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AN INTERIM REPORT

ON

SALES &DISTRIBUTION OF
FINANCIAL PRODUCTS (MUTUAL
FUND)
For

Post-Graduate Program in Management

Mumbai
BY
KALPANA YADAV
14BSP0619

Under the Guidance of


Mr. Sumit Kumar
Company guide
Reliance money solutions

Mr. Hemant Purandere


Professor
IBS, Mumbai

Abstract
As a part of my PGPM curriculum, Im pursuing my Summer Internship
Program at Reliance money solutions.
At Reliance money solutions, I will gain in depth knowledge about mutual
funds. I will study its different types and how it works. I would analyse different
mutual funds and its performance in past 5 years. As a part of my internship I have
to meet investors and based on their risk taking ability, vary the debt and equity
ratio in their investment portfolio to maximize their return.
This report includes the following things

Mutual fund and its structure


Advantages of mutual funds
Types of mutual funds
My Work

This Interim project report consist of my work done till date. The report
starts with the introduction to portfolio management.

Introduction

This report is aimed at getting an in-depth understanding


mutual fund.
Limitation of the study:
External factors play a major role in mutual funds NAV fluctuation.
Time Constraint: Due to shortage or less availability of time it may be
possible that all the related and concerned aspects may not be covered in the
project.
Analysis done is limited to the availability of data.
Comparison of Mutual Fund schemes is limited to selected asset
management companies.
All the limitations of the tools used are applicable to this study

1 Mutual Fund Definition


A mutual fund is a type of professionally managed investment fund pools money
from many investors to purchase securities. It is most commonly applied only to
those collective investment vehicles that are regulated and sold to the general
public. They are sometimes referred to as "investment companies" or "registered
investment companies".
The funds are generally well diversified to offset potential losses.
They offer an attractive way for savings to be managed in a
passive manner without paying high fees or requiring constant
attention from individual investors. Mutual funds present an
option for investors who lack the time or knowledge to make
traditional and complex investment decisions. By putting your
money in a mutual fund, you permit the portfolio manager to
make those essential decisions for you.

1.1 Structure of Mutual Fund:

Historical structures of Mutual Fund in India

The first structure of Mutual fund was the one adopted by UTI in 1963. This was
followed by SEBI MF guidelines in 1993. These guidelines were later replaced by
comprehensive set of SEBI MF regulations 1996.
1 Unit trust of India The first Mutual fund of India was a Unit Trust of
India which was formed as a body corporate under an act of Parliament.
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. However, it was
different from the present day mutual funds in more than one ways. It was a
trust, custodian, and investment manager all in one. It was capable of buying
property and borrows/lending money for project finance. The management
structure of UTI is thus distinct from the remaining mutual funds. First,
unlike other mutual funds, it is a statutory body corporate and not a Trust
under the Indian Trusts Act. Second, there is no separate asset management
company with a separate Board of directors of AMC to manage the schemes.
2 Organisation Structure of Mutual Funds of Public Sector Banks In
1987, the public sector banks were allowed to set up mutual fund. State
Bank of India was the first one to set up mutual fund. It preferred to adopt
the Trust route and set up the Mutual fund as a Trust under the Indian Trust
Act 1882. Later, other mutual funds followed the same and thus Trusts set up
under the Indian Trusts Act became the adopted legal form of mutual funds
in India. These mutual funds combined the role of Trustee, fund manager
and custodian in the sponsoring bank. However there was little demarcation
in the role and responsibilities and the structure was open to conflict of
interests.

3 SEBI MF Regulations 1996 Securities and Exchange Board of India


(SEBI) was formed in 1992 and was given the regulatory responsibility of
Capital markets and Mutual Funds. SEBI formed Mutual Funds regulations
in 1993 which were later replaced by new regulations in 1996. SEBI, while
framing the Mutual Fund Regulations, gave a lot of consideration to two
major factors, one, that mutual funds garner large moneys from the pubic for

investment in a dynamic market place which require specialisation on the


part of persons performing these functions. Secondly, there could be
potential conflicts of interest which were to be avoided by ensuring arms
length relationship between various functionaries. Such stipulation of arms
length relationship ensures that the person who performs a function is
answerable to another and does not assess his own performance. This is the
structure which is followed by all the existing mutual funds in India.

Current Structure of Mutual Funds in India

The Mutual Funds in India are regulated by SEBI MF Regulations, 1996.


Under the regulations mutual fund is formed as a Public Trust under the Indian
Trusts Act, 1882. These regulations stipulate a three tiered structure of entities
i.e. sponsor (creation), trustees, and Asset Management Company (fund
management) for carrying out different functions of a mutual fund, but place
the primary responsibility on the trustees.
1 Sponsor SEBI regulations define Sponsor as any person who either itself
or in association with another body corporate establishes a mutual fund.
Sponsor sets up a mutual fund to earn money by doing fund management
through its subsidiary company which acts as Investment manager of the
fund. A sponsor can be compared with a promoter of a company. Sponsors
activities include setting up a Public Trust under Indian Trust Act, 1882 (the
mutual fund), appointing trustees to manage the trust with the approval of
SEBI, creating an Asset Management Company under Companies Act, 1956
(the Investment Manager) and getting the trust registered with SEBI.
2 Trustees
The trust is created through a document called the trust deed which is
executed by the fund sponsor in favour of the trustees. Trustees manage the
trust and are responsible to the investors in the mutual funds. They are the
primary guardians of the unit-holders funds and assets. Trustees can be
formed in either of the following two ways i.e. Board of Trustees or a
Trustee Company. The provisions of Indian Trust Act, 1882, govern board of
trustees or the Trustee Company. A trustee company is also subject to
provisions of Companies Act, 1956
3 Asset Management Company

The Asset Management Company (AMC) is the investment Manager of the


Trust. The sponsor, or the trustees is so authorized by the trust deed, appoints
the AMC as the Investment Manager of the trust (Mutual Fund) via an
agreement called as Investment Management Agreement. An asset
management company is a company registered under the Companies Act,
1956. Sponsor creates the asset management company and this is the entity,
which manages the funds of the mutual fund (trust). The mutual fund pays a
small fee to the AMC for management of its fund. The AMC acts under the
supervision of Trustees and is subject to the regulations of SEBI too.
Role of AMC The AMC is an operational arm of the mutual fund .AMC is
responsible for all carrying out all functions related to management of the
assets of the trust. The AMC structures various schemes, launches the
scheme and mobilizes initial amount, manages the funds and give services to
the investors .In fact, AMC is the first major constituent appointed .Later on
AMC solicits the services of other constituents like Registrar, Bankers,
Brokers, Auditors, Lawyers etc and works in close co-ordination with them.

Advantages of Mutual fund:


Professional management
Qualified professionals manage your money, but they are not alone. They have
a research team that continuously analyses the performance and prospects of
companies. They also select suitable investments to achieve the objectives of
the scheme. It is a continuous process that takes time and expertise which will
add value to your investment. Fund managers are in a better position to manage
your investments and get higher returns.
Diversification:
Diversification lowers your risk of loss by spreading your money across various
industries and geographic regions. It is a rare occasion when all stocks decline
at the same time and in the same proportion. Sector funds spread your
investment across only one industry so they are less diversified and therefore
generally more volatile.

More choice
Mutual funds offer a variety of schemes that will suit investors over a lifetime.
When you enter a new stage in your life, all you need to do is sit down with
your financial advisor who will help you to rearrange your portfolio to suit your
altered lifestyle.
Affordability
For a small investor, it is not possible for him to buy shares of larger companies.
Mutual funds generally buy and sell securities in large volumes which allow
investors to benefit from lower trading costs. The smallest investor can get
started on mutual funds because of the minimal investment requirements. You
can invest with a minimum of 500 in a Systematic Investment Plan on a
regular basis.
Tax benefits
Investments held by investors for a period of 12 months or more qualify for
capital gains and will be taxed accordingly. These investments also get the
benefit of indexation.
Liquidity
With open-end funds, you can redeem all or part of your investment any time
you wish and receive the current value of the shares. Funds are more liquid than
most investments in shares, deposits and bonds. Moreover, the process is
standardised, making it quick and efficient so that you can get your cash in hand
as soon as possible.
Rupee cost averaging
With rupee-cost averaging, you invest a specific rupee amount at regular
intervals regardless of the investment's unit price. As a result, your money
buys more units when the price is low and fewer units when the price is high,
which can mean a lower average cost per unit over time. Rupee-cost averaging
allows you to discipline yourself by investing every month or quarter rather
than making sporadic investments.

Transparency
The performance of a mutual fund is reviewed by various publications and
rating agencies, making it easy for investors to compare fund to another. As a
unit holder, you are provided with regular updates, for example daily NAVs as
well as information on the fund's holdings and the fund manager's strategy.
Regulations
All mutual funds are required to register with SEBI (Securities Exchange Board
of India). They are obliged to follow strict regulations designed to protect
investors. All operations are also regularly monitored by the SEBI.

2 Types Of Mutual Fund


2.1 Types of Mutual Fund by STRUCTURE:
(A)Close Ended Mutual Fund:
Close-ended fund has a stipulated maturity period for example 5 to 7 years. The
fund is open for subscription only at the time of launch of the scheme. 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 the units are
listed.

A close-ended fund trades like a stock on a stock market or over the counter while
an open ended mutual fund is bought and sold directly with to the mutual fund.
Another cost to be aware of for a close-ended fund is the bid-ask spread. If you
place an order to buy a close-ended fund and at the same time place an order to sell
the fund, the prices for both would be different. In other words, your cost to buy
the close-ended fund and the price you would get for selling the close-ended fund
would be different. For instance, you might sell at the bid price of 90.90, while
you would buy at the ask price of 100. This 0.10 difference is known as the bidask spread and is considered the cost of doing business on the exchange or over the
counter.
You can buy both close-ended funds and mutual funds through a broker. The
broker processes the transaction on the stock exchange in the case of close-ended
fund, or with the fund company in the case of mutual funds.
Net asset Value vs Price of Close Ended Fund:
NAV of a fund is the value of close-ended funds holdings (stocks, bonds, cash
etc.) minus any liabilities divided by the total number of fund shares that are held
by investors. Unlike a mutual fund, the NAV of close-ended funds is not the price
you pay for a share of the fund.
Close-ended funds are often bought or sold at a discount to their NAV. For example
if a close-ended fund owns 100 stocks that have a combined value of 1,00,00,000
with 0 liabilities and 1,00,000 outstanding shares, the fund has an NAV of 100.
Investor might not value the portfolio managers ability to pick stocks, however, so
they might only be willing to pay 90 per share of the fund. So, this fund would be
trading at a discount of 10% to its NAV.
Reason for Fund Companies to choose the CEF Structure:
One reason can be that the fund company has a particular niche that is better served
through close-ended funds. For example if a fund company wants to manage a
fund that holds securities that are not easy to trade (illiquid, such as stocks of a
very small company that is rarely traded on the stock exchange), then they might
for a close-ended fund.

Another reason can be the fund managers close-ended funds are not forced to sell a
particular security when an investor wants to sell his shares of the fund. For
example, let say we have a manager who is running two funds that differ only in
structure, one is close-ended fund and other is open-ended fund. Both the funds
hold Tata Motors and Eicher Motor shares. If an investor wants to sell his shares of
the close-ended fund, there is no problem; the fund manager is able to continue to
hold both stocks because the investor goes to an exchange to sell his shares to
another investor. On the other hand, because investors in a mutual fund go to the
fund company to redeem his shares, the fund manager must sell either Tata Motor
or Eicher motor shares in order to meet redemption needs and raise cash for the
investor.
(B)Open Ended Mutual Fund:
It is a fund operated by an investment company which raise money from
shareholders and invest in group of assets, in accordance with the stated set of
objectives. Open-ended funds raise money by selling shares of the fund to the
public, much like any other type of company which can sell stock in itself to the
public.
Mutual funds then take the money they receive from the sale of their sale (along
with any money from previous investments) and use it to purchase various
investment vehicles, such as stocks, bonds and money market instruments. In
return for the money they give to the fund when purchasing shares, shareholders
receive an equity position in the fund and, in effect, in each of its underlying
securities.
For most open-ended funds, shareholders are free to sell their shares at any time,
although the price of a share in an open-ended fund will fluctuate daily, depending
upon the performance of the securities held by the fund.
Benefits of open-ended funds include diversification and professional money
management. Open-ended funds offer choice, liquidity and convenience, but
charge fees. In an open-ended mutual fund, there is no limit to the number of
investors, shares or overall size of the fund, unless the fund manager decides to
close the fund to new investors in order to keep it manageable. Also as mentioned

before, value or share price of an open-ended mutual fund is determined at the


market close every day and is called the Net asset Value (NAV).
(C)Interval Schemes:
Interval schemes combine the benefits of open-ended and close-ended schemes.
These essentially are close-ended funds, but become open ended at pre-specified
intervals by opening for sale and repurchase on a regular basis at intervals on prespecifies dates. Investors can buy or sell the units of these schemes at an interval
which is specifies in the schemes document. For example, in case of a Monthly
Interval fund, investors can buy or sell the units every month on the specified
dates. This means the scheme is open-ended only on the specified transaction date
and is like a close-ended fund on other dates.
From the point of view of an Asset Management Company (AMC), there is another
explanation. The AMC makes the scheme open periodically for sale and repurchase
of units from its unit-holders, generally every one, three, six, or twelve months, as
disclosed in the funds offer document. The dates on which it becomes open for
transactions by unit holders is known as specified transaction dates. The minimum
duration of the interval in any Interval Scheme is 15 days and the specified period
is required to be of at least 2 working days.

2.2 Types of Mutual Fund by NATURE:


(A)Equity Mutual Funds:

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. Equity investments are meant for longer
time horizon, thus equity funds rank high on the risk-return matrix. The Equity
funds are sub-classified depending upon their investment objective, as follows:

Diversified Equity Funds


Large-Cap Funds
Mid-Cap Funds
Small-Cap Funds
Sector Funds
Equity Linked Saving Schemes (ELSS)

(B)Debt Mutual Funds:


The objective of these funds is to invest in debt papers, government authoritis,
private companies, banks and financial institutions are some of the major issuers o
debt papers. By investing in debt instruments, these funds ensure low risk and
provide stable income to the investors. Debt funds are sub-classified as:

Gilt Funds
Income Funds
Monthly Income Plans (MIP)
Short Term Plans
Liquid Funds

(C)Balanced Funds:
They 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 aim to provide investors with best of both equity and debt funds.
Here, equity part provides growth and the debt part provides stability in returns.

2.3 Types of Mutual Fund by INVESTMENT OBJECTIVE:


(A)Growth Schemes:
These schemes are also called 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.
(B)Income Schemes:
These 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.

(C)Index Schemes:
These schemes attempt to replicate the performance of a particular index such as
the BSE Sensex or 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 weight age and hence the returns from
such schemes would be more or less equivalent to those of the Index.

5.Main Text:
MY WORK AT RELIANCE MONEY At RELIANCE MONEY , initially we were imparted
process and product knowledge. We were given sufficient time to know about the products and
also about sales and distribution channel. We had to work with the sales representatives of the
Distributor and think of ways of improving the sales and distribution channel and implementing
them. The main aim was to increase sales and for this different ways were tried and
implemented. We were provided with database and had to make calls from the data. Company
activity was also one of the major sources for generating business. Initially they even
accompanied sales representatives to the clients place. Main objective was to know the need of
the customer and how to fulfil that in the best way.
And there I learnt how to pitch our products to the client and to understand the customer's
existing portfolio and how many types of customers are there in market ..their needs
/requirements and what are the selling techniques they are using. I asked my queries also with
my teammates, company guide Mr Sumit Sir. I understood this company with marketing
concepts also like in respect of marketing mix , BCG Matrix , and who all are the Reliance's
Competitors in the market. That is all what i did till now.