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INDUSTRIAL PROFILE

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

First Phase – 1964-87

An Act of Parliament established Unit Trust of India (UTI) on 1963. 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 Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual
Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of
Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC
had set up its mutual fund in December 1990.

At the end of 1993, the mutual fund industry had assets under management of Rs.47,004
crores.

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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.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust
of India with assets under management of Rs.29,835 crores as at the end of January
2003, representing broadly, the assets of US 64 scheme, assured return and certain other
schemes. The Specified Undertaking of Unit Trust of India, functioning under an
administrator and under the rules framed by Government of India and does not come
under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations. With the
bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores
of assets under management and with the setting up of a UTI Mutual Fund, conforming
to the SEBI Mutual Fund Regulations, and with recent mergers taking place among
different private sector funds, the mutual fund industry has entered its current phase of
consolidation and growth. As at the end of September, 2004, there were 29 funds, which
manage assets of Rs.153108 crores under 421 schemes.

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ECONOMIC ENVIRONMENT
GROWTH OF MUTUAL FUND INDUSTRY IN INDIA

While the Indian mutual fund industry has grown in size by about 32% from March,
1993 (Rs. 470 billion) to December, 2004 (Rs. 1505 billion) in terms of AUM, the AUM
of the sector excluding UTI has grown over 8 times from Rs. 152 billion in March 1999
to $ 148 billion as at March 2008.

Though India is a minor player in the global mutual fund industry, its AUM as a
proportion of the global AUM has steadily increased and has doubled over its levels in
1999.

The growth rate of Indian mutual fund industry has been increasing for the last few
years. It was approximately 0.12% in the year of 1999 and it is noticed 0.25% in 2004 in
terms of AUM as percentage of global AUM.

Some facts for the growth of mutual funds in India

• 100% growth in the last 6 years.


• Number of foreign AMC’s is in the queue to enter the Indian markets like
Fidelity Investments, US based, with over US$1trillion assets under management
worldwide.
• Our saving rate is over 23%, highest in the world. Only channelizing these
savings in mutual funds sector is required.
• We have approximately 29 mutual funds which is much less than US having
more than 800. There is a big scope for expansion.
• Mutual fund can penetrate rurals like the Indian insurance industry with simple
and limited products.
• SEBI allowing the MF's to launch commodity mutual funds.
• Emphasis on better corporate governance.
• Trying to curb the late trading practices.
• Introduction of Financial Planners who can provide need based advice.

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Recent trends in mutual fund industry

The most important trend in the mutual fund industry is the aggressive expansion
of the foreign owned mutual fund companies and the decline of the companies
floated by the nationalized banks and smaller private sector players.

Many nationalized banks got into the mutual fund business in the early nineties
and got off to a start due to the stock market boom was prevailing. These banks
did not really understand the mutual fund business and they just viewed it as
another kind of banking activity. Few hired specialized staff and generally chose
to transfer staff from the parent organizations. The performance of most of the
schemes floated by these funds was not good. Some schemes had offered
guaranteed returns and their parent organizations had to bail out these AMCs by
paying large amounts of money as a difference between the guaranteed and
actual returns. The service levels were also very bad. Most of these AMCs have
not been able to retain staff, float new schemes etc.

TECHNOLOGICAL ENVIRONMENT
IMPACT OF TECHNOLOGY

Mutual fund, during the last one decade brought out several innovations in their products
and is offering value added services to their investors. Some of the value added services
that are being offered are:

• Electronic fund transfer facility.


• Investment and re-purchase facility through internet.
• Added features like accident insurance cover, mediclaim etc.
• Holding the investment in electronic form, doing away with the traditional form
of unit certificates.
• Cheque writing facilities.
• Systematic withdrawal and deposit facility.

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ONLINE MUTUAL FUND TRADING

The innovation the industry saw was in the field of distribution to make it more easily
accessible to an ever increasing number of investors across the country. For the first
time in India the mutual fund start using the automated trading, clearing and settlement
system of stock exchanges for sale and repurchase of open-ended de-materialized mutual
fund units.

Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP) were options
introduced which have come in very handy for the investor to maximize their returns
from their investments. SIP ensures that there is a regular investment that the investor
makes on specified dates making his purchases to spread out reducing the effect of the
short term volatility of markets. SWP was designed to ensure that investors who wanted
a regular income or cash flow from their investments were able to do so with a pre-
defined automated form. Today the SW facility has come in handy for the investors to
reduce their taxes.

LEGAL AND POLITICAL ENVIRONMENT


ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

With the increase in mutual fund players in India, a need for mutual fund association in
India was generated to function as a non-profit organization. Association of Mutual
Funds in India (AMFI) was incorporated on 22nd August 1995.

AMFI is an apex body of all Asset Management Companies (AMC), which has been
registered with SEBI. Till date all the AMCs are that have launched mutual fund
schemes are its members. It functions under the supervision and guidelines of board of
directors. AMFI has brought down the Indian Mutual Fund Industry to a professional
and healthy market with ethical lines enhancing and maintaining standards. It follows
the principle of both protecting and promoting the interest of mutual funds as well as
their unit holders.

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REGULATORY MEASURES BY SEBI

Like Banking & Insurance up to the nineties of the last century, Mutual Fund industry in
India was set up and functioned exclusively in the state monopoly represented by the
Unit Trust of India. This monopoly was diluted in the eighties by allowing nationalized
banks and insurance companies (LIC & GIC) to set up their institutions under the Indian
Trusts Act to transact mutual fund business, allowing the Indian investor the option to
choose between different service providers. Unit Trust was a statutory corporation
governed by its own incorporating act. There was no separate regulatory authority up to
the time SEBI was made a statutory authority in 1992. but it was only in the year 1993,
when a government took a policy decision to deregulate Indian Economy from
government control and to transform it market oriented, that the industry was opened to
competition from private and foreign players. By the year 2000 there came to be
established in the market 34 mutual funds offerings a variety of about 550 schemes.

SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL


FUNDS) REGULATIONS, 1996

The fast growing industry is regulated by Securities and Exchange Board of India
(SEBI) since inception of SEBI as a statutory body. SEBI initially formulated
“SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS)
REGULATIONS, 1993” providing detailed procedure for establishment, registration,
constitution, management of trustees, asset management company, about
schemes/products to be designed, about investment of funds collected, general
obligation of MFs, about inspection, audit etc. based on experience gained and feedback
received from the market SEBI revised the guidelines of 1993 and issued fresh
guidelines in 1996 titled “SECURITIES AND EXCHANGE BOARD OF INDIA
(MUTUAL FUNDS) REGULATIONS, 1996”. The said regulations as amended from
time to time are in force even today.

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The SEBI mutual fund regulations contain ten chapters and twelve schedules. Chapters
containing material subjects relating to regulation and conduct of business by Mutual
Funds

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COMPANY PROFILE

About Us

We are a one-stop financial services shop, most respected for quality of its advice,
personalized service and cutting-edge technology.

Vision

Our vision is to be the most respected company in the financial services space.

India Infoline Group

The India Infoline group, comprising the holding company, India Infoline Limited and
its wholly-owned subsidiaries, straddle the entire financial services space with offerings
ranging from Equity research, Equities and derivatives trading, Commodities trading,
Portfolio Management Services, Mutual Funds, Life Insurance, Fixed deposits, GoId
bonds and other small savings instruments to loan products and Investment banking.
India Infoline also owns and manages the websites www.indiainfoline.com and
www.5paisa.com
The company has a network of 596 branches spread across 345 cities and towns. It has
more than 10,00,000 customers.

India Info line Ltd

India Infoline Limited is listed on both the leading stock exchanges in India, viz. the
Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also a
member of both the exchanges. It is engaged in the businesses of Equities broking,
Wealth Advisory Services and Portfolio Management Services. It offers broking

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services in the Cash and Derivatives segments of the NSE as well as the Cash segment
of the BSE. It is registered with NSDL as well as CDSL as a depository participant,
providing a one-stop solution for clients trading in the equities market. It has recently
launched its Investment banking and Institutional Broking business.
A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to
clients. These services are offered to clients as different schemes, which are based on
differing investment strategies made to reflect the varied risk-return preferences of
clients.
India Infoline Media and Research Services Limited.

The content services represent a strong support that drives the broking, commodities,
mutual fund and portfolio management services businesses. Revenue generation is
through the sale of content to financial and media houses, Indian as well as global.
It undertakes equities research which is acknowledged by none other than Forbes as
'Best of the Web' and '…a must read for investors in Asia'. India Infoline's research is
available not just over the internet but also on international wire services like Bloomberg
(Code: IILL), Thomson First Call and Internet Securities where India Infoline is
amongst the most read Indian brokers.
India Infoline Commodities Limited.

India Infoline Commodities Pvt Limited is engaged in the business of commodities


broking. Our experience in securities broking empowered us with the requisite skills and
technologies to allow us offer commodities broking as a contra-cyclical alternative to
equities broking. We enjoy memberships with the MCX and NCDEX, two leading
Indian commodities exchanges, and recently acquired membership of DGCX. We have a
multi-channel delivery model, making it among the select few to offer online as well as
offline trading facilities.

India Infoline Marketing & Services

India Infoline Marketing and Services Limited is the holding company of India Infoline
Insurance Services Limited and India Infoline Insurance Brokers Limited.

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(a) India Infoline Insurance Services Limited is a registered Corporate Agent with the
Insurance Regulatory and Development Authority (IRDA). It is the largest Corporate
Agent for ICICI Prudential Life Insurance Co Limited, which is India's largest private
Life Insurance Company. India Infoline was the first corporate agent to get licensed by
IRDA in early 2001.
(b) India Infoline Insurance Brokers Limited India Infoline Insurance Brokers Limited is
a newly formed subsidiary which will carry out the business of Insurance broking. We
have applied to IRDA for the insurance broking licence and the clearance for the same is
awaited. Post the grant of license, we propose to also commence the general insurance
distribution business.
India Infoline Investment Services Limited

Consolidated shareholdings of all the subsidiary companies engaged in loans and


financing activities under one subsidiary. Recently, Orient Global, a Singapore-based
investment institution invested USD 76.7 million for a 22.5% stake in India Infoline
Investment Services. This will help focused expansion and capital raising in the said
subsidiaries for various lending businesses like loans against securities, SME financing,
distribution of retail loan products, consumer finance business and housing finance
business. India Infoline Investment Services Private Limited consists of the following
step-down subsidiaries.
(a) India Infoline Distribution Company Limited (distribution of retail loan products)
(b) Money line Credit Limited (consumer finance)
(c) India Info line Housing Finance Limited (housing finance)

IIFL (Asia) Private Limited

IIFL (Asia) Private Limited is wholly owned subsidiary which has been incorporated in
Singapore to pursue financial sector activities in other Asian markets. Further to
obtaining the necessary regulatory approvals, the company has been initially capitalized
at 1 million Singapore dollars.

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The Management

Mr. Nirmal Jain


Nirmal Jain, MBA (IIM, Ahmedabad) and a Chartered and Cost Accountant, founded
India’s leading financial services company India Infoline Ltd. in 1995, providing
globally acclaimed financial services in equities and commodities broking, life insurance
and mutual funds distribution, among others. Mr. Jain began his career in 1989 with
Hindustan Lever’s commodity export business, contributing tremendously to its growth.
He was also associated with Inquire-Indian Equity Research, which he co-founded in
1994 to set new standards in equity research in India.
Mr. R Venkataraman
R Venkataraman, co-promoter and Executive Director of India Infoline Ltd., is a B.
Tech (Electronics and Electrical Communications Engineering, IIT Kharagpur) and an
MBA (IIM Bangalore). He joined the India Infoline board in July 1999. He previously
held senior managerial positions in ICICI Limited, including ICICI Securities Limited,
their investment banking joint venture with J P Morgan of USA and with BZW and Taib
Capital Corporation Limited. He was also Assistant Vice President with G E Capital
Services India Limited in their private equity division, possessing a varied experience of
more than 16 years in the financial services sector.

The Board of Directors

Apart from Nirmal Jain and R Venkataraman, the Board of Directors of India Infoline
comprises:
Mr Sat Pal Khattar (Non Executive Director)
Mr Sat Pal Khattar, - Board member since April 2001 - Presidential Council of Minority
Rights member, Chairman of the Board of Trustee of Singapore Business Federation, is
also a life trustee of SINDA, a non profit body, helping the under-privileged Indians in
Singapore. He joined the India Infoline board in April 2001. Mr Khattar is a Director of
public and private companies in Singapore, India and Hong Kong; Chairman of
Guocoland Limited listed in Singapore and its parent Guoco Group Ltd listed in Hong

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Kong, a leading property company of Singapore, China and Malaysia. A Board member
of India Infoline Ltd, Gateway Distriparks Ltd — both listed — and a number of other
companies he is also the Chairman of the Khattar Holding Group of Companies with
investments in Singapore, India, UK and across the world.
Mr Nilesh Vikamsey (Independent Director)
Mr. Vikamsey, Board member since February 2005 - a practising Chartered Accountant
and partner (Khimji Kunverji & Co., Chartered Accountants), a member firm of HLB
International, headed the audit department till 1990 and thereafter also handles financial
services, consultancy, investigations, mergers and acquisitions, valuations etc; an ICAI
study group member for Proposed Accounting Standard — 30 on Financial Instruments
— Recognition and Management, Finance Committee of The Chamber of Tax
Consultants (CTC), Law Review, Reforms and Rationalization Committee and
Infotainment and Media Committee of Indian Merchants’ Chamber (IMC) and Insurance
Committee and Legal Affairs Committee of Bombay Chamber of Commerce and
Industry (BCCI).
Mr. Vikamsey is a director of Miloni Consultants Private Limited, HLB Technologies
(Mumbai) Private Limited and Chairman of HLB India.
Mr Kranti Sinha (Independent Director)
Mr. Kranti Sinha — Board member since January 2005 — completed his masters from
the Agra University and started his career as a Class I officer with Life Insurance
Corporation of India. He served as the Director and Chief Executive of LIC Housing
Finance Limited from August 1998 to December 2002 and concurrently as the
Managing Director of LICHFL Care Homes (a wholly owned subsidiary of LIC Housing
Finance Limited). He retired from the permanent cadre of the Executive Director of LIC;
served as the Deputy President of the Governing Council of Insurance Institute of India
and as a member of the Governing Council of National Insurance Academy, Pune apart
from various other such bodies. Mr. Sinha is also on the Board of Directors of Hindustan
Motors Limited, Larsen & Toubro Limited, LICHFL Care Homes Limited, Gremach
Infrastructure Equipments and Projects Limited and Cinemax (India) Limited.

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THE PRODUCT AND SERVICES OFFERED BY THE COMPANY

1. EQUITIES

India Infoline provided the prospect of researched investing to its clients, which was
hitherto restricted only to the institutions. Research for the retail investor did not exist
prior to India Infoline IndiaInfoline leveraged technology to bring the convenience of
trading to the investor’s location of preference (residence or office) through
computerized access. India Infoline made it possible for clients to view transaction costs
and ledger updates in real time.
Over the last five years, India Infoline sharpened its competitive edge through the
following initiatives:

Multi-channel delivery model: The Company is among the few financial


intermediaries in India to offer a complement of online and offline broking. The
Company’s network of branches also allows customers to place orders on phone or visit
our branches for trading.

Integrated middle and back office: The customer can trade on the BSE and
NSE, in the cash as well as the derivatives segment all through the available multiple
options of Internet, phone or branch presence.

Multiple-trading options: The Company harnessed technology to offer services at


among the lowest rates in the business. Membership: The Company widened client
reach in trading on the domestic and international exchanges.

Technology: The Company provides a prudent mix of proprietary and outsourced


technologies, which facilitate business growth without a corresponding increase in costs.

Content: The Company has leveraged its research capability to provide regular
updates and investment picks across the short and long-term.

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Service: Clients can access the customer service team through various media like toll-
free lines, emails and Internet- messenger chat for instant query resolution. The
Company’s customer service executives proactively contact customers to inform them of
key changes and initiatives taken by the Company.

Key features
• Membership on the Bombay Stock Exchange Limited and the National Stock
Exchange

• Registered with the NSDL as well as CDSL as a depository participant,


providing a one-stop solution for clients trading in the equities market

• Broking services in cash and derivative segments, online as well as offline under
the brand of 5paisa.com

• Presence across 19 states through a 177 strong branch network, with 75,000
online registered users

• Provision of free and world-class research to all clients.

2. Portfolio Management Service


Portfolio Management Service is a product wherein an equity investment portfolio is
created to suit the investment objectives of a client. Through India Infoline, one can
invest his resources into stocks from different sectors, depending on his risk-return
profile. This service is particularly advisable for investors who cannot afford to give
time or don't have that expertise for day-to-day management of their equity portfolio. It
is all about your money, being managed by the experts, while one continue with his
routine life. It is simple and totally hassles free. Moreover, one can keep track of his
dividends / bonus / rights issues with paperless tracking. It basically means assigning the
right job to the right person.

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Salient Features of India Infoline PMS:

• Expert team of Research Analysts


• Stock Picking done by the Investment Committee
• Dedicated Relationship Manager
• Technology and Service driven Back-Office

3. RESEARCH
IIL special research cell where some of India's finest financial analysts bring intensive
research reports on how the stock market is faring, when is the right time to invest, when
to execute your order and more. IIL make sure that investors are always prepared to
make own investment decision when the opportunity arises.
IIL bring intensive research reports - whether sect oral or company-wise or more - that
tells exactly when and where to invest. Presented in a lucid and easy-to-understand
format; these reports help the investors to make informed decisions.

4. COMMODITIES
The Company’s commodities business provides a contra-cyclical alternative to equities
broking. The Company was among the first to offer the facility of commodities trading
in India’s young commodities market (the MCX commenced operations only in 2003).
Average monthly turnover on the commodity exchanges increased from Rs 0.34 bn to
Rs 20.02 bn. The commodities market has several products with different and non-
correlated cycles. On the whole, the business is fairly insulated against cyclical gyrations
in the business.
India Infoline distinguished its business through the interplay of knowledge and
technology:
Complete solution: The Company provides a complete - advice to execution –
solution facilitated by information and advice on likely commodity trends in the Indian
and international environment.

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Technology: The Company has extended the trading terminal to the investor’s
home/workplace reinforced with real-time commodity information and ledger position.

Rates: The Company harnessed technology to offer services at among the lowest rates
in the business. Membership: The Company widened client reach in trading on the
domestic and international exchanges.

Key Features
• Enjoys memberships with the MCX and NCDEX, two leading Indian
commodities exchanges

• Recently acquired membership of the DGCX

• Extended commodity trading to retail investors, among the few Indian financial
intermediaries to do so

• Online business at 80% of revenues dominates commodities trading revenues

• Provides regular commodity updates pertaining to the Indian and international


environment

5. LOANS
A Housing Loan is used as finance to help one to buy or modify home. The different
Housing Loan products can be classified as:
• Home Loans & Home Extension Loans

• NRI Loans

• Land Loans

• Home Equity Loans

6. INSURANCE
The Company’s entry into the insurance sector derisked the Company from a
predominant dependence on broking and equity-linked revenues. The annuity based

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income generated from insurance intermediation result in solid core revenues across the
tenure of the policy.

Key features
• India Infoline was the first corporate in India to get the agency license in early
2001

• The Company is the biggest corporate agency in India for life insurance products

• The Company operates multiple channels, namely branch network, preferred


client group, direct marketing, corporate tax advisory, walk-ins and seminars, to
reach out to customers.

7. Wealth Management Service


Backed by a team of experts, IIL team recommends an appropriate financial strategy.
The key to achieving success is having a carefully planned financial strategy based on a
thorough understanding of one’s needs and appetite for risk.
Our relationship manager will help you analyze:
• Your cash-flow requirements

• Your risk appetite

• Desired investment horizon

• Long-term goals

8. SMS
India Infoline ltd. has launched VAS service- one of its kind in the stock market
industry. Its customers need not to seek information about their stocks. The company
will provide all the vital information over SMS. One can avail this service by paying just
Rs.249 per month and can get
• Real-time News pertaining only to one’ portfolio.

• Daily Equity and Bullion Market Updates.

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• Net Position of your Top 5 stocks (Scrip, Qty, and Closing Price).

• Updates on Ledger Balance on daily basis.

• Stock ideas based on strong research.

• Updates on your stock price during market hours.

Offers from the India Infoline Group:

 Offers online trading in shares and securities as well as offline distribution of


personal financial products, like mutual funds and RBI Bonds.

 Equity Trading and Stock Broking: Cash and Derivatives segments.


Member - BSE and NSE, DP with NSDL.

 Portfolio Management: SEBI-registered, backed by a pool of analysts with


over 200 man-years in managing portfolios.

 Research & Analysis: Exhaustive information and data mining, covering the
spectrum of Indian business, industry and financial markets.

 Mutual Funds: Primary agent for the entire phalanx of leading funds.
Something to suit every risk profile.

 Life Insurance: Leading corporate agent of ICICI Prudential Life Insurance


Company, miles ahead of the runner-up!

 Commodities Broking: Member of the Multi- Commodities Exchange


(MCX) and (NCDEX). Again, rock-bottom brokerage and quality research
support.

 Fixed Income Instruments: From Fixed Deposits, Post Office Saving


schemes to RBI Tax Saving and Infrastructure Bonds

ACHIEVEMENTS:

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 In a short span of time have emerged as one of the leading players in the online
trading space & offer online trading facilities under the 5paisa brand name.

 Emerged as one of the leading business and financial information services


provider in India.

COMPETITORS

1. RELIANCE MONEY

2. INDIA BULLS

3. RELIGARE SECURITIES LTD.

4. ICICI DIRECT LTD.

5. HDFC SECURITIES LTD.

6. SHAREKHAN.

7. IDBI.

8. HSBC.

9. CBOP.

10. KARVY

11. SBI

ENVIRONMENT:

 All employees are driven by Owner Mindset.

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 Human Resources are treated as assets for the Company.

 Provide tremendous autonomy to operate, be creative and make mistakes.

They believe in the Olympic motto - Each member of Team India Infoline has been
putting up an Olympian fight and is capable, confident, and certain and ready
to deliver faster, higher and stronger performance

MUTUAL FUND

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A mutual fund is a trust that pools the savings of a number of investors who shares a
common financial goal. The money thus collected is invested by the fund manager in
different type of securities depending upon the objective of the schemes. These could
range from shares to debentures to money market instruments. The income earned
through these investments and the capital appreciation realized by the scheme is 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 portfolio at a relatively low cost.
Anybody with an investible surplus of as little as a few thousand rupees can invest in
mutual funds. Each mutual 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 has become has matured and information driven. Price
changes in these assets are driven by global events occurring in far away 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 the answer to all these solutions. It appoints professionally qualified
and experienced staff that manages each of these functions on 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 fact, the mutual fund vehicle exploits economies of scale in 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 the different investment objectives. Today, mutual funds collectively
manage almost as much as or more money as compared to banks.

GROWTH IN ASSETS UNDER MANAGEMENT

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CHARACTERSTICS OF MUTUAL FUNDS

• The ownership is in the hands of the investors who have pooled in their funds.

• It is managed by a team of investment professionals and other service providers.

• The pool of funds is invested in a portfolio of marketable investments.

• The investors share is denominated by ‘units’ whose value is called as Net Asset
Value (NAV) which changes everyday.

• The investment portfolio is created according to the stated investment objectives


of the fund.

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ADVANTAGES OF MUTUAL FUNDS

The advantages of mutual funds are given below: -

Portfolio Diversification

Mutual funds invest in a number of companies. This diversification reduces the risk
because it happens very rarely that all the stocks decline at the same time and in the
same proportion. So this is the main advantage of mutual funds.

Professional Management

Mutual funds provide the services of experienced and skilled professionals, assisted
by investment research team that analysis the performance and prospects of companies
and select the suitable investments to achieve the objectives of the scheme.

Low Costs

Mutual funds are a relatively less expensive way to invest as compare to directly
investing in a capital markets because of less amount of brokerage and other fees.

Liquidity

This is the main advantage of mutual fund, that is whenever an investor needs
money he can easily get redemption, which is not possible in most of other options of
investment. In open-ended schemes of mutual fund, the investor gets the money back at
net asset value and on the other hand in close-ended schemes the units can be sold in a
stock exchange at a prevailing market price.

Transparency

In mutual fund, investors get full information of the value of their investment, the
proportion of money invested in each class of assets and the fund manager’s investment
strategy

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Flexibility

Flexibility is also the main advantage of mutual fund. Through this investors can
systematically invest or withdraw funds according to their needs and convenience like
regular investment plans, regular withdrawal plans, dividend reinvestment plans etc.

Convenient Administration

Investing in a mutual fund reduces paperwork and helps investors to avoid many
problems like bad deliveries, delayed payments and follow up with brokers and
companies. Mutual funds save time and make investing easy.

Affordability

Investors individually may lack sufficient funds to invest in high-grade stocks. A


mutual fund because of its large corpus allows even a small investor to take the benefit
of its investment strategy.

Well Regulated

All mutual funds are registered with SEBI and they function with in the provisions of
strict regulations designed to protect the interest of investors. The operations of mutual
funds are regularly monitored by SEBI.

DISADVANTAGES OF MUTUAL FUNDS

Mutual funds have their following drawbacks:

No Guarantees

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No investment is risk free. If the entire stock market declines in value, the value of
mutual fund shares will go down as well, no matter how balanced the portfolio.
Investors encounter fewer risks when they invest in mutual funds than when they buy
and sell stocks on their own. However, anyone who invests through mutual fund runs the
risk of losing the money.

Fees and Commissions

All funds charge administrative fees to cover their day to day expenses. Some funds
also charge sales commissions or loads to compensate brokers, financial consultants, or
financial planners. Even if you don’t use a broker or other financial advisor, you will
pay a sales commission if you buy shares in a Load Fund.

Taxes

During a typical year, most actively managed mutual funds sell anywhere from 20 to
70 percent of the securities in their portfolios. If your fund makes a profit on its sales,
you will pay taxes on the income you receive, even you reinvest the money you made.

Management Risk

When you invest in mutual fund, you depend on fund manager to make the right
decisions regarding the fund’s portfolio. If the manager does not perform as well as you
had hoped, you might not make as much money on your investment as you expected. Of
course, if you invest in index funds, you forego management risk because these funds do
not employ managers.

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STRUCTURE OF MUTUAL FUND

There are many entities involved and the diagram below illustrates the structure of
mutual funds: -

Structure of Mutual Funds

SEBI

The regulation of mutual funds operating in India falls under the preview of
authority of the “Securities and Exchange Board of India” (SEBI). Any person
proposing to set up a mutual fund in India is required under the SEBI (Mutual Funds)
Regulations, 1996 to be registered with the SEBI.

Sponsor

The sponsor should contribute at least 40% to the net worth of the AMC. However,
if any person holds 40% or more of the net worth of an AMC shall be deemed to be a
sponsor and will be required to fulfill the eligibility criteria in the Mutual Fund
Regulations. The sponsor or any of its directors or the principal officer employed by the
mutual fund should not be guilty of fraud or guilty of any economic offence.

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Trustees

The mutual fund is required to have an independent Board of Trustees, i.e. two third
of the trustees should be independent persons who are not associated with the sponsors
in any manner. An AMC or any of its officers or employees are not eligible to act as a
trustee of any mutual fund. The trustees are responsible for - inter alia – ensuring that
the AMC has all its systems in place, all key personnel, auditors, registrar etc. have been
appointed prior to the launch of any scheme.

Asset Management Company

The sponsors or the trustees are required to appoint an AMC to manage the assets of
the mutual fund. Under the mutual fund regulations, the applicant must satisfy certain
eligibility criteria in order to qualify to register with SEBI as an AMC.

1. The sponsor must have at least 40% stake in the AMC.


2. The chairman of the AMC is not a trustee of any mutual fund.
3. The AMC should have and must at all times maintain a minimum net worth of
Cr. 100 million.
4. The director of the AMC should be a person having adequate professional
experience.
5. The board of directors of such AMC has at least 50% directors who are not
associate of or associated in any manner with the sponsor or any of its
subsidiaries or the trustees.

The Transfer Agents

The transfer agent is contracted by the AMC and is responsible for maintaining the
register of investors / unit holders and every day settlements of purchases and
redemption of units. The role of a transfer agent is to collect data from distributors
relating to daily purchases and redemption of units.

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Custodian

The mutual fund is required, under the Mutual Fund Regulations, to appoint a
custodian to carry out the custodial services for the schemes of the fund. Only
institutions with substantial organizational strength, service capability in terms of
computerization and other infrastructure facilities are approved to act as custodians. The
custodian must be totally delinked from the AMC and must be registered with SEBI.

Unit Holders

They are the parties to whom the mutual fund is sold. They are ultimate beneficiary
of the income earned by the mutual funds.

According to Structure

Open – Ended Funds

An open – ended 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 – ended schemes is
liquidity.

Close – Ended Funds

A close – ended 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. Investors
can invest in the scheme at the same time of the initial public issue and thereafter they
can buy and sell the units of the scheme on the stock exchanges where they are listed.

In order to provide an exit route to the investors, some close – ended funds give an
option of selling back the units to the mutual fund through periodic repurchase at NAV
related prices.

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Interval Funds

Interval funds combine the features of open – ended and close – ended schemes. They
are open for sales or redemption during pre-determined intervals at their NAV.

According to Investment Objective:

Growth Funds

The aim of growth funds is to provide capital appreciation over the medium to long
term. Such schemes normally invest a majority of their corpus in equities. It has been
proven that returns from stocks are much better than the other investments had over the
long term. Growth schemes are ideal for investors having a long term outlook seeking
growth over a period of time.

Income Funds

The aim of the income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate debentures
and government securities. Income funds are ideal for capital stability and regular
income.

Balanced Funds

The aim of balanced funds is to provide both growth and regular income. 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. In a rising stock
market, the NAV of these schemes may not normally keep pace or fall equally when the
market falls. These are ideal for investors looking for a combination of income and
moderate growth.

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Money Market Funds

The main aim of money market funds is to provide easy liquidity, preservation of
capital and moderate income. These schemes generally invest in safe short term
instruments such as treasury bills, certificates of deposit, commercial paper and inter –
bank call money. Returns on these schemes may fluctuate depending upon the interest
rates prevailing in the market. These are ideal for corporate and individual investors as a
means to park their surplus funds for short periods.

Other Schemes

Tax Saving Schemes:-

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. Investments made in Equity Linked Saving Schemes (ELSS) and Pension
Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also
provides opportunities to investors to save capital gains.

Special Schemes:

Index Schemes

Index funds attempt to replicate the performance of a particular index such as the BSE
Sensex or the NSE 50.

Sector Specific Schemes

Sector funds are those which invest exclusively in a specified industry or a group of
industries or various segments such as ‘A’ group shares or initial public offerings.

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Bond Schemes It seeks investment in bonds, debentures and debt related
instrument to generate regular income flow.

FREQUENTLY USED TERMS

Advisor - Is employed by a mutual fund organization to give professional advice on


the fund’s investments and to supervise the management of its asset.

Diversification – The policy of spreading investments among a range of different


securities to reduce the risk.

Net Asset Value (NAV) - Net Asset Value is the market value of the assets of the
scheme minus its liabilities. The per unit NAV is the net asset value of the scheme
divided by the number of units outstanding on the Valuation Date.

Sales Price - Is the price you pay when you invest in a scheme. Also called Offer
Price. It may include a sales load.

Repurchase Price - Is the price at which a close-ended scheme repurchases its units
and it may include a back-end load. This is also called Bid Price.

Redemption Price - Is the price at which open-ended schemes repurchase their units
and 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.

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RESEARCH METHOLOGY

OBJECTIVES OF THE STUDY

 To know the awareness level of people on mutual funds around Chandigarh.


 To find the pattern of consumer behavior within the available investment options and
to see the interest of people in investing in mutual funds
 To find out the most preferred mutual funds schemes in Chandigarh.

RESEARCH METHODOLOGY

Research Methodology is a careful investigation or inquiry specially through search for


new facts in any branch of knowledge.
Research Methodology is away to systematically solve the research problem.
The main steps involved in research process are:
• Research Design.
• Collection of data.
• Data Analysis.
• Interpret and report.
RESEARCH DESIGN

Research design provides glue that holds the research project together. A design is used
to structure the research, to show how all of the major parts of the research project i.e.
the samples or groups, measures, treatments or programs, and methods of assignment
that work together to try to address the central research questions.
It is the framework, which determines the course of action towards the allocation and
analysis of required data are collected accurately in the economic manner. this is done to
see that the study will lead to findings, which are valid, and unambiguous and prove that
the hypothesis is true and valid.
The research design of my study was descriptive, as it was a descriptive analysis of the
problem.

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Sample Size:
After looking all the factors on which the sample size depended, for this project, i have
chosen a sample of 50 individuals for data collection and interpretation. This research
was solely based on primary research done by means of questionnaires targeted to
respondents who primarily belong to the business and service sector.

Sampling Technique:
In my case there is a deliberate sampling that is also known as purpose or non-
probability sampling. This sampling involves purposive and deliberate selection of
particular units of Chandigarh for conducting a sample.

DATA COLLECTION
The data collected for the research is undertaken through the primary as well as
secondary data method. This can be illustrated in the following way:-

PRIMARY DATA

The primary data has been collected from the various mediums like:
 Personal interview n which a set of pre determined questions have been asked from
the concerned person.
 Telephone survey.

SECONDARY DATA

 Information acquiring through Internet.


 Articles on the relative topics in various magazines and newspapers like Economic
Times, Business Standard etc.

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DATA ANALYSIS

(1.) Are you aware about mutual funds?

YES 90%

NO 10%

Only 10% of correspondent said they don’t know any thing about mutual fund and
90% said they know about mutual funds.

(2.)Have you ever invested in mutual fund?

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YES 40%

NO 60%

Out of the total correspondents asked about 40% have said


that they had invested in mutual funds before while 60% said no.

(3.) Do you know different type of mutual scheme present in the market?

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YES 25%

NO 75%

Out of total corresponds only 25% said that they know about various
mutual schemes as this number is very small it shows that people still
don’t know about various schemes in the market. It also shows that even
those who have bought mutual funds are still ignorant about the different
schemes.

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(4.) Are you a regular investor?

YES 75%

NO 25%

It has been observed that 75% of the respondents are regular investor.
And 25% of the respondent are not regular investor, The percentage of
choice of investment may vary due to different factors such as age,
education, risk etc.

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(5.) In which of the following do you prefer to invest?

Mutual funds 9%

Fixed Deposits 24%

Bonds & Debentures 9%

Equities & Share Market 14%

Real Estate 25%

Gold 10%

Insurance 9%

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From the analysis of the data it is found that most of the people prefer Real
Estate, Fixed Deposits, Share Market as a good investment source while
Mutual Funds, Gold, occupy almost same places in the minds of investors.

(6.) What percentage of your income do you invest?

Below 10% 30%


10%-30% 55%
30%-50% 10%
Above 50% 5%

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About 65% of people said that they invest between 10%-50% of their
total income in some or other types of financial tools.

(7.) How you choose a mutual fund?

BRAND NAME 40%

HIGH NAV 25%


HIGH RETURNS 15%
ADVERTISING 10%
OTHERS 10%

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It has been observed that brand name does matter when people are
choosing a mutual fund as 40% said brand name. The next is NAV at
about 25%. These two factors play a major role during selection of mutual
funds.

(8).What combination in terms of shares and debt do you prefer in your


mutual fund?

EQUITY%-DEBT%

20%-80% 10%
40%-60% 20%
50%-50% 20%
60%-40% 30%

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80%-20% 20%

It has been observed that maximum people would like to have a


60%- 40% mix of equity and debt in their mutual fund.

(9.) In your opinion, do you think your mutual fund is sensex – sensitive?

YES 60%

NO 40%

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The research shows that 60%people think that mutual funds are sensex
sensitive whereas rest do not.

(10.)In what type of mutual fund do you invest?

Open end fund 60%

Closed end fund 40%

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The research shows that 60% investors prefer open end funds to closed end
funds due to flexibility in the inflow and outflow of the fund.

(11.)In which segment of mutual fund you like to invest?

BALANCE FUND 30%

DEBT FUND 25%

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EQUITY FUND 45%

It has been observed that 45% of the investors prefer equity funds to
balanced and debt funds.

(12.)What type of dividend you expect?

Tick any of the following.

MONTHLY 22%

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QUATERLY 30%

SEMI-ANNUAL 7%
ANNUAL 32%

OTHER 9%

It has been observed that maximum people prefer annual and quarterly returns.

(13.)In which of the following mutual funds do you prefer to invest?

UTI-MF 25%

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SBI-MF 15%

HDFC-MF 16%

ICICI-PRU 18%

TEMPLETON-MF 8%
STAN-CHART-MF 5%
BIRLA SUNLIFE-MF 5%

ANY OTHER 7%

The research shows tht UTI MF and ICICI PRU MF are the most preferred
mutual funds whereas the others occupy almost equal positions in the investor’s
mind.

(14.) Which Features attract you the most while choosing a specific Mutual Fund?

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FLEXIBILITY 3%

RETURN 32%

PROFESSIONAL MANAGEMENT 20%

TAX SAVINGS 35%

RISK DIVERSION 10%

It has been observed that the returns are the most attractive feature for investors
while investing in a mutual fund and tax savings and professional management
occupy the next two preferences respectively.

(15.) What is your source of information while investing in mutual funds?

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INTERNET 15%

NEWSPAPER/MAGAZINES 10%

FINANCIAL ADVISOR 40%


ADVERTISEMENTS 25%

FRIENDS 10%

It has been seen that 40% of the respondents get information about mutual
funds from their financial advisors and then 25% from newspapers and
magazines. the rest are dependent on the information they gain from
various advertisements, internet as well as friends.

FINDINGS
1) Only 10% of correspondent said they don’t know any thing about mutual fund and
90% said they know about mutual funds but what we found that they have just a primary

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or very negligible knowledge about mutual funds and not really aware of the concept
called MUTUAL FUND. Out of the total correspondents asked about 40% have said that
they had invested in mutual funds before while 60% said NO. Out of the total people
who have said yes a majority of them are young, having disposable income and
willingness to take risk.
2) It has been observed that more than half of the respondents said that they invest
between 10%-50% of their total income and almost 65% of the correspondents invest in
some or the other financial instrument. Though the percentage of choice of investment
may vary due to different factors such as age, education, risk etc.
3) It has been found that the most attractive feature of mutual funds is tax savings and
returns .Thus if the government encourages the investment in mutual funds in the current
budget, then more people will be investing in the MFs for tax saving. However people
are also not compliant to risk aversion. They are willing to invest in risky equity funds.
4) Another significant finding of the project is that investors are lured by the returns
MFs are showing. They prefer annual and quarterly returns. However at the same time
they also want to minimize their risk.
5) Investors desire or opt open-ended schemes than close-ended schemes and equity
funds to balanced and debt funds. This means that they want flexibility in the inflow and
outflow of their funds.
6) The research shows that UTI MF and ICICI PRU MF are the most preferred mutual
funds whereas the others occupy almost equal positions in the investor’s mind.
7) The significant factors considered while choosing a mutual fund is Brand name and
High NAV
8) The source of information the investors most rely is on financial advertisements.
However they also require the detailed information, which they take from Financial
Advisors. The other sources also serve as a good source of information like newspapers,
magazines and internet.
9) Investor’s portfolio consists mainly of Fixed Deposits. However portfolio of regular
investors does contain significant proportion of Mutual Funds.

RECOMMENDATIONS

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• There is lack of awareness among people about mutual funds so there should be
more advertising and other promotional campaigns to increase the level of
awareness.

• There is a general ignorance and questions about, what are mutual funds? What are
different schemes of mutual funds? How to invest in a mutual? And many more.
This thing should be handled by mutual fund companies and their brokers to provide
knowledge to their clients.

• People are more interested in investing in equity funds rather than debt funds
because companies are promoting more for equity funds. Companies should equally
promote debt funds also as the provide security to customers.

• It has been found that the most attractive feature of mutual funds is tax savings and
returns .Thus if the government encourages the investment in mutual funds in the
current budget, then more people will be investing in the Mutual Funds for tax
savings.

• India is passing through a tremendous growth phase with an average growth rate of
7-8% per annum. With this growth phase there is growth in each and every sector,
hence there is rush to by shares and equities. It is also a very good time for mutual
fund companies but it is advisable for them and their brokers that they don’t just sell
mutual funds but sell the right kind of scheme which is comfortable to a persons
nature of taking risk and need,

• It has been seen that there is a major increase in the percentage of young investors
who have large amount of disposable income with them and want to invest, these
type of prospective clients should be tapped at an early stage.

• Tapping the up coming market - Semi Urban Market as there is a lot of opportunity.
Most of the Mutual Funds are operating in the metros and big cities as per their

42
present branch office locations. If they have to increase their market size they have
to open more distribution centers at the various urban and semi-urban markets.

• To provide some kind of curriculum at the school/college level to create awareness


regarding Mutual Fund.

LIMITATIONS OF STREAMLINING RESULTS

Every work has its own limitations. Limitations are extent to which the process should
not exceed. The following limitations for the project are:

1. Duration of project was not enough to make our conclusion on such a vast subject.
Time constraints has also become a major limitation.

2. The sample size taken for drawing the conclusion was not sizeable.

3. Investor ignorance was faced during discussions with


respondent .

4. Difficult to take an appointment with professional people.

CONCLUSION

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The Mutual fund industry is growing at a tremendous pace. A large number of plans have
come up from different financial resources. With the Stock markets soaring the investors
are attracted towards these schemes.

Only a small segment of the investors still invest in Mutual funds and the main sources
of information still are the financial advisors followed by advertisements in different
media. The Indian investor generally investors over a period of 2 to three years. Also
there is a greater tendency to invest in fixed deposits due to the security attached to it.

In order to excel and make mutual funds a success, companies still need to create
awareness and understand the Psyche of the Indian customer.
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’s opinion is still divided, while
some are for the 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 invest. “With a view to encourage savings and investment and
participation in the income, profits and gains accruing to the Corporation from the
acquisition, holding, management and disposal of securities.”

BIBLIOGRAPHY

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BOOKS/REFERNCES

1. How Mutual Funds Work by Albert J. Fredman & Russ Wiles.

2. Financial Services Management by M.Y.Khan

3. AMFI –Mutual Fund Testing Programme for Distributors & Employees of


Mutual Funds in India.

4. Fact Sheets of various Mutual Funds April 2005.

5. Economic Times

6. Business Standard

WEBSITE REFERRED

• www.mutualfundindia.com

• www.amfiindia.com

• www.principalindia.com

• www.investorsguide.com
• www.moneycontrol.com
• www.investmentz.co.in
• www.indiainfoline.com
• www.5paisa.com

QUESTIONNAIRE

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NAME: ____________________

AGE:______________________

SEX:______________________

CITY:______________________

1).Are you aware about Mutual Funds?


a. Yes b. No
If yes, then proceed

2) Have you invested in some Mutual Funds?


a. Yes b. No

3) Do you know different type of Mutual Fund scheme present in the market?
a. Yes b. No

4) Are you a regular investor?


a. Yes b. No

5) In which of the following do you prefer to invest?

Name of Investment
Mutual Funds
Bank
Bonds & Debentures
Equities & Share Market
Real Estate
Gold
Insurance

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6) What percentage of your income do you invest?
a. Below 10% b. 10% - 30%
c. 30% - 50% d. Above 50%

7) How do you select and choose Mutual Funds?


a. Brand Name b. High NAV
c. High Dividends d. Advertisement
e. Other

8) What combination in terms of shares and debt do you prefer in your mutual fund?

EQUITY%-DEBT%
20%-80%
40%-60%
50%-50%
60%-40%
80%-20%

9) Do you think your mutual fund is sensex –sensitive?


a. Yes b. No

10) In what type of mutual fund do you invest?


a. Open End Fund b. Closed End Funds

11) In which segment of mutual fund you like to invest?


a. Balance Fund
b. Debt Fund
c. Equity Fund

12) What type of return you expect?


a) Monthly b) Quarterly
c) Semi annual d) Annual

13) In which of the following mutual funds do you prefer to invest?

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a) UTI-MF

b) PRU-ICICI-MF

c) HDFC-MF

d) TEMPLETON-MF

e) STAN CHART-MF

f) BIRLA SUNLIFE-MF

g) OTHERS

14) Which Features attract you the most while choosing a specific Mutual Fund?
a)Flexibility b)Return
c)Managed by professional people d)Risk Diversion

15) What is your source of information while investing in mutual funds?


a) Internet b) Magazine
c) Newspaper d) Financial Advisor
e) Friends f) Advertisements

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