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A REPORT
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ON
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MUTUAL FUND INVESTORS-THEIR
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EXPECTATIONS & STRATEGIES IN
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CHANGING SCENARIO
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BY
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Ankit Gupta
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STANDARD CHARTERED BANK
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A REPORT
ON
MUTUAL FUND INVESTORS-THEIR
EXPECTATIONS & STRATEGIES IN
CHANGING SCENARIO

BY
ANKIT GUPTA

A report submitted in partial fulfillment of


requirements of MBA program of
JIMS Rohini

TABLE OF CONTENTS
Topic Page No.
Acknowledgement 4

Abstract ... 5

Introduction

About the project... 6


3

Indian mutual fund industry.. 7

About the organization.. 10

Mutual funds

Concept.. 12,13

Characteristics 14

Advantages. 14

Disadvantages. 16

Types of mutual funds. 17

Constitution of mutual funds 23

Net asset value. 26

Nature of income distribution.. 27

Why an investor leaves a fund.. 29

Latest AUM .. 30

Study

Scope of the study. 38

Objective of the study 38

Methodology used.. 39

Limitations . 40

Findings of the study.. 41

Comparative analysis of mutual funds... 57

Scope of SCB investment products 61

Recommendations made to SCB 65


4

References.. 68

Appendix 69

ACKNOWLEDGEMENT

I would like to express my sincere thanks to the management of Standard


Chartered Bank, M.I. Road, Jaipur Branch who gave me the opportunity to
work and study in a large organization.
My success at Standard Chartered Bank was because of the contribution and
guidance provided by the staff of Standard Chartered Bank, M.I. Road, Jaipur
Branch.
I express my sincere gratitude to Mrs. Nidhi Mathur (Relationship Manager -
Excel Banking) & (company guide) Standard Chartered Bank, Jaipur.
I would also express my Sincere thanks to Mr. Anurag Sharma (Branch Manager)
Standard Chartered Bank, M.I. Road Branch, Jaipur.
I also express my gratitude to Prof. Esha Sharma (Faculty guide) who guided me
from time to time in completion of my project.

Last but not the least, I would like to thank all the respondents for giving their
precious time and relevant information and experience, I required, without which
the project would have not been completed.
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ABSTRACT
Mutual funds have been one of the most preferred investment instruments. They
are looked upon by individual investors as financial intermediaries/ portfolio
managers who process information, identify investment opportunities, formulate
investment strategies, invest funds and monitor progress at a very low cost. Thus
the success of mutual funds is essentially the result of the combined efforts of
competent fund managers and alert investors. A competent fund manager should
analyze investor behavior and understand their needs and expectations, to gear up
the performance in order to meet investors requirements. The project Mutual
fund investors expectations & strategies in changing scenario is to understand
the changing sentiments, expectations & strategies of the investor.
The volatility of stock market has affected the mutual funds sales. There has been a
plunge in the sales of mutual funds. The expectations & strategies of the investors
have changed. This has become a challenge for fund houses. Investors preference
has changed. Now they are not sure about what the investors want. This project
aims at understanding their behavior & thus giving recommendations to SCB for
meeting these challenges. Thus, to analyze the difference between investors
expectations & investment managers approach.

The project will seek to cover all the fundamental aspects related to mutual funds &
investment in mutual funds. The project will also cover the various problems of the
global scenario that has affected the Indian market. Then it will analyze the
behavior of investors in changing scenario.

There will also be a comparative analysis of some of the star ranked mutual funds
as per the expectations of the investors, so as to understand whether the star ranked
mutual funds are catering to the requirements & expectations of the investors or
not.

Basically, the project is to understand the investors, behavior & to give


recommendations to Standard Chartered Bank on how to meet these changing
expectations of the investors & offer the product accordingly. There are many other
investment products offered by Standard Chartered. This project also covers that
what are the opportunities for such investment products.
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INTRODUCTION
The growth and maturation of mutual fund industry is the greatest investment story
of the twentieth century. With the introduction of innovative products, the world of
mutual funds nowadays has a lot to offer to its investors. With the introduction of
diverse options, investors need to choose a mutual fund that meets his risk
acceptance, his risk capacity levels and has similar investment objectives as the
investor. There are a large number of schemes available in the market to cater to
the different needs of the investor. As on 29th Feb, 2008, there were 5343 mutual
fund schemes in the market.

The market has been bullish in past few months & has given huge returns. Even the
retail investors started investing in a big way expecting the rally to continue. But
with change in the global scenario, there has been a sudden & unexpected downfall
in the market which sunk the investors expectations, creating a negative sentiment
in the market. This has also affected the mutual fund investments.
Since Indian economy is no more a closed market, and has started integrating with
the world markets, external factors which are complex in nature are also affecting
us. Factors such as Sub-prime problem, expected US recession, an increase in
short-term US interest rates, the hike in crude prices and many other factors
have made Indian market volatile. The market has shown a downfall of --% in past
3 months. There has been sharp fall in the sales of mutual funds in past 2 months,
since January. The average asset under management (AUM) of the mutual fund
industry has declined sharply by 6.62% in March 2008, according to data released
by Association of Mutual Funds in India (AMFI). This shows that there has been a
change in the investors sentiments & expectations.

INDIAN MUTUAL FUND INDUSTRY


The Indian mutual fund industry is dominated by the Unit Trust of India which has
a total corpus of Rs700bn collected from more than 20 million investors. The UTI
has many funds/schemes in all categories i.e. equity, balanced, income etc with
some being open-ended and some being closed-ended. The Unit Scheme 1964
commonly referred to as US 64, which is a balanced fund, is the biggest scheme
with a corpus of about Rs200bn. UTI was floated by financial institutions and is
governed by a special act of Parliament. Most of its investors believe that the UTI
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is government owned and controlled, which, while legally incorrect, is true for all
practical purposes.

The second largest category of mutual funds is the ones floated by nationalized
banks. Canbank Asset Management floated by Canara Bank and SBI Funds
Management floated by the State Bank of India are the largest of these. GIC AMC
floated by General Insurance Corporation and Jeevan Bima Sahayog AMC floated
by the LIC are some of the other prominent ones. The aggregate corpus of funds
managed by this category of AMCs is about Rs150bn.

The third largest categories of mutual funds are the ones floated by the private
sector and by foreign asset management companies. The largest of these are
Prudential ICICI AMC and Birla Sun Life AMC. The aggregate corpus of assets
managed by this category of AMCs is in excess of Rs250bn

The growth and development of Indian Mutual Fund Industry can be broadly
divided into four phases:-
First Phase (1964-87)
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was
set up by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was de-linked
from the RBI and the Industrial Development Bank of India (IDBI) took over the
regulatory and administrative control in place of RBI. The first scheme launched by
UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs. 6,700 crores of assets
under management.

Second Phase (1987-1993)


Highlight of phase was entry of Public Sector Funds. In 1987 marked the entry of
non- UTI, public sector mutual funds set up by public sector banks and Life
Insurance Corporation of India (LIC) in June 1989 and General Insurance
Corporation of India (GIC) In Dec. 1990.
Public Sector Bank also established their own Mutual Funds:-
SBI Mutual Fund (June 1987)
Canbank Mutual Fund (Dec 87)
Punjab National Bank Mutual Fund (Aug 89)
Indian Bank Mutual Fund (Nov 89)
Bank of India (Jun 90)
Bank of Baroda Mutual Fund (Oct 92).
By the end of 1993, the mutual fund industry had assets under management of Rs.
47,004 crores.

Third Phase (1993 2003)


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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 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
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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ABOUT THE ORGANISATION


COMPANYS HISTORY

The Standard Chartered Group was formed in 1969 through a merger of two banks:
The Standard Bank of British South Africa founded in 1863 and the Chartered
Bank of India, Australia and China, founded in 1853.

The Chartered Bank


Founded by James Wilson following the grant of a Royal Charter by Queen
Victoria in 1853.
Chartered opened its first branches in Mumbai (Bombay), Calcutta and
Shanghai in 1858, followed by Hong Kong and Singapore in 1859.
Traditional business was in cotton from Mumbai (Bombay), indigo and tea
from Calcutta, rice in Burma, sugar from Java, tobacco from Sumatra, hemp
in Manila and silk from Yokohama.
Played a major role in the development of trade with the East which
followed the opening of the Suez Canal in 1869 and the extension of the
telegraph to China in 1871.
In 1957 Chartered Bank bought the Eastern Bank together with the Ionian
Bank's Cyprus Branches. This established a presence in the Gulf.

The Standard Bank


Founded in the Cape Province of South Africa in 1862 by John Paterson.
Commenced business in Port Elizabeth, South Africa, in January 1863.
Was prominent in financing the development of the diamond fields of
Kimberley from 1867 and later extended its network further north to the new
town of Johannesburg when gold was discovered there in 1885.
Expanded in Southern, Central and Eastern Africa and by 1953 had 600
offices.
In 1965, it merged with the Bank of West Africa expanding its operations
into Cameroon, Gambia, Ghana, Nigeria and Sierra Leone.

From the early 1990s, Standard Chartered has focused on developing its strong
franchises in Asia, the Middle East and Africa using its operations in the United
Kingdom and North America to provide customers with a bridge between these
markets. Secondly, it would focus on consumer, corporate and institutional banking
and on the provision of treasury services - areas in which the Group had particular
strength and expertise.
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Through global network of over 1,700 branches and outlets, SCB offer personal
financial solutions to meet the needs of more than 14 million customers across
Asia, Africa and the Middle East.

The various services offered by SCB include:

1) Personal Banking
2) SME Banking
3) Wholesale Banking
4) Islamic Banking
5) Private Banking

Private Bank advisors and investment specialists provide customized solutions to


meet the unique needs and aspirations of investors. The various products offered by
Private banking include:

Mutual funds
Capital protected products
Derivative Arbitrage Products
Equity Advisory Services
Fixed income products

Mutual funds have huge potential. Standard Chartered bank deals in more than
2000 mutual funds. They offer a huge range of funds for varied customers. Initially
they make investors fill the customers so that they can understand the requirements
of the customers and thus provide services accordingly. This project basically
covers the mutual funds investors sentiments, to understand them and make
recommendations to SCB.
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MUTUAL FUNDS
Concept
A mutual fund is a pool of money, collected from investors, & is invested
according to certain investment objectives.
A mutual fund is created when investors put their money together. It is therefore a
pool of the investors funds. The most important characteristic of a mutual fund is
that the contributors & the beneficiaries of the fund are the same class of people,
namely the investors. The term mutual means that investors contribute to the pool,
& also benefit from the pool. There are no other claimants to the funds. The pool of
funds held mutually by investors is the mutual fund.
A mutual funds business is to invest the funds thus collected, according to the
wishes of the investors who created the pool. In many market these wishes are
articulated as investment mandates. Usually, the investors appoint professional
investment managers, to manage their funds. The same objective is achieved when
professional investment managers create a product, and offer it for investment to
the investors. This product represents a share in the pool, & pre-states investment
objectives.

CONCEPT OF MUTUAL FUNDS


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Characteristics of Mutual Funds


A mutual fund actually belongs to the investors who have pooled their
funds. The ownership of the mutual fund is in the hands of the investors.
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A mutual fund is managed by the investment professionals & other service


providers, who earn a fee for their services, from the fund.

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


value of the portfolio is updated every day.

The investors share in the fund is denominated by units the value of the
units change with the change in the portfolios value, everyday. The value of
one unit of investment is called as the Net Asset Value or NAV.

The investment portfolio of the mutual fund is created according to the stated
investment objective of the fund.

Advantages of Mutual Funds


Portfolio Diversification

By offering readymade diversified portfolios, mutual funds enable investors


to hold diversified portfolio. Though investors can create their own
diversified portfolios, the costs of creating and monitoring such portfolios
can be high, apart from the fact that investors may lack the professional
expertise to manage sucha portfolio.

Professional Management

Mutual fund are managed by investment managers(AMCs) who are


appointed by trustees & bound by the investment management
agreement, on the hows & whys of their investment management
functions.

AMCs are also required to be adequately capitalized, & are closely


regulated by SEBI. AMCs competing for funds under management
therefore bring in significant professional expertise & are bound by
regulatory & trustee supervision.

Investment managers & funds are also bound by the AMFI code of
ethics, which foster professional standards in the industry.
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Reduction in risk

Mutual funds invest in a portfolio of securities. This means that all the funds
are not invested in the same investment avenue. It is well known that risk &
returns of various investment options do not move uniformly or in sympathy
with one another. Therefore, holding a portfolio that is diversified across
investment avenues is a wise way to manage risk. When such a portfolio is
liquid & marked to market, it enables investors to continuously evaluate the
portfolio & manage their risks more efficiently.

Reduces Transaction cost

Mutual funds provide the investors the benefit of economies of scale, by


virtue of their size. Though the individual investors contribution may be
small, the mutual fund is large enough to be able to reduce costs. These
benefits are passed on to the investors.

Liquidity

Most of the funds being sold today are open-ended. That is, investors
can sell their existing units, or buy new units, at any point of time, at
prices that are related to the NAV of the fund on the date of the
transaction. This enables investors to enjoy a high level of liquidity on
their investments.

Since investors continuously enter & exit funds, funds are actually
able to provide liquidity to investors, even if the underlying markets,
in which the portfolio is invested, may not have the liquidity that the
investor seeks.
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Disadvantages

No control over cost

Since investors do not directly monitor the funds operations they cannot
control the costs effectively. Regulators therefore usually limit the expenses
of mutual funds.

No tailor-made portfolio

Mutual fund portfolios are created and marketed by AMCs, into which
investors invest. They cannot create tailor made portfolios.

Managing a portfolio of funds

As the number of mutual fund increase, in order to tailor a portfolio for


himself, an investor may be holding a portfolio of funds, with the costs of
monitoring them & using them, being incurred by him.
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TYPES OF MUTUAL FUNDS


There are various types of mutual fund schemes available in the market. Currently there are
5373 mutual funds schemes available in the Indian market. Broadly the various types of mutual
funds are differentiated on the basis of:
On the basis of STRUCTURE, mutual funds can be divided into 3 types:
a) Open Ended Schemes

It is the pool of fund which is open for sales & repurchases. An open-end fund is one that
is available for subscription all through the year. These do not have a fixed maturity.
Investors can conveniently buy and sell units at NAV related prices. Therefore both the
amount of funds that the mutual fund manages & the number of units vary everyday. The
key feature of open-end schemes is liquidity.

Open-ended funds have to balance the interests of investors who come in, investors who
go out & investors who stay invested. Open-ended funds are offered for sale at a pre-
specified price, in the initial offer period. After a pre-specified period, the fund is declared
open for further sales & repurchases. These transactions happen at the computed NAV
related price.

b) Closed Ended Schemes

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15
years. The fund is open for subscription only during a specified period. Investors can
invest in the scheme at the time of the initial public issue and thereafter they can buy or
sell the units of the scheme on the stock exchanges where they are listed. Therefore new
investors buy from the existing investors, & existing investors can liquidate their units by
selling them to other willing buyers. In a closed end funds, thus, the pool of funds can
technically be kept constant.

The price at which units can be sold or redeemed depends on the market prices, which is
fundamentally linked to the NAV.

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. SEBI Regulations stipulate that at least one of the two exit routes is provided to
the investor.

c) Interval schemes
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Interval Schemes are that scheme, which combines the features of open-ended and close-
ended schemes. The units may be traded on the stock exchange or may be open for sale or
redemption during pre-determined intervals at NAV related prices.

On the basis of INVESTMENT OBJECTIVE, mutual funds can be divided into 4 types:
a) Growth Option

Growth Schemes are also known as equity schemes. The aim of these schemes is to
provide capital appreciation over medium to long term. These schemes normally
invest a major part of their fund in equities and are willing to bear short-term decline
in value for possible future appreciation.

In it incomes earned are retained in the investment portfolio, & allowed to grow, rather
than being distributed to the investors.

The return to the investors is at the rate at which his initial investment has grown over
the period for which he was invested in fund. The NAV will vary with the value of the
investment portfolio while the number of unit held will remain constant.

b) Income Scheme

Income Schemes are also known as debt schemes. The aim of these schemes is to
provide regular and steady income to investors. These schemes generally invest in
fixed income securities such as bonds and corporate debentures. Capital appreciation
in such schemes may be limited.

c) Balanced Funds

Funds that invest both in debt & equity markets are called balanced funds. Balanced
Schemes aim to provide both growth and income by periodically distributing a part of
the income and capital gains they earn. A typical balanced fund would be almost
equally invested in both the markets. A balanced fund also tends to provide investors
exposure to both equity & debt markets in one product. Therefore the benefits of
diversification get further enhanced, as equity & debt markets have different risk and
return profiles.

d) Money Market Schemes


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Money Market Schemes aim to provide easy liquidity, preservation of capital and
moderate income .These debt funds invest only in instruments with a maturity less
than a year. The investment portfolio is very liquid, & enables investors to hold their
investments for very short horizons of a day or more. These schemes generally invest
in safer, short-term instruments, such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money.

On the basis of NATURE, mutual funds can be of 3 types:

a) Equity 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 funds can be further divided into 4 types:

Simple equity funds

These funds invest a pre-dominant portion of the funds mobilized in equity &
equity related products. In most cases about 80-90% of their investments are in
equity shares. These funds have the freedom to invest both in primary & secondary
markets for equity.

Sector Specific funds

These funds choose to invest in one or more chosen sectors of the equity markets.
These sectors could vary depending on the investor preference & the return-risk
attributes of the sector. Sector specific funds are not as well diversified as simple
equity funds, as they tend to focus on fewer sectors in the equity funds, as they tend
to focus on fewer sectors in the equity markets. They can exhibit very volatile
returns.
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Tax Saving Funds(ELSS)

One variation of the simple equity fund is the ELSS (Equity Linked Saving
Schemes). These funds, named variously in the mutual fund industry, are equity
funds formed under a special scheme notified by the Government of India in 1990.
According to the provisions of this notification, investment in a specially formed
mutual fund product, that invest at least 90% of its funds in equity & equity-linked
investments is eligible for a tax rebate, up to a maximum investment of Rs. 10,000,
under section88 of the Income Tax Act. Investors have to hold their units for a
minimum lock-in period of 3 years, in order to avail of the tax rebate.

Primary market funds

These funds invest in equity shares, but do so only when a primary market offering
is available. The focus is on capturing the opportunity to buy those companies
which issue their equity in primary markets, either through a public offer or
through private placements.

Index funds

It is an alternative approach to creating an equity portfolio for investors, is to avoid


taking views on the performance of companies, & instead focus on creating a
diversified portfolio, that simply replicates an existing market index. In order to
track the return performance of markets, market indices of a sub-set of trading
stocks is created.

This strategy is also called passive fund management. The costs of this strategy are
lower, & the fund performance virtually tracks the market index. An index fund
provides an ideal exposure to equity markets, without the investors having to bear
the risks & costs arising from the market views that a fund manager may take.

Other equity funds

Equity funds can also be created to invest in equity shares of companies with
specific attributes. For Example, there are small stock funds, which invest only in
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equity shares of small companies; there are PSU funds which specialize in
investing only in PSU stocks; there is a top 200 fund, which invests in companies
within the universe of the top 200 equity stocks; there is a select equity fund, which
invests from the universe of stocks comprising the A group companies of the
Bombay Stock Exchange; & there is a 30-stock fund that limits the number of
stocks in its portfolio to 30 stocks. All these products try to define a subset of the
equity market, in terms of size &other attributes, & tend to focus on that segment.

b) Debt Funds

Debt funds are those that pre-dominantly invest in debt securities. Since most debt
securities pay periodic interest to investors, these funds are also known as income
funds. However, investing in debt products can also offer a growth option to their
investors. The universe of debt securities comprises of long term instruments such as
bond issues by central & state governments, public sector organizations, public
financial institutions & private sector companies; and short term instruments such as
call money lending, commercial papers, certificates of deposit; & treasury bills. Debt
funds tend to create a variety of options for investors by choosing one or more of these
segments of the debt markets in their investment portfolio. Debt funds can be further
divided into 5 types:

Gilt Funds

A gilt fund invests only in securities that are issued by the government, & therefore
does not carry any credit risk. These funds invest in short & long-term securities
issued by the government. These funds are preferred by institutional investors who
have to invest only in government paper. These funds also enable retail investors to
participate in the market for government securities, which is otherwise a large-
ticket wholesale market.
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Income Funds

These funds invest a major portion into various debt instruments such as bonds,
corporate debentures and Government securities

MIPs

These funds invest maximum of their total corpus in debt instruments while they
take minimum exposure in equities. It gets benefit of both equity and debt market.
These scheme ranks slightly high on the risk-return matrix when compared with
other debt schemes.

Short Term Plans(STPs)

These funds are meant for investment horizon for three to six months. These funds
primarily invest in short term papers like Certificate of Deposits (CDs) and
Commercial Papers (CPs). Some portion of the corpus is also invested in corporate
debentures.

Liquid funds

These funds are also known as Money Market Schemes, These funds provide easy
liquidity and preservation of capital. These schemes invest in short-term
instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These
funds are meant for short-term cash management of corporate houses and are meant
for an investment horizon of 1day to 3 months. These schemes rank low on risk-
return matrix and are considered to be the safest amongst all categories of mutual
funds.

c) Balanced Funds

As the name suggest 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 schemes aim to provide investors
with the best of both the worlds. Equity part provides growth and the debt part
provides stability in returns. The benefits of diversification get further enhanced,
as equity & debt markets have different risk &return profiles.
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CONSTITUTION OF A MUTUAL FUND

The structure of mutual funds in India is governed by the SEBI (mutual fund)
Regulations, 1996. These regulations make it mandatory for mutual funds to have a
three-tier structure of Sponsor-Trustee-Asset Management Company (AMC). The
sponsor is the promoter of the mutual fund, & appoints the Trustees. The trustees
are responsible to the investors in the mutual fund, & appoint the AMC for
managing the investment portfolio. The AMC is the business face of the mutual
fund, as it manages all the affairs of the mutual fund. The mutual fund & the AMC
have to be registered with SEBI.

SEBI regulations also provide for who can be a sponsor, trustee & AMC, &
specify the format of agreements between these entities. These agreements provide
for the rights, duties & obligations of these three entities. These agreements provide
for the rights, duties & obligations of these three entities.
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Sponsor

The sponsor is the promoter of the mutual fund. The sponsor establishes the mutual fund
& registers the same with SEBI.

Sponsor appoints the trustees, custodians & the AMC with prior approval of
SEBI, & in accordance with SEBI Regulations.

Sponsor must have at least 5-year track record of business interest in the
financial markets.

Sponsor must have been profit making in at least 3 of the above 5 years.

Sponsor must contribute at least 40% of the capital of the AMC.

Trustee

The mutual fund, which is a trust, is managed either by a Trust company or a board of
Trustees. It is the responsibility of the trustees to protect the interest of investors, whose
fund is managed by the AMC. The AMC & other functionaries are functionally
accountable to the trustees.

Asset Management Company (AMC)

The mutual fund is operated by a separately established asset management company


(AMC). It manages the funds of the various schemes. It is entrusted with the specific task
of mobilizing funds under the scheme.

The trustee, on the advice of the sponsor, usually appoints the AMC. The trust deed
authorizes the trustee to appoint the AMC. The AMC is usually a private limited
company, in which the sponsors & their associates or joint venture partners are
shareholders. The AMC has to be SBI registered entity, & should have a minimum net
worth of Rs. 10 crores.

Following are the various types of AMCs we have in India

AMCs owned by banks


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AMCs owned by financial institutions

AMCs owned by the Indian private sector company

AMCs owned by foreign institutional investors

AMCs owned jointly by Indian & foreign sponsors.

Custodian

Custodians are responsible for the securities held in mutual funds portfolio. They
discharge an important back-office function, by ensuring that securities that are bought,
delivered & transferred to the books of the mutual funds, & those funds are paid out when
a mutual fund buys securities. They keep the investment account of the mutual fund, &
also collect the dividends and interest payments due on the mutual fund investments.
Custodians also track corporate actions like bonus issues, right offers, offer for sale, buy
back & open offers for acquisition.

Registrars & Transfer


Agents (R & T Agents)

The R & T agents are responsible for the investor servicing functions, as they maintain
the records of investors in mutual funds.

They process investor


applications.

Record details provided


by the investors on application forms.
26

Send out to investor


details regarding their investments in mutual fund.

Send out periodical


information on the performance of mutual funds.

Process dividend payout


to investors

Incorporate changes in
information as communicated by investors.

Keep the investment


record up to date, by recording new investors & removing investors who have
withdrawn their money.

NET ASSET VALUE (NAV)


NAV represents the actual value of per unit of a fund. It is calculated as:
(Market value of all investments + Income + Profit Loss - Expenses)
Number of units in the mutual fund
The above components stand for:
Market value of all the investments

Every security in the funds portfolio has a market value. The value of the entire portfolio
is calculated to reach this figure. It is here that any capital appreciation or depreciation of
the portfolio is reflected.

Income
27

This is the interest income earned by debt securities or dividend income earned by stocks
in the portfolio.

Profit

This is the capital gain realized by selling a security (debt or equity) at a price higher than
its purchase price.

Loss

This is the capital loss suffered by selling a security (debt or Equity) at a lower price than
its purchase price.

Expenses

This is the actual expenses incurred by the fund. For example, fees paid to AMC,
custodians, registrars etc., SEBI restricts the expenses that can be paid by the fund.

2 facts emerge from the above:


All the income, expenses , profits & losses of a mutual fund are reflected in one
single number its value, i.e. its NAV

Market Value of investments is a major determinant of NAV. Thus, a mutual


fund will reflect market conditions.

NATURE OF INCOME DISTRIBUTION TO INVESTORS


Mutual fund offers a variety of options to investors, in the manner in which the
returns from their investments are structured. At a broad level, the investors have 3
options which are:
Dividend Option

Investors, who choose a dividend option on their investments, will receive


dividends from the mutual funds, as & when dividends are declared.
28

Dividends are paid in the form of warrants, or are directly credited to


investors bank account.

Growth option

Investors who do not require periodic income distributions can choose the
growth option, where the income earned are retained in the investment
portfolio, & allowed to grow, rather than being distributed to the investors.
Investors with longer-term investment horizons, & limited requirements for
income, choose this option. The return to the investors is at the rate at which
his initial investment has grown over the period for which he was invested in
the fund. The NAV of the investor choosing this option will vary with the
value of the investment portfolio, while the number of units held will remain
constant.

Re-investment Option

Investors re-invest the dividends that are declared by the mutual fund, back
into the fund itself, at NAV that is prevalent at the time of re-investment. In
this option, the number of units held by the investor will change with every
re-investment. The value of the units will be similar to that under the
dividend option.

SELECTION OF FUNDS
29

Following are the steps recommended by John Bogle, former chairman of


Vanguard Group of Funds in United States:
For Equity funds

Classify the equity funds into broad categories that signify their return
& risk characteristics.

Classify funds further on the basis of fund manager style. Investors


may want to choose between value & growth styles, depending on their
risk & return preferences

Evaluate the performance of the schemes. This is done both within the
peer group, & comparison with the bench mark

Under the structural characteristics of the scheme like Size of the fund,
fund age, portfolio managers experience, and costs of investing.

Understanding the portfolio characteristics of the scheme like


percentage of cash in portfolio, market capitalization of the fund,
portfolio turnover, portfolio risk, and statistics-ex marks of the portfolio,
beta, and gross dividend yield.

The performing fund will have higher ex marks, lower beta, & higher
gross dividend yield.

For Debt/Bond funds

Fund age & size Newer & smaller fund may not be risky to the
investors.

Relative Yield the total return on the fund may not be risky to the
investors.

Costs expenses ratio in a bond fund is very important, higher loads &
expenses could lead to a yield sacrifice.

Quality of the portfolio Better the rating of the bonds in the portfolio,
better the fund.

Average maturity the duration of the portfolio, and therefore is related


to the average maturity. Higher the average maturity means higher
interest rate risk in the fund.
30
31

WHY AN INVESTOR LEAVES A FUND


Change in a Fund's Manager
When investors put their money into a fund, they are putting a certain
amount of trust into the fund manager's expertise and knowledge, which
they hope will lead to an outstanding return on an investment that suits their
investment goals. Thus, fund manager plays an important role when
investors put in their money in mutual funds.

Change in Strategy
If investors research their fund before investing in it, they most likely
invested in a fund that accurately reflects their financial goals. If their fund
manager suddenly starts to invest in financial instruments that do not reflect
the mutual fund's original goals, they may want to re-evaluate the fund you
are holding. For example, if a small-cap fund starts investing in a few
medium or large-cap stocks, the risk and direction of the fund may change.

Consistent Underperformance
This can be tricky since the definition of "underperformance" differs from
investor to investor. If the mutual fund returns have been poor over a period
of less than a year, then investors may not liquidate, thinking that
liquidating their holdings in the portfolio may not be the best idea since the
mutual fund may simply be experiencing some short-term fluctuations.
However, if they have noticed significantly poor performance over the last
two or more years, they may liquidate their holdings.

The Fund Becomes Too Big


In many cases a fund's quick growth can hinder performance. The bigger the
fund, the harder it is for a portfolio to move assets effectively. Fund size
usually becomes more of an issue for focused funds or small-cap funds,
which either deal with a smaller number of shares or invest in stock that has
low volume and liquidity.

Latest Asset under Management for all Mutual Fund Houses

Amount in
crores
MUTUAL FUND NO. OF 32 ASSET UNDER MANAGEMENT
NAME SCHE- As on Mar As on Feb Net Inc/Dec as
MES 31,2008 29,2008 on Mar 31,2008

ABN AMRO Mutual 325 6675.73 6813.54 -137.81


Funds
AIG Global Investment 54 3,148.63 3,303.49 -154.86
Group Mutual Fund
Benchmark Mutual 12 5611.00 4,954.72 656.28
Fund
BIRLA Mutual Funds 330 34750.00 36,391.00 -1641
BOB Mutual Funds 22 70.34 79.69 -9.35
Canara Robeco Mutual 54 2484.28 3,146.58 -662.3
Fund
DBS Chola Mutual 80 1,963.92 2,953.32 -989.4
Fund
Deutsche Mutual Fund 176 11996.00 14,404.85 -2408.85
DSP Merrill Lynch 207 19136.00 19,940.40 -804.4
Mutual Fund
Escorts Mutual Funds 26 175.8 146.93 28.87
Fidelity Mutual Funds 39 8294.05 9,487.17 -1193.12
Franklin Templeton 225 29604.33 29,424.58 179.75
Investments
HDFC Mutual Funds 351 43762.7 46,291.97 -2529.27
HSBC Mutual Funds 212 13953.08 15,530.08 -1577
ICICI Prudential 416 51810.85 62,008.95 -10198.1
Mutual Fund
ING Mutual Funds 251 9844.71 9,844.71 00.00
JM Financial Mutual 171 11,032.93 12,559.79 -1526.853
Fund

JPMorgan Mutual 9 2081.42 2,481.12 -399.7


Funds
Kotak Mahindra 178 16135.52 19,367.84 -3232.32
Mutual Fund
LIC Mutual Funds 112 13387.40 15,103.00 -1715.6
Lotus India Mutual 212 10057.10 9,763.88 293.22
Funds
Morgan Stanley Mutual 3 3172.00 3,599.49 -427.49
Funds
PRINCIPAL Mutual 151 11,780.02 13,318.69 -1538.67
Funds
Quantum Mutual Funds 6 64.22 65.38 -1.16
Reliance Mutual Funds 331 77210.04 93,531.68 -16321.64
33

As per the graph, we can see there has been a sharp increase in the sales of mutual
funds in the month of January. The volatility of the market started in January.
When the market decreased in January, investors thought that it is correction and
they put in money so as to buy mutual funds at lower NAV. But after the market
crashed on 21st January, investors began to panic. In the month of February there
has been a sharp decrease in the sales of mutual funds. This is because of
34

downward motion of market in February. In March there has been a slight recovery
in the sales.

Balanced funds sales showed the same trend. There had been a sudden increase in
the sales of balanced funds. As balanced funds is the combination of both equity &
debt. So investors who had less risk taking capacity invested in these funds. But
again in February there has been a sharp decline in the sales of balanced funds &
same continued in the month of March.
35

Income funds basically invest in debts. There had been a sharp increase in the sales
in month of January. But a slight decrease in the month of February. There has
been increase in the sales of such funds in March. It is because of their returns are
assured & they are less risk averse.
36

After the volatility of market, investors have developed a negative sentiment. And
it is visible from the sharp increase in the sales of gilt funds. They do not have
credit risk. And they invest in government securities only. Therefore, investors
invested more in the gilt funds. There has been a sharp increase in the month of
February, in spite of the decrease in the mutual funds sales. There has just been a
slight decrease in the month of March. But overall the sales of gilt funds have
increased to a very large extend.
37

Sales of gold funds have increased many folds because people are moving
towards commodities to hedge against inflation or market fall & gold ETF offer
the advantage of not holding physical gold as well as flexibility to sell at any
time & turn to equity or debt because selling instrument is easier rather than
physical quantity & procuring gold is not an easy task plus flexibility is another
reason why gold ETF is preferred against gold
38

These funds basically aim at liquidity. They invest in short term bonds & securities.
These funds also followed the trend. There has been increase in the sales in the
month of January but a slight decrease in the month of February. Again these
funds sales increased in the month of March.

SCOPE OF THE STUDY


The study is confined to the mutual fund investors of Jaipur city of Rajasthan state
of India. The stated investors of Jaipur are currently working here and they all are
investing in mutual funds for last at least two years and recently in Feb Mar
2008 .So the respondents are capable enough to understand the major investment
technicalities and react accordingly.
39

OBJECTIVE
To understand the concept of wealth management & various mutual funds
and what they offer to the investors.

To understand the effect of the changing conditions on the mutual funds

To understand the expectations & various strategies taken by mutual fund


investors under various conditions. How their investment strategies and
expectations changes with changing scenario.

To analysis some of the star ranked mutual funds in the market & compare
them with the Standard Chartereds mutual funds.

To make recommendations to SCB as to cope with changing sentiments of


the investors.

METHODOLOGY USED

Primary data is collected through a questionnaire & collecting answers


from investors to understand the investors needs, choice & strategies under various
conditions. The questionnaire is aimed at gathering firsthand knowledge of
investors point of view.
40

Sample design
Random sampling method is used for collection of data and necessary information
for which sample size of 100 respondents in Jaipur city have been taken for study.

Analysis & Interpretation


The study mainly deals with changed strategies and expectations of Individual
Investors towards Mutual funds in Jaipur city due to the volatility of the market.
Respondents were screened and inclusion was purely on the basis of their
knowledge about Financial Markets, MFs in particular. This was necessary,
because the questionnaire presumed awareness of some basic terminology about
Mutual Funds. The purpose of the survey was to understand mainly their fund
selection behavior, various factors influencing this behavior, their investment
objectives, changing strategies in changing scenario and also the conceptual
awareness level among individual investors. The survey was conducted during
Mar-Apr 2008, among 100 educated, geographically dispersed individual investors
of Jaipur city. Sample of the Questionnaire is given in Annex I 1. The unit of
observation and analysis of survey is only among Individual Investors whose
definition is An Individual who has currently invested in any Mutual Funds. Since
it is an exploratory study no specific hypothesis is formulated.

Since the study is entirely based on the personal opinion of the respondents, the
collected data is presented in tabular form .Pie charts and diagrams are also used as
a presenting tool for the effective presentation. Percentage and majority method has
been used to analyze the responses given by the respondents. For most important
questions the responses have been accepted according to the most frequently
similar responses given by the respondents of one similar group and after that the
whole responses of all respondents were compiled in order to get a clear snap shot
of the investment behavior. So primarily the direct responses according to majority
of sample has been accepted

Secondary data will be collected through internet, magazines. Various


journals, books, various AMCs Fund Fact sheets and Standard Chartered Bank
study material so as to collect information about mutual fund market, stock
exchange and about wealth management.
41

LIMITATIONS OF THE STUDY

1) Geographical constraint - Sample size is limited to 100 educated individual


investors in the city of Jaipur. The sample size may not adequately represent
the national market.

2) Sampling constraints - Simple Random and judgment sampling techniques


is due to time and financial constraints.

3) Time constraint - This study has not been conducted over an extended
period of time having both ups and downs of stock market conditions which a
significant influence on investor s buying pattern and preferences.

FINDINGS OF THE STUDY


1) PERSONAL INFORMATION ABOUT INVESTORS

Under this category investors were asked 5 questions:


42

(a) What is your age?

Basically this question is being asked to study a trend of investment


according to the age of an investor. Age plays an important role in the
investment pattern of a particular person. A person who is younger may
invest more in equity as he can have higher risk appetite. A person who
is in middle age may prefer to invest in balanced funds. A person who is
aged may prefer to invest in debt funds as his risk appetite will be the
lowest. He would not be looking towards long term investments but he
must be looking towards constant returns, so may want to invest in debt
funds.

CATEGORY NO. OF RESPONDENTS


20-30 YRS 30
31-40YRS 30
41-50 YRS 25
550 ABOVE 15

(b) Which investment tool, generally you choose for your


investment purpose.
43

INVESTMENT TOOL NO. OF RESPONDENTS


Bonds 7
Equity 23
Fixed Deposits 4
Gold 25
Mutual funds 40
Others 1

Analysis:
Around 11% investors want to invest in secured instruments like bonds
& FDs

Around 23% are high risk takers. They invest in equity.

Around 25% people invest in gold. It is the second most popular


investment tool. As it has given huge returns in past few months.

Around 40% invests in mutual funds, which shows that they want to
balance between risk and returns.

(c) What is your investment expenditure ratio?


44

INVESTMENT-EXPENDITURE RATIO NO. OF RESPONDENTS


Less than 20% 24
20-80% 36
30-70% 15
40-60% 25
50-50% 0

Analysis:

Around 25% of the investors invest less than 20% of their income.
This is a huge potential base.

The major part lies in the bracket 20-80% ratio.

25% investors invest in the ratio of 40-60% which is less.


45

(d) How stable is your income source?

STABILITY OF INCOME NO. OF RESPONDENTS


Stable 60
Unstable 5
Moderate 25
Fluctuating 10

Analysis:

As 60% investors have a stable income source. Earlier they had a


psychology of investing in stable investment instruments like bonds &
fixed deposits rather than investing in equity market where returns can
be much higher than present investments but they are showing risk
aversion because of the equity markets volatility. Based on this it can
be said that they do not believe in the economical condition of the
country and market stability. But no conditions have changed. People
with stable income are also ready to take risk
25% has moderate income
46

10% has fluctuating. This basically comprises of business men

Only 5% state their income to be unstable

d) Which bank/organization is providing you the investment


services?
47

Analysis:

Only 30% of the investors invest through banks/financial institutes

Out of 100 investors, who invest in mutual funds, 70% do not take
investment services from the bank or any other institute.

There are still large part investors who invest on their own.

2) HOW INVESTORS TAKE INVESTMENT DECISION?

Under this there were 3 different questions asked to the respondents:

(a) Before making an investment decision, how do you conclude


that for which investment instrument you should go for?

REASON FOR INVESTMENT NO. OF RESPONDENTS


According to return analysis 50
According to esteemed group 5
After consultation with financial advisor 15
According to market trend 30
48

Analysis:
As the data show that only 25% respondents of the total
population choose their investment medium after consultation or
according to their peer group. They are not anymore dependent on
what others have to say. They decide for their own money.
75% of respondents follow the return analysis & market trend
method for arriving at an investment decision. This shows that people
have become educated. They know where there money should go.
What are their requirements?

(b) Do you generally invest in popular mutual funds or analyze the funds
& performance before investment decisions?

REASON FOR CHOOSING MUTUAL NO. OF RESPONDENTS


FUND
Follow the popularity 5
Follow the esteemed group 15
Careful analysis of the fund 50
After consultation with financial advisor 30
49

Analysis
Around 50% of people still choose mutual funds after
consultation. These shows that people believe more on what other
advisors has to say rather than making their own decisions

Another 50% do the return analysis & other analysis of the


funds to decide on which fund to invest in

(c)What factors do you keep in mind before investing in mutual


funds?

FACTOR NO. OF RESPONDENTS


Brand Name 20
Product features 5
Quality of service 5
Transparency 5
Past performance 65
50

Analysis:
While choosing a fund the most important thing that matters to
investors is past performance of the mutual funds

Next is the brand name. This shows the brand name inculcates trust
and investors want to invest where they feel that their money is safe.

Other factors like product features & quality services & transparency
are not that important to investors

3) INVESTMENT OBJECTIVE

Simply as the topic may seem, but the investment objective of an


investor forms the base for his investment foray. Investment objective
51

refers to the expectations & requirements that an investor desires his


investment to live up to. Every investment is followed by an investors
attempt to attain some gain out of it. But the GAIN is just not the
capital appreciation that satisfies an investor, its timely attainment is
as mandatory as the realization of gain itself.

The various schemes in the mutual fund industry are designed to suit
the particular investment purpose of the investors. The idea of
customization has penetrated into this industry as well & with the
growing diversified needs of the investors, several schemes are
formulated that help the customer achieving his goal & making his
investment valuable.

This customization is the key reason for the spurt in the investment
avenue. Other than this, at times it may be identified that investors
may hold more than one expectation. In such a case he tries to create a
portfolio for himself that lives up to all his expectations. There are
many counselors who provide counseling in the same avenue basing &
researching their decisions on certain parameters which are small
things but could have the biggest of impact on ones investments.
52

Age also plays an important role in the investment objective. The


model portfolio that has been recommended for investors by Jacobs
for investors according to their life cycle stages is

INVESTORS RECOMMENDED MODEL PORTFOLIO


Young 50% in aggressive equity funds
unmarried 25% in high yield bond funds, growth & income funds
professional 25% in conservative money market funds
Young couple 10% in money market funds
with 2 income 30% in aggressive equity funds
& 2 children 25% in high yield bond funds & long term growth funds
35% in municipal bond funds
Older couple 30% in short term municipal funds
single income 35% in long term municipal funds
25% in moderately aggressive equity
10% emerging growth equity
Recently 35% in conservative equity funds for capital
retired couple preservation/income
25% in moderately aggressive equity for modest capital
growth
40% in money market funds

Under this category there were 4 questions asked:


53

(a) If you have to invest Rs. 100, how will you divide it in the
following categories?

INVESTMENT OBJECTIVE NO. OF RESPONDENTS


Long term(5-6years)/ Capital appreciation
Mid -term(2-3years)/growth appreciation
Short term(monthly)/ Liquidity
54

Analysis:

Around 64% investors are interested in long term investments.


They look at both growth & capital appreciation

Around 25% interested in mid- term returns within the span of 2


to 3 years

Most of the investors look for growth so there are less people
who invests in short term funds

(b) What is your investment objective, while investing in mutual


funds?

INVESTMENT OBJECTIVE NO. OF RESPONDENTS


Growth 45
Liquidity 5
Income 25
55

Balanced 25
Others

Analysis:
As the data show that 45% investors have opted for growth, 25
% income or the liquidity & 30 % for balanced. Here the liquidity and
balanced can be taken as same because they both show short term
object instead of long term object. We can conclude that a majority of
investors show a short term object nearly about 80 % means they are
not investing in the market with a broader horizon of stability of the
economy or the market. The result also describes that they are not
investing in stock market; they are going for the debt market as they
opt for the liquidity or the balanced returns. A lower proportionate of
the growth option show that they do not want to invest for long term
means they may have a view that the stock market will not be able to
perform well in long time. The bull ride of the economy is short in
nature according to their response. Because for obtaining growth in
future they need to invest for long term in stock market. So a lower
response regarding investment in favor of the growth shows that they
still seek security for their savings & they are risk averse.

(c) What is your investment strategy?

INVESTMENT STRATEGY NO. OF RESPONDENTS


Low risk, low return 15
Mid risk, mid return 55
56

High risk, high return 30

Analysis:
Around 30% investors can take high risk. That shows that they
want high returns

Most of the investors are risk averse i.e. they want medium risk.
They want to strike a balance between risk and return

This category is of low risk appetite people who basically


invests in gilts & bonds and have lowest returns

4) CURRENT SENTIMENTS

Under this category there are 3 questions asked to the customers:

(a) What is your view about stock market?


57

VIEW ABOUT STOCK MARKET NO. OF RESPONDENTS


It will decrease further 25
This is the bottom 5
Will decrease further but then recover 40
Will recover now 30

Analysis:

Majority of investors think that market will recover. They think


that it will recover back to its bullish walk

Only 5% thinks that market will stagnate here.

There is another major part of investors that thinks that market


will decrease further. This shows a negative sentiment of the investors
& thus impacts the sale of mutual funds

Another 30% thinks that market will now recover, it will not fall
further.
58

(b) With current scenario, how risky do you find investing in mutual
funds?

RISK IN INVESTING IN MUTUAL FUND NO. OF RESPONDENTS


Low risk 20
Medium risk 45
High risk 30
Very high risk 5

Mutual Fund Risk


very high
5%

low
20%

high
30%

medium
45%

Analysis:

5% investors think that investing in mutual funds is of high risk

20% investors think that investing in mutual funds is of low risk


59

30% think that it is high risk to invest in mutual funds

45% think that investing in mutual fund is of medium risk and this
truly stands in context of mutual funds because mutual funds diversify
the risk to a large extend as compared to equity.
60

(c) As the market is going down, what is your investment strategy?

CHANGED INVESTMENT STRATEGY NO. OF RESPONDENTS


Selling off existing funds 10
Wait & watch 60
Buying more as the NAV is low 30

Analysis:

10% people have negative sentiments. They want to sell of their


existing investments.

60% people say that their strategy is to wait and watch. They
want to give market more time to recover.

30% people take it as an opportunity. They think that market


will recover. This is the time to buy because they are getting a good
deal at very low prices.
61

COMPARATIVE ANALYSIS OF MUTUAL FUNDS


There are around 5343 mutual fund schemes currently in market. It is difficult for
an investor to choose from them. That is where wealth management comes into
play. There are certain mutual funds that are star ranked by the wealth managers.
So these mutual funds are analyzed on the basis of the parameters as per the
investors and to observe the following:
1) Difference between the parameters of the investors & investment managers.

2) Currently star ranked funds catering to the needs of investors

3) Funds

4) Difference between the output of current star ranked funds & expectations of
investors

5) Need for changing the investment strategies.

EQUITY ELSS

Recommendation Recommendation by SCB Recommendation by


Market
Name of the fund Principal Personal Tax Saver Tata tax Advantage fund 1
Last 1 year % 30.3 20.46
Last 3 years % 31.2 28
Since Inception % 31.7 35.1
Total Equity % 121.6 93
Expense Ratio % 2.5 2.22
Corpus (crs.) 360 510
Inception Date 1-Jan-96 10-Apr-99

EQUITY INDEX
Recommendation Recommendation by SCB Recommendation by
Market
Name of the fund ICICI Prudential Index Fund LIC MF Index Fund -
62

Sensex Plan - Growth


Last 1 year % 26.2 18.1
Last 3 years % 34.9 34.01
Since Inception % 27.1 26.69
Expense Ratio % 1.25 2.05
Corpus (crs.) 37 44.23
Inception date 25-Feb-2002 28-Nov-2002
Sharpe .25 .21
Beta 1 .92
Treynor .89 .77

EQUITY LARGE CAP DIVERSIFIED


Recommendation Recommended by SCB Recommended by Market

Name of the fund DSP Merill Lynch Top 100 Templeton India Growth
Equity Fund Fund- Dividend
Last 1 year % 28.1 33.4
Last 3 years % 37.6 31.8
Since Inception % 48.6 21.3
Total Equity % 85 96.8
Expense Ratio % 2.3 2.32
Corpus (crs.) 802 320

EQUITY SECTOR CONCENTRATED

Recommendation Recommended by SCB Recommended by Market


Name of the fund Kotak Oppportunity Fund DSP Merrill Lynch India
Tiger Fund
Last 1 year % 33.7 29.7
Last 3 years % 42.1 42.8
Since Inception % 44.9 45.1
Total Equity % 89.1 90.2
Expense Ratio % 2.29 1.91
Corpus (crs.) 700 3831

BALANCED FUNDS
Recommendation Recommended by SCB Recommended by Market
Name of the fund HDFC Balanced Fund Benchmark Split capital fund
Last 1 year % 13.18 Na
Last 3 years % 21.11 Na
Since Inception % 18.06 14.28
Expense Ratio % 2.21 0
63

Sharpe .20 .19


Beta .82 .87
Treynor .52 .44

FIXED INCOME GILT LONG TERM

Recommendation Recommended by SCB Recommended by Market


Name of the fund ICICI Prudential Gilt Fund HDFC Gilt Fund Long Term
Investment Plan Plan-growth
Last 1 year % 8.2 6.96
Last 3 years % 6.3 4.17
Since Inception % 10.8 7.88
Expense Ratio % 1.15 1.48
Sharpe .12 .05
Beta .80 .77
Treynor .07 .03

LIQUID FUNDS
Recommendation Recommended by SCB Recommended by Market
Name of the fund HDFC Cash Management Principal Money Manager
Fund- Saving Plan Fund-Regular-growth
Last 1 year % 8.2 Na
Last 3 years % 7.0 Na
Since Inception % 6.5 7.78
Expense Ratio % 0.58 Na
Sharpe 2.24 Na
Beta .15 Na
Treynor .3 Na

INVESTMENT PRODUCTS OFFERED BY SCB


Standard Chartered Bank offers other investment products under wealth
management & SCB is a pioneer in them. These can be other products that can be
offered to investors but many investors are not aware of them. These products
include:
Unit linked insurance plan (ULIP)

A unit linked insurance policy is one in which the customer is provided with
a life insurance cover and the premium paid is invested in either debt or
equity products or a combination of the two. In other words, it enables the
buyer to secure some protection for his family in the event of his untimely
64

death and at the same time provides him an opportunity to earn a return on
his premium paid. In the event of the insured person's untimely death, his
nominees would normally receive an amount that is the higher of the sum
assured (insurance cover) or the value of the units (investments).However,
there are some schemes in which the policyholder receives the sum assured
plus the value of the investments.

Every insurance company has four to five ULIPs with varying investment
options, charges and conditions for withdrawals and surrender. Moreover,
schemes have been tailored to suit different customer profiles and, in that
sense, offer a great deal of choice. The advantage of ULIP is that since the
investments are made for long periods, the chances of earning a decent return
are high. Just as in the case of mutual funds, buyers who are risk averse can
buy into debt schemes while those who have an appetite for risk can opt for
balanced or equity schemes. However, the charges paid in these schemes in
terms of the entry load, administrative fees, underwriting fees, buying and
selling charges and asset management charges are fairly high and vary from
insurer to insurer in the quantum as also in the manner in which they are
charged.

Structured notes

A debt obligation that also contains an embedded derivative component with


characteristics that adjust the security's risk/return profile. The return
performance of a structured note will track that of the underlying debt
obligation and the derivative embedded within it. A structured note is a
hybrid security that attempts to change its profile by including additional
65

modifying structures. A simple example would be a five-year bond tied


together with an option contract for increasing the returns.

Arbitrage funds

Arbitrage is a strategy, which involves simultaneous purchase and sale of


identical or equivalent instruments in two or more markets in order to benefit
from a discrepancy in pricing. This strategy normally acts as a shield against
market volatility as the buying and selling transactions offset each other. In
an arbitrage transaction, returns are calculated as the difference between the
futures price and cash price at the time of the transaction. Ideally the
positions are held till the expiry of the futures contract when the offsetting
positions cancel each other and initial price difference is realized. This
arbitrage strategy makes the fund immune to market volatility i.e. the fund
will not be affected by market fluctuations. Since the portfolio of arbitrage
funds is completely hedged at all times to lower the risk of loss/erosion of
gains, it also in turn caps the returns that the fund could have clocked if the
portfolio was not hedged i.e. these funds have a limited upside.

Despite the fact that arbitrage funds offer investors the opportunity to benefit
from investments in equities by making use of derivatives, the fund cannot
be compared to conventional diversified equity funds, especially on the
returns parameter. The returns from arbitrage funds would typically be much
lower than those of equity funds. That could be one reason why despite their
equity holdings, arbitrage funds are benchmarked against indices like
CRISIL Liquid Fund Index for want of a more appropriate index.

Fixed income funds

An investment that provides a return in the form of fixed periodic payments


and the eventual return of principal at maturity. Unlike a variable-income
fund, where payments change based on some underlying measure such as
short-term interest rates, the payments of a fixed-income security are known
in advance. An example of a fixed-income security would be a 5% fixed-rate
government bond where a $1,000 investment would result in an annual $50
payment until maturity when the investor would receive the $1,000 back.
Generally, these types of assets offer a lower return on investment because
they guarantee income.

Portfolio management services(PMS)


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Professional Investment Management Services are no longer the privilege of


only large institutional investors. Portfolio Management Services (PMS) is
one such service that is fast gaining eminence as an investment avenue of
choice for High Net worth Investors l. PMS is a sophisticated investment
vehicle that offers a range of specialized investment strategies to capitalize
on opportunities in the market. The Portfolio Management Service combined
with competent fund management, dedicated research and technology,
ensures a rewarding experience for its clients.

Most portfolio managers allow you to choose between a fixed and a


performance-linked management fee. If you opt for the fixed fee, you may
pay between 2-2.5 per cent of portfolio value; this is usually calculated on a
weighted average basis. The structure for the performance-linked fee differs
across players; usually, this includes a flat fee of 0.5-1.5 per cent. The
portfolio manager also gets to share a percentage of your profit usually
15-20 per cent earned over and above a threshold level, which may range
between 8 per cent and 15 per cent. Apart from management fees, separate
charges will be levied towards brokerage, custodial services and towards
meeting tax payments.

However, a PMS may only add significant value in the following cases:

Equity bias: Portfolio management services may be ideal for a person who
seeks a substantial investment in the stock markets. An equity portfolio also
offers greater scope for a manager to add value than does a debt portfolio.
Several of the established players in the PMS business focus on equity
investments, though some also offer hybrid products.
Large surplus to invest: The minimum portfolio size that portfolio
managers accept for a customized portfolio ranges from Rs 25 lakh to Rs 5
crore.

Real estate Funds

An REMF is like a mutual fund for real estate assets. In other words the asset
management company (AMC) invests in a range of real estate assets around
the country and creates a fund based on those assets. Investors can buy
shares in those funds which are traded on a daily basis on stock exchanges.
The value of the shares depends on the value of the underlying real estate
assets.
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REMFs have many advantages over direct investment in real estate.

It allows investors to invest according to their income and financial


circumstances.
The portfolio of real estate assets will be a lot more diversified than a
single home with assets ranging from office space to residential
properties all around the country as well as securities based on the real
estate sector.
Investors don't have to deal with the legal and maintenance hassles of
owning property and can instead rely on the professional expertise of
the AMCs. Finally if they need quick money, these funds are liquid
assets which can be sold conveniently and rapidly.

RECOMMENDATIONS
Savings Objective of Individual Investors
Savings Objective of the majority of Individual Investors is to invest in moderate
risk , thus throwing light on the nature of risk averse investors. AMC can attract a
pool of investors by designing products for Risk-Averse investors.
But there is also a pool of investors that are ready to take high risk. Nearly 30% of
the investors are ready to take high risk as they want high returns. These investors
can be of high potential for equity based funds.

Savings instrument preference among individual investors


Now only 11% investors invest in secured investments like bond & fixed deposits.
Now they prefer mutual funds over other investments. Around 23% of investors
invest in equity. This group shows the highest risk appetite and thus shows a huge
potential
Around 25% of the investors invest in gold. This is the second most preferred
investment tool next to mutual funds. It also shows a huge potential as now gold
68

ETF are available. And the increase in gold price & thus increase in gold ETF is
very much evident.

Investment expenditure Ratio


Maximum investors show their expenditure ratio of 20-80%. But still around 25%
of investors have income-expenditure ratio of less than 20%. Thus it shows that
still many investors are not investing properly & thus they need professional
investment services.

Stability of income
Around 60% investors have a stable income source. Earlier they had a psychology
of investing in stable investment instruments like bonds & fixed deposits rather
than investing in equity market where returns can be much higher than present
investments but they use to show risk aversion because of the equity markets
volatility. Based on this it can be said that they did not believe in the economical
condition of the country and market stability. But now conditions have changed.
People with stable income are also ready to take risk. More people are ready to
explore new investment avenues. They are ready to invest in various types of
investment.

Investment advice
Around 70% of the investors do not take investment advice. They do investments
on their own. This shows that investors have become more educated. They have
more know- how of the market. But this can also be taken as a potential. Because,
still there are investors who need advice. Standard Chartered Bank should target
such investors.
Around 25% of the investors make investments after consultation with their peer
group or financial advisors. Still around 75% of the investors make investment
decisions on their own by making return analysis or market research.

Preferential Feature in mutual funds among individual investors


The study shows the investors need for Good Return is highest among features,
followed by Safety, Liquidity, Tax Benefit, Capital Appreciation, Professional
Management and Diversification Benefits.

Reason for choosing a mutual fund


The most preferred reason for choosing the mutual fund is the past returns. Around
65% of the investors choose a mutual fund on the basis of past performance. Thus
69

SCB should offer more of those mutual funds that have good track record. Next
most preferred feature is the brand name. In case of an NFO brand name plays an
important role.

Investment strategy
Around 64% of the investors have long term investment strategy. They want to
invest for longer period. For such investors SCB can offer more of equity funds. As
though the market is volatile now but it is going to give huge returns in 3 to 4 years.
As these investors are ready to wait they can be of huge potential.

Preference of Mutual Fund Investing Over Equity Investing


The emergence of an array of savings and investment options and the dramatic
increase in the popularity of Mutual Funds, in the recent years in India, has opened
up an entirely new area for value creation and management. A house-holder
investor with few rupees left over after paying for housing and two wheeler
installments, is puzzled as to where he must park his funds safely, given the
volatility of the market. This category may include people who either have a low
awareness level about MF industry or still do not completely believe that MFs can
get the same return like that of Equity shares. Around 75% of the investors say that
investing in mutual funds, risk ranges from low to medium. This shows that
sentiments of investors have changed towards mutual funds

Sentiments towards market


Around 75% of investors believe that the market will recovers again. This shows a
positive sign for mutual funds. So investors can be offered long term investments
which can give returns.
Around 25% of investors believe that market wont recover. For such investors gilt
funds and money market funds can be offered

Future strategy of investors


Around 60% of investors want to play safe. With current market volatility they
want to wait and watch. Around 30% of the investors are looking at this as an
opportunity to invest more in mutual funds as mutual funds are available at lower
NAVs. This can prove to be a good potential customer base for SCB
70

REFERENCES

www.mutualfundsindia.com

www.google.com

www.amfiindia.com

www.nseindia.com

www.investopedia.com

www.moneycontrol.com

www.wikipedia.com

www.bseindia.com

www.standardchartered.in.com

The Economics Times

Jeffery Lawrence, (2005), Leading the Way

Study material Standard Chartered Bank , (2006), Group code of


Conduct-Leading by Examples

Study material 5Cs sales process, Standard Chartered Bank

ICFAI Press, Mutual Funds, (2004)


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Mutual Funds Handbook, (2004), Invest India Economic Foundation


Private Limited.
72

QUESTIONNAIRE
NAME:-
CONTACT NO. :-
AGE:-
EDUCATION:-
1) Working Profession
Service Retired
Businessman Housewife
Self Employed Others (specify)
Student

2) Which investment tool, generally you choose for your


investment purpose. (can tick more than one)
Bonds Equity
Fixed Deposits Gold
Mutual Funds Others(specify)

3) Before making an investment decision, how do you


conclude that for which investment instrument you should
go for?
According to return analysis
According to esteemed group (ones intra circle,
which is relied by you)
After consultation with your financial adviser
According to market trend.

4) What is your investment expenditure ratio?


Less than 20% 20 80%
73

30 70% 40 60%
50 50%

5) If you have to invest Rs 100, how will you divide it in the


following categories?
Long term (5-6 years)/ Capital appreciation
Mid Term (2-3 years)/ Growth appreciation
Short Term (monthly)/ Liquidity

6) If you have to invest Rs. 100, how will you divide it in the
following investments?
Short Term --------
3 5yrs --------
6 10yrs --------
11 15yrs --------
More than 15yrs --------

7) What is your investment objective, while investing in


mutual funds?
Growth
Income Liquidity
Balanced Others
8) What are the factors that you keep in mind before investing
in mutual funds?
Brand name Product features
Quality of Transparency
service
Others (specify)
Past
performance

9) Do you generally invest in popular mutual funds or analyze


the funds & performance before investment decisions?
74

Follow the popularity


Follow the esteemed group
Careful analysis of the fund
After consultation with financial advisor.

10) What is your investment strategy?


Low risk, low return
Moderate risk, moderate return
High risk, high return

11) What is your view about the stock market?


It will decrease further
This is the bottom
It will decrease further but then will recover
It will recover now

12) As the market is going down, what is your investment


strategy?
Selling off existing funds
Wait &watch
Buying more funds as this is the right time to
purchase

13) With current scenario, how risky do you find investing in


mutual funds?
Low risk High risk
Medium risk Very high risk
75

14) How stable is your income source


Stable
Unstable Moderate
Fluctuating
15) Which bank is providing u the investment services?

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