. This is a big step towards allowing public sector companies to realizing their global ambitions. Also, the government seeks to divest its stake in some of the companies and going by the previous record of disinvestment we can look forward to unlocking of value in most of these companies.


Table 3: Performance of public sector companies which have undergone disinvestment


REC Ltd Power Finance Power Grid Corp Punjab national 04/26/2002 Bank Union Bank 4/29/2002 Canara Bank 12/23/2002

Date of listing 03/12/2008 2/22/2007 10/04/2007

Offer price 105 85 52 31 16 35

BSE 100 8612 7036 9244 1680 1651 1635

Price ( 14 may 10) 271 288 106 1010 299 424

Abs Return 159% 238% 104% 3158% 1771% 1113%

CAGR BSE 100 CAGR 55% 2% 46% 8% 31% -1% 54% 44% 40% 23% 24% 26%


Marketing of the PSU Funds

Investor Awareness: The most important step towards the success of a new product is to make the customers are aware of the product. In order to ensure that investors were aware of the launch of the new fund, the company carried advertisements in newspapers (Times of India, May 25 10). Also, posters and banners carrying the details of the PSU Fund were pasted at different locations in the city. In addition to this e-mails were sent to major investors and in some cases personal visits were also made by the branch head.

Figure 10: Advertisement of the New Fund Offer on the economic times website

Tie ups to increase investor reach:


In order to maximize the amount of money invested during the NFO, the company tied up with various banks like HDFC, Axis bank for the sale of this fund. These banks agreed to specially concentrate on the sale of this fund during the period of the NFO. In fact, the company also organized a meet of the relationship managers of HDFC Bank to specially brief them about the main features of the fund. There were also tie ups with national distributors like Bajaj capital for the sale of the PSU fund. Tie - ups help the company reach a larger number of investors Increase in payouts: The company increased the commission paid out to individual financial advisors for the sale of units of the PSU fund. This encouraged the IFAs to focus more on the sale of this fund. Targets for the managers: The managers at the investor service centers were given targets during the new fund offer (NFO). Also, the company had a meeting of the relationship managers of all SBI branches in Noida at their regional business office, where each individual was assigned specific targets. According to reports in national business dailies like The Economic Times the company planned to raise Rs 1000 crore during the NFO whereas the internal target given to the managers was Rs 2500 crore.


Research Design

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The distributor opinion about a particular asset management company (AMC) is affected by a large number of factors. On the basis of the opinion so formed a distributor suggests funds of an AMC to an investor. SBI Mutual Funds was looking to identify a few major factors which shape the opinion of the distributor. It was necessary to bring the number of factors to a manageable level and focus on improving them, as this would lead to more distributors suggesting funds of SBI MF to investors. For an asset management company (AMC) it is very important to make sure that the distributor opinion of the company is favourable because in India, the financial literacy among majority of the investors is poor and they are heavily dependent and swayed by the advice offered by the distributor. 7.1 Objective:

The objective of the study is to find the factors on which the company should concentrate on, so as to influence the distributors to suggest the funds of SBI MF to investors. The study aims to reduce a large number of factors into a few manageable ones on which the company can focus. A clear focus on these factors should help the company increase sales. 7.2 Exploratory Research Design:

The problem definition required finding out various the factors that would influence the distributor recommendation of funds, before zeroing in on the few important ones. Also, from a list of 38 asset management companies (AMCs), 3 AMCs which were considered to be close competitors of SBI MF were to be identified. This was carried out by first identifying the various stakeholders involved in the industry. Our discussions with the manager at SBI MF and others revealed the stakeholders to be the company (Manager SBI MF, Noida in this case), individual financial advisors (IFAs), national distributors and relationship managers at the various banks in Noida. A continuous interaction with the concerned stakeholders revealed both the influential factors and the 3 AMCs which were considered to be the main competitors of SBI MF. The factors that were identified are: 1. 2. 3. 4. 5. Brand. Pay outs. Relations. Returns. Service Level.

Questions were formed from these factors and individual responses were taken from the distributors in Noida. The questionnaire is given below.




SA -Strongly agree A-Agree NAND-Neither Agree nor Disagree D-Disagree SD-Strongly Disagree
Table 4: Questionnaire

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

Questions There is continuous interaction through emails, telephone or personal visit. The company responds quickly to the complaints and queries SBIMF has a diversified portfolio of funds suited to different customers needs The brand image of the company helps to easily convince the customers about its products The timely available merchandise (like fact sheets, application forms) plays a part in considering SBIMF while giving investment advice to a client SBIMF receives good ratings from independent agencies Funds of SBIMF have given consistent returns over the years SBI MF encourages to sell those policies which provide the best benefit to the customer Company aims at making long term relations with their channel partners I have friendly relations with the manager at SBIMF Response to queries and other transactional requests like redemption, switch etc. are actively resolved Payout provided by the company is comparable to other companies/AMUs The company ensures that we are well informed about its products and their performance SBI MF in Noida is led by an effective manager. Company introduces good number of incentivizing schemes to promote more selling of their funds SBIMF has skilled fund managers Policies of SBIMF are more transparent and fair as compared to other AMCs The company recognises the performance of its partners and rewards top performers regularly.

SA 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

A 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4

NAND 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3

D 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

SD 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1



Data Collection from Primary Sources: The study required the collection of primary data. The distributors from whom primary data was to be collected were located in Noida. From the database of the company a list of individual financial advisors, national distributors and banks that had previously done good business with the company were selected. Data was collected by making personal visits to their workplaces and speaking to them on a range of issues concerning the mutual fund industry before asking them to fill the questionnaire. Efforts were made to make sure that the responses to the questionnaire were free from errors.


Scaling Techniques: For conducting factor analysis and finding the important factors, non-comparative scaling technique was used. Under, the non-comparative scaling technique, likert scales with seven response categories ranging from strongly agree to strongly disagree which require the respondents to indicate a degree of agreement or disagreement with each of the series of statements used. Also, rank order scaling was used to find the overall preference of AMCs.


Sampling: Target Population: The target population here is the distributors of mutual funds. The distributors include banks, national distributors (NDs) and individual financial advisors (IFAs) operating in Noida. Sampling Frame: Judgmental sampling based on the view of the manager at SBI Mutual Funds (SBI MF) was done to select banks from which data had to be collected. The judgements were based on the relationship of that particular bank branch with the company, potential of the branch to attract investors. To identify the individual financial advisors (IFAs) and national distributors (NDs) who would form the sample, stratified sampling was done whereby the distributors were divided into different categories based on the assets contributed towards the company. From, these categories respondents were chosen randomly.


The data collected was subjected to factor analysis:

7.7 Factor Analysis:

Factor analysis is a general name denoting a class of procedures primarily used for data reduction and summarization. Statistics Associated With Factor Analysis: Bartletts test of sphericity: It is a test statistic used to examine whether the variables are uncorrelated in the population.
Kaiser Meyer Olkin (KMO) measure of sampling adequacy: It is an index used to examine the appropriateness of factor analysis. High values (between 0.5 and 1.0) indicate factor analysis is appropriate. Values below 0.5 indicate that factor analysis is appropriate.



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The data was tested through factor analysis by principal components on all independent variables, the results shown below were obtained:

KMO and Bartlett's Test

Table 5: KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. Bartlett's Test of Sphericity Approx. Chi-Square df Sig.

.635 277.834 153 .000

A Kaiser-Meyer-Olkin (KMO) value of 0.635 indicates that factor analysis is appropriate and that correlations between pairs of variables can be explained by other variables. The Bartletts test indicates that there is significant difference between identity and correlation matrix.

Total Variance Explained

Table 6: Extraction Method: Principal Component Analysis.
Extraction Sums of Squared Loadings Component 1 2 3 Total 3.534 1.620 1.316 % of Variance 39.268 18.003 14.625 Cumulative % 39.268 57.270 71.895 Rotation Sums of Squared Loadings Total 3.399 1.596 1.475 % of Variance 37.770 17.732 16.393 Cumulative % 37.770 55.502 71.895

From the table of total variance, we could find that a total of 3 factors extracted together account for 71.895 percent of the total variance.


Rotated Component Matrix

Table 7: Rotated Component Matrix

VAR00018 VAR00016 VAR00014 VAR00017 VAR00004 VAR00005 VAR00002 VAR00003 VAR00007

1 .956 .905 .886 .847 .215 .188 .219 .167 .086

Component 2 .030 -.091 .128 .117 .749 .682 -.604 -.292 .285

3 -.101 .127 .119 .204 .101 -.311 -.099 .809 .789

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a Rotation converged in 4 iterations.

From, the table it is found that variables 18, 14, 16, 17 are loaded on factor 1. Variables 4 and 5 are loaded on factor 2 and variables 3 and 7 on factor 3.

Factor 1: VAR00018: The company recognizes the performance of its partners and rewards top performers regularly. VAR00017: Policies of SBI MF are more transparent and fair as compared to other AMCs. VAR00016: SBI MF has skilled fund managers. VAR00014: SBI MF in Noida is led by an effective manager.
Variables 18, 14, 16, 17 are heavily loaded on factor 1 and these variables contribute to the kind of relationship between the company and the distributor. Hence factor 1 is named relationship.

Factor 2: VAR0002: The company responds quickly to the complaints and queries.


VAR0004: The brand image of the company helps to easily convince the customers about its products. VAR0005: The timely availability of merchandise plays a part in considering SBI MF, while giving investment advice to a client. Variables 2, 4 and 5 that are heavily loaded on factor 2 and are related to the service efficiency of the company, hence factor 2 is named service level. Factor 3: VAR0003: SBI MF has a diversified portfolio of funds suited to different customer needs. VAR0007: Funds of SBI have given consistent returns over the years. Variables 3 and 7 that are heavily loaded on factor 3 are related to the returns generated by the fund; hence factor 3 is labeled performance. The other two factors considered in the study were: Payouts: It is the amount of commission paid to a distributor on the sale of a fund. It is specified in terms of the percentage of amount of fund sold. This commission usually varies between 0.5 to 1.25 percent depending on the current amount of business that the distributor has generated for the company. The total commission is divided into two parts a) upfront and b) trail. Brand: A study of the corpus of the various funds in different AMCs shows clearly that the amount of assets under management of a fund is vaguely related to the performance of a fund. This is where a brand comes into play. A good brand name in this industry helps in assuring customers of the credibility of the fund and it also helps establish trust.



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From this study it can be concluded that the primary factors that distributors consider when recommending funds to the investors are Relations of the company with distributors. Service Level Performance. Relations: Distributors are encouraged by the fair policies of the top management. It includes rewarding the distributors for good performance, organizing short courses to upgrade their skills, taking steps to ensure that the distributors are well informed about their products etc. It is important that the manager at a particular distribution center is in constant touch with the distributors and constantly motivates them to sell his companys products. It was observed that distributors felt that SBI Mutual Funds was lacking in maintaining a healthy relationship with the distributors, the company would do well to ensure that there are sufficient employees to handle the work needed to be done at a center. Service Level: This includes dispatching of account statements to investors regularly, handling complaints of the distributors effectively, making sure that merchandise (application forms, fact sheets) is available when required. It was observed that investors did not receive their account statements on a regular basis which made the distributors unhappy. Here, it is the responsibility of the registrar Computer Age Management Services (CAMS) to ensure that the statements are dispatched. SBI MF would have to coordinate with CAMS and ensure that investors and in turn distributors are happy with their service. With the banning of entry loads by the Securities and Exchange Board of India (SEBI), the payout provided by the various AMCs are not very different. Here, the level of service provided by the company can act as a differentiator and help in making sure that the funds of a particular AMC remain on the top of the mind of the distributor. Performance: Performance here means returns on investment. A customer is likely to go to another distributor if the fund suggested by his current advisor does not perform upto the promised level and the distributor is not able to convince the customer about the reasons for their bad performance. In other words the distributor is dependent on the company for the retention of his customers. Also, individual financial advisors refer to independent magazines and mutual fund websites like value research online,, to find out the top funds in terms of performance and in the case of banks, the relationship managers of different branches are suggested funds to be recommended based on the funds performance by the banks research team. During my interaction with the investors of SBI Mutual Funds, I could find that they were dissatisfied with the returns on their investments and were redeeming or considering redeeming their units. This does not augur well for the company in the long run and it will have to set this right at the earliest.


The number of respondents is 25 which although representative cannot be generalized.

Access to major distributors of the company was refused.

The respondents might given inaccurate responses to questions.





Marketing Research by Naresh Malhotra Mutual Funds in India by H. Sadhak How Mutual Funds Work- by Fredman and Wiles