Professional Documents
Culture Documents
1) INTRODUCTION
2) PROJECT TITLE
3) OBJECTIVES
4) PURPOSE
5) SCOPE
6) LIMITATION
7) METHODOLOGY
8) OVERVIEW OF MUTUAL FUNDS
9) CURRENT SCENARIO
Vision of company
“Is to be the leading rural finance company and continue to retain the
leadership position for Mahindra product.”
5
requirements of our customers but with a mutual fund distribution
business, we can also participate in their asset allocation.
When it comes to investing, everyone has unique needs based on their
own objectives and risk profile. While many investment avenues such
as fixed deposits, bonds etc. exist, it is usually seen that equities
typically outperform these investments, over a longer period of time.
Hence we are of the opinion that, systematic investment in equity
allows one to create substantial wealth.
However, investing in equity is not as simple as investing in bonds or
bank deposits, because only proper allocation of portfolio gives
maximum returns with moderate risk, and this requires expertise and
time.
Our Investment Advisory Services help you invest your money in equity
through different Mutual Fund Schemes. We ensure the best for our
clients by identifying products best suited to individual needs.
ABSTRACT
Primary objective:
Secondary objectives:
• To get additional clients for the company and making them aware
about the benefits of mutual funds.
METHODOLOGY
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.
CURRENT SCENARIO:
The fund industry has grown phenomenally over the past couple
of years, and as on 31 January 2008, it had a debt and equity
assets of Rs 5,50,157 crore. Its equity corpus of Rs 2,20,263
lakh crore accounts for over 3 per cent of the total market
capitalization of BSE, at Rs 58 lakh crore. Its holding in Indian
companies ranges between 1 per cent and almost 29 per cent,
making them an influential shareholder. Together with banks,
insurance companies and FIIs collectively called institutional
investors- they have the ability to ask company managements
some tough questions.
More significant than this stupendous growth has been the
regulatory changes that the capital market watchdog, Securities
and Exchange Board of India, introduced in the past two years.
Outgoing Sebi Chairman M.Damodaran’s two year stint as
chairman of Unit Trust of India helped him reform the industry by
making it much more transparent than before. In the process,
mutual funds have become a tad cheaper.
Until 2007, for instance, initial issue expenses on close-ended
funds, which could be as high as 6 per cent of the amount raised,
could be amortized over the tenure of the fund. This basically
meant that even if an investor put in Rs 1 lakh, effectively only Rs
94,000 got invested by the fund. The initial expenses of the fund
include commissions paid to distributors and money spent on
billboards for advertising the new offer. In 2006, the regulator
had scrapped the amortization benefit for open-ended schemes.
Not surprisingly, asset management companies started launching
closed-ended funds. Of the 34 new fund offers in 2007, 24 were
closed-ended. In January this year, SEBI said all closedended
Mutual fund schemes too will meet sales and marketing
Expenses from the entry load. This made it more transport for
investors, because funds had to either hike their expense ratio
(Management fee and operating charges as a percentage of
assets under management) or change higher entry load.
• Well regulated - All Mutual Funds are registered with SEBI and
they function within the provisions of strict regulations designed
to protect the interests of investors. The operations of Mutual
Funds are regularly monitored by SEBI.
Growth / Equity Oriented Scheme : The aim of growth funds is to provide capital
appreciation over the medium to long- term. Such schemes normally invest a major
part of their corpus in equities. Such funds have comparatively high risks.
These schemes provide different options to the investors like dividend option,
capital appreciation, etc. and the investors may choose an option depending on
their preferences. The mutual funds also allow the investors to change the options at a
later date. Growth schemes are good for investors having a long-term outlook
seeking appreciation over a period of time.
Income / Debt Oriented Scheme: The aim of income funds is to provide regular and
steady income to investors. Such schemes generally invest in fixed income securities
such as bonds, corporate debentures, Government securities and money market
instruments. Such funds are less risky compared to equity schemes. These funds are
not affected because of fluctuations in equity markets. However, opportunities
of capital appreciation are also limited in such funds. The NAVs of such funds
are affected because of change in interest rates in the country. If the interest rates fall,
NAVs of such funds are likely to increase in the short run and vice versa. However,
long term investors may not bother about these fluctuations.
Balanced Fund : The aim of balanced funds is to provide both growth and
regular income as such schemes invest both in equities and fixed income
securities in the proportion indicated in their offer documents. These are
appropriate for investors looking for moderate growth. They generally invest
40-60% in equity and debt instruments. These funds are also affected
because of fluctuations in share prices in the stock markets. However, NAVs of such
funds are likely to be less volatile compared to pure equity funds.
3.Money Market or Liquid Fund :These funds are also income funds and their aim is
to provide easy liquidity, preservation of capital and moderate income.
These schemes invest exclusively in safer short-term instruments such as treasury
bills, certificates of deposit, commercial paper and inter-bank call money, government
securities, etc. Returns on these schemes fluctuate much less compared to other funds.
These funds are appropriate for corporate and individual investors as a
means to park their surplus funds for short periods.
5.Index Funds :Index Funds replicate the portfolio of a particular index such as the
BSE Sensitive index, S&P NSE 50 index (Nifty), etc.These schemesinves in the
securities in the same weight age comprising of an index. NAVs of such schemes
would rise or fall in accordance with the rise or fall in the index, though
not exactly by the same percentage due to some factors known as "tracking error" in
technical terms. Necessary disclosures in this regard are made in the offer document
of the mutual fund scheme. There are also exchange traded index funds launched
by the mutual funds which are traded on the stock exchanges.
6.Sector specific funds/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. They may also seek advice of an expert.
9.No-load fund :
This is one that does not charge for entry or exit It means the investors can enter the
fund/scheme at NAV and no additional charges are payable on purchase or sale of
units.
10.Monthly Income Plan:
•To generate regular income through investments in debt and money market
instruments and also to generate long-term capital appreciation by investing a portion
in equity related instruments.
11.FMP’s ( Fixed Maturity Plans ): These are close-ended income schemes with a
fixed maturity date. The period could range from fifteen days to as long as two years
or more. When the period comes to an end, the scheme matures and money is paid
back. Like an income scheme, FMPs invest in fixed income instruments i.e. bonds,
government securities, money market instruments etc. The tenure of these
instruments depends on the tenure of the scheme.
•FMPs effectively eliminate interest rate risk. This is done by employing a specific
investment strategy. FMPs invest in instruments that mature at the same time their
schemes come to an end. So a 90-day FMP will invest in instruments that mature
within 90 days.
•For all practical purposes, an FMP is an income scheme of a mutual fund. Hence, the
tax incidence would be similar to that on traditional income schemes. The dividend
from an FMP will be tax free in the hands of an individual investor. However,it would
be subject to the dividend distribution tax.
•Redemptions from investments held for less than a year will be short-term gains
and added to the investor's income to be taxed at slab rates applicable. If such an
investment were held for more than a year, the long-term gains would get taxed at 20
per cent with indexation or at 10 per cent without. These rates are subject to the
surcharge and education cess as normally applicable. One can avail the benefit of
double indexation and save tax on FMPs held for more than one year.
Managing risks
Mutual funds offer incredible flexibility in managing investment risk. Diversification
and Systematic Investing Plan (SIP) are two key techniques you can use to
reduce your investment risk considerably and reach your long-term financial goals.
Diversification
When you invest in one mutual fund, you instantly spread your risk over a number of
different companies. You can also diversify over several different kinds of
securities by investing in different mutual funds, further reducing your potential risk.
Diversification is a basic risk management tool that you will want to use throughout
your lifetime as you rebalance your portfolio to meet your changing needs and goals.
Investors, who are willing to maintain a mix of equity shares, bonds and money
market securities have a greater chance of earning significantly higher returns
over time than those who invest in only the most conservative investments.
Additionally, a diversified approach to investing -- combining the growth potential of
equities with the higher income of bonds and the stability of money markets -- helps
moderate your risk and enhance your potential return.
Types of risks:
Consider these common types of risk and evaluate them against potential
rewards when you select an investment.
Market Risk
At times the prices or yields of all the securities in a particular market rise or fall due
to broad outside influences. When this happens, the stock prices of both, an
outstanding, highly profitable company and a fledgling corporation may be affected.
This change in price is due to "market risk.”
Inflation Risk
Sometimes referred to as "loss of purchasing power." Whenever inflation sprints
forward faster than the earnings on your investment, you run the risk that you'll
actually be able to buy less, not more. Inflation risk also occurs when prices
rise faster than your returns.
Credit Risk
In short, how stable is the company or entity to which you lend your money when you
invest? How certain are you that it will be able to pay the interest you are promised
or repay your principal when the investment matures?
Investment Risks
The sectoral fund schemes, investments will be predominantly in equities of
select companies in the particular sectors. Accordingly, the NAV of the schemes are
linked to the equity performance of such companies and may be more volatile
than a more diversified portfolio of equities.