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In the partial Fulfillment of the Degree Master of Business Administration Submitted to:DEPTT OF BUSINESS ADMINISTRATION Submitted by:ANIL KUMAR MBA 3RD SEM ROLL NO -80802317004
RIMT-Institute of Engineering &Technology (Mandi Gobindgarh)
I, “Anil Kumar” declare that the Research report entitled “MUTUAL FUNDS IN INDIA” being submitted to the PUNJAB TECHNICAL UNIVERSITY for
the partial fulfillment of the summer training of six to eight weeks report.
Place: (Anil Date:
The work on this summer report has been an inspiring, often exciting, sometimes challenging, but always interesting experience for me because for the first time I experience how the corporate world works . I am very grateful to my supervisor “Mr.Mohd Waris” who has given me the chance to participate in interesting research projects on “MUTUAL FUNDS IN INDIA” . He has supported me with his encouragement and many fruitful discussions. I would also like to express my sincere thanks to “MAHINDRA & MAHINDRA FINANCIAL SERVICES Ltd” for chosing me. The close cooperation with my friends other colleagues of mahindra and mahindra,and many other researchers fellowers, without their co-operation it was impossible for me to complete this project. I would also like to thank my parents that they allowed me to go to Delhi for this project and their continous support. Finally, I wish to thank my sincere gratitude to Dr. Bimal Anjum (HOD) MBA DEPTT. RIMT-IET for giving me opportunity to do research under his profound guidance. Because of his inspiring guidance, motivation, positive criticism, continuous encouragement and untiring supervision this work could be brought to its present shape.
I would like to thank all of them who in one way or the other helped me.
The topic given to me is :MUTUAL FUNDS IN INDIA “MUTUAL FUNDS IN INDIA” I have tried to put my best efforts to complete this task on the basis of skill that I have achieved during my management studies at RIMTIET.PREFACE The success of any business entity solely depends on how effectively does it utilizes its optimum resources and how soon does it make arrangements for the removal of the customer’s grievances. 4 . If there is any error or any mistake in collecting the data. Moreover. I have tried to put my maximum effort to get the accurate statistical data. the company should always be ready to make necessary changes according to the requirement in order to attract more customers so as to maintain a substantial growth in the market. please overcome it.
• PERFORMANCE OF MUTUAL FUNDS IN INDIA CHAPTER 3 .PRESENT STUDY 20 • MARKET TRENDS • BANKS V/S MUTUAL FUN • TYPES OF MUTUAL FUNDS • ADVANTAGES & DISADVANTAGES OF MUTUAL FUNDS • MUTUAL FUND CONSTITUENTS • CALCULATION OF NAV 5 .REVIEW OF LITERATURE 14 • A BRIEF HISTORY OF MUTUAL FUNDS. CHAPTER 1 – INTRODUCITON • • • 7 PURPOSE OF THE STUDY EXECUTIVE SUMMARY INTRODUCTION TO THE CONCEPT CHAPTER 2 .CONTENTS Page No.
• MARKETING STRATEGIES ADOPTED BY THE MUTUAL FUNDS • CHALLENGES AND OPPORTUNITIES • REASONS FOR BAD PERFORMANCE OF MUTUAL FUNDS • MARKET SHARE OF MUTUAL FUNDS IN INDIA CAPTER 4 – METHOD • SURVEY METHOD 51 CHAPTER 5 – RESULT 54 CHAPTER 6 – RECOMMENDATIONS 67 CHAPTER 7 – SUMMARY & CONCLUSION 69 CHAPTER 8 – REFRENCES 71 ANNEXURE 73 6 .
CHAPTER 1 – INTRODUCTION 7 .
Besides. this new class of intermediary institutions has emerged. and withdrew from the markets altogether. In India. which in turn required substantial capital. After introduction of free pricing of shares. primary market investors were effectively assured good returns as the issue price of new equity issues was controlled and low. Under similar circumstances in other countries. Unit Trust of India occupied this place as the only capital markets intermediary from 1964 until late 1987. With some ups and downs. many investors who bought highly priced shares lost money. which was not possible for all investors. mutual funds had emerged as professional intermediaries. which is not possible individually with small amount of 8 . when the Government started allowing other sponsors also to set up mutual funds. besides the conventional mode of bank deposits.Purpose of the Study Indian households started allocating more of their savings to the capital markets in 1980’s. selecting securities with growth and income potential from the capital market involved careful research and monitoring of the market. Even those investors who continued as direct investors in the stock markets realized that the key to successful investing in the capital markets lay in building a diversified portfolio. with investments flowing into equity and debt instruments. Mutual funds units are investment vehicles that help small investors to take a big ride through capital market. in India as elsewhere. new issues prices were higher and with greater volatility in the stock markets. Besides providing the expertise in stock market investing. while providing the potential for income and growth that is associated with the debt and equity instruments. as a good alternative to direct investing in capital markets. these funds allow investing in small amounts and yet holding a diversified portfolio to limit risk. Until 1992.
Analyze factors which are considered before investing in mutual funds. By the very nature of their activities. Mutual funds serve as a link between the saving public and the capital markets. investor protection and the health of capital markets. 9 . • • • • • Analyze the type of funds available for the investor Understand the investment pattern of a common investor.investment. and by virtue of being knowledgeable and informed investors. who are the most exploited in Indian capital Market. as they mobilize savings from investors and bring them to borrowers in the capital markets. The present study was undertaken to • Understand the perception of small investors. Importance of Marketing Strategies in mutual funds. It provides a means of participation in the stock market for people who do not have the time not perhaps the expertise to take direct investment decisions in equities successfully. Mutual funds have imparted much needed liquidity into the financial system and challenged the hitherto dominant role of banking and financial institutions in the capital markets. Understand the trends in mutual fund industry. they influenced the stock markets and play an active role in promoting good corporate governance.
As financial markets become more sophisticated and complex. In other words. it is necessary to establish the value of his part. The ownership of the fund is thus join or mutual. One however needs to invest carefully. the fund belongs to all investors. preference shares. There are various choices available to the investor of today. each share or unit that an investor holds needs to be assigned a value. Thus. A mutual fund is a common pool of money into which investors place their contributions that are to be invested in accordance with a stated objective. A mutual fund uses the money collected from investors to buy those assets which are specifically permitted by its stated investment objective.ordinary shares. an equity fund would buy mainly equity assets. It is these assets which are owned by the investors in the same proportion as their contribution bears to the total contributions of all investors put together. A single investor’s ownership of the fund is in the same proportion as the amount of the contribution made by him or her bears to the total amount of fund. 10 . and work out various investment options and decide on how to make best of the investment in terms of monetary benefits. Since each owner is a part owner of a mutual fund.Executive Summary Indian mutual fund industry now represents perhaps the most appropriate investment opportunity for most investors. investors need a financial intermediary who provides the required knowledge and professional expertise on successful investing. warrants etc. Since the units held by an investor evidence the ownership of the fund’s assets.
This is generally called the Net Asset Value (NAV) of one unit or one share. These could range from shares to debentures to money market instruments. professionally managed portfolio at a relatively low cost. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them (pro rata). The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified. The value of an investor’s part ownership is this determined by the NAV of the number of units held. 11 .the value of the total assets of the fund when divided by the total number of units issued by the mutual fund gives us the value of one unit. Each Mutual Fund scheme has a defined investment objective and strategy. Anybody with an inventible surplus of as little as a few thousand rupees can invest in Mutual Funds. Introduction to the concept What is a Mutual fund? A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal.
understand their implications and act speedily. investments. derivatives and other assets have become mature and information driven. Markets for equity shares. A typical individual is unlikely to have the knowledge. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. real estate. bonds and other fixed income instruments. Price changes in these assets are driven by global events occurring in faraway places. skills. An individual also finds it difficult to keep track of ownership of his assets. The large 12 . brokerage dues and bank transactions etc.Mutual Fund Operation Flow Chart A mutual fund is the ideal investment vehicle for today’s complex and modern financial scenario. A mutual fund is the answer to all these situations. inclination and time to keep track of events.
there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. In fact. It is difficult for them to know the development taking place in share market and corporate sector. investments and transaction processing. (b) Lack of funds forbids investors to have a balanced and diversified portfolio. In effect. the mutual fund vehicle exploits economies of scale in all three areas research. (d) To buy shares. Small investors can hardly afford to have ex-pensive investment consultations. Mutual funds for whom? These funds can survive and thrive only if they can live upto the hopes and trusts of their individual members. Today. (c) Lack of professional knowledge associated with investment business unable investors to operate gainfully in the market. These hopes and trusts echo the peculiarities which support the emergence and growth of such in rescue of such investors who come to the rescue of such investors who face following constraints while making direct investments: (a) Limited resources in the hands of investors quite often take them away from stock market transactions. investors have to engage share brokers who are the members of stock exchange and have to pay their brokerage. 13 .pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. Globally. mutual funds collectively manage almost as much as or more money as compared to banks. mutual funds gained popularity only after the Second World War. (e) (f) They hardly have access to price sensitive information in time. the mutual fund in its present form is a 20th century phenomenon. While the concept of individuals coming together to invest money collectively is not new.
14 .(g) Firm allotments are not possible for small investors on when there is a trend of over subscription to public issues.
both quality wise as well as quantity wise. the monopoly of the market had seen an 15 . Before. In the past decade.CHAPTER 2 – REVIEW OF LITERATURE A brief history of Mutual funds in India The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow. Indian mutual fund industry had seen dramatic improvements. but it accelerated from the year 1987 when non-UTI players entered theindustry.
Hence. the total of it is less than the deposits of SBI alone. 16 . it is the prime responsibility of all mutual fund companies. Each phase is briefly described as under. constitute less than 11% of the total deposits held by the Indian banking industry. 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.ending phase. Putting the AUM of the Indian Mutual Funds Industry into comparison.540 bn. The private sector entry to the fund family raised the AUM to Rs. The mutual fund industry can be broadly put into four phases according to the development of the sector. 470 bn in March 1993 and till April 2004. the Assets under Management (AUM) were Rs. First Phase - 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament.6. it reached the height of 1.700 crores of assets under management. The main reason of its poor growth is that the mutual fund industry in India is new in the country. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. The first scheme launched by UTI was Unit Scheme 1964. 67bn. At the end of 1988 UTI had Rs. to market the product correctly abreast of selling. Large sections of Indian investors are yet to be intellectuated with the concept.
Bank of India (Jun 90). under which all mutual funds. The end of 1993 marked Rs.47. 1993 was the year in which the first Mutual Fund Regulations came into being. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. Indian Bank Mutual Fund (Nov 89). with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. 541 crores of assets under management was way ahead of other mutual funds. Also. LIC in 1989 and GIC in 1990.Second Phase - 1987-1993 (Entry of Public Sector Funds) Entry of non-UTI mutual funds.44. 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. Third Phase - 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993. 21. 17 . The Unit Trust of India with Rs. there were 33 mutual funds with total assets of Rs. Punjab National Bank Mutual Fund (Aug 89).805 crores. SBI Mutual Fund was the first followed by Canbank Mutual Fund (Dec 87). except UTI were to be registered and governed. Bank of Baroda Mutual Fund (Oct 92). As at the end of January 2003. giving the Indian investors a wider choice of fund families. The number of mutual fund houses went on increasing. 004 as assets under management. 1. a new era started in the Indian mutual fund industry.
000 crores of AUM and with the setting up of a UTI Mutual Fund. Performance of Mutual Funds in India Let us start the discussion of the performance of mutual funds in India from the day the concept of mutual fund took birth in India. the mutual fund industry has entered its current phase of consolidation and growth. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. It is registered with SEBI and functions under the Mutual Fund Regulations. and with recent mergers taking place among different private sector funds. PNB.29. sponsored by SBI. Though the 1988 year saw some 18 . Unit Trust of India invited investors or rather to those who believed in savings. to park their money in UTI Mutual Fund. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.FourthPhase - since February 2003 This phase had bitter experience for UTI.835 crores (as on January 2003). For 30 years it goaled without a single second player.76. 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. conforming to the SEBI Mutual Fund Regulations. BOB and LIC. It was bifurcated into two separate entities. The year was 1963. The second is the UTI Mutual Fund Ltd. The Specified Undertaking of Unit Trust of India.
the investors disinvested by selling at a loss the in the secondary market. The 1992 stock market scandal. the losses by disinvestments and of course the lack of transparent rules in the whereabouts rocked confidence among the investors. 470 bn. but UTI remained in a monopoly position. The net asset value (NAV) of mutual funds in India declined when stock prices started falling in the year 1992. Some of them were like relaxing investment restrictions into the market. the Assets Under Management rose to Rs. the market regulations did not allow portfolio shifts into alternative investments. mutual funds have not yet recovered. 1.new mutual fund companies. The Assets Under Management of UTI was Rs. The performance of mutual funds in India suffered qualitatively. 67bn. However. some 24 million shareholders was accustomed with guaranteed high returns by the beginning of liberalization of the industry in 1992. and of course investing was out of question. introduction of open-ended funds. people were miles away from the preparedness of risks factor after the liberalization. and paving the gateway 19 . Those days. with funds trading at an average discount of 1020 percent of their net asset value. 67bn. This good record of UTI became marketing tool for new entrants. The supervisory authority adopted a set of measures to create a transparent and competitive environment in mutual funds.540bn. The performance of mutual funds in India in the initial phase was not even closer to satisfactory level. by the end of 1987. People rarely understood. But yes. One more thing to be noted. From Rs. Partly owing to a relatively weak stock market performance. It rose as high as Rs. The expectations of investors touched the sky in profitability factor. in March 1993 and the figure had a three times higher performance by April 2004. Let me concentrate about the performance of mutual funds in India through figures. since only closed-end funds were floated in market. There were rather no choices apart from holding the cash or to further continue investing in shares.
for mutual funds to launch pension schemes. The more the variety offered. the quantitative will be investors. At last to mention. more and more people will be inclined to invest until and unless they are fully educated with the dos and don’ts of mutual funds 20 . as long as mutual fund companies are performing with lower risks and higher profitability within a short span of time. The measure was taken to make mutual funds the key instrument for long-term saving.
CHAPTER 3 – PRESENT STUDY Market Trends 21 .
Mutual funds are now also competing with commercial banks in the race for retail investor’s savings and corporate float money. FMCG and technology sector. While UTI has always been a dominant player on the bourses as well as the debt markets. now competes with as many as 400 odd products and 34 players in the market. while others have decided to close shop by either selling off or merging with others. and even the regulators have become more mature and responsible. New players have come in. The industry is also having a profound impact on financial markets.A lone UTI with just one scheme in 1964. Last six years have been the most turbulent as well as exiting ones for the industry. Funds have shifted their focus to the recession free sectors like pharmaceuticals. Funds collection. UTI still remains a formidable force to reckon with. the new generation of private funds which have gained substantial mass are now seen flexing their muscles. In the current year mobilization till now have exceeded Rs300bn.34 crore during the first nine months of the year as against a net inflow of Rs.604. Total collection for the current financial year ending March 2000 is expected to reach Rs450bn. a system of risk-reward has been created where the corporate sector is Rs100bn per annum over five-year period spanning 1993-98 doubled to Rs210bn in 1998 more transparent then before. The power shift towards mutual funds has 22 . Those directly associated with the fund management industry like distributors. Product innovation is now passé with the game shifting to performance delivery in fund management as well as service. which averaged at less than -99. By rewarding honest and transparent management with higher valuations. 7819.40 crore in the case of public sector funds. Indeed private MFs saw a net inflow of Rs. Funds performances are improving. registrars and transfer agents. by their selection criteria for stocks have forced corporate governance on the industry. What is particularly noteworthy is that bulk of the mobilization has been by the private sector mutual funds rather than public sector mutual funds. Fund managers. In spite of the stiff competition and losing market share.
It is just that Mutual Funds are going to change the way banks do business in the future. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. Low High MUTUAL FUNDS Better Low 23 . The basic fact lies that banks cannot be ignored and they will not close down completely. but this trend is beginning to change. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. mutual fund assets are not even 10% of the bank deposits. (Source: Think-tank. The fund mobilization trend by mutual funds in the current year indicates that money is going to mutual funds in a big way.become obvious.S. boasts of an Asset base that is much higher than its bank deposits. Banks VS Mutual Funds BANKS Returns Administrative exp. Their role as intermediaries cannot be ignored. In India. The U. The coming few years will show that the traditional saving avenues are losing out in the current scenario. India is at the first stage of a revolution that has already peaked in the U. The collection in the first half of the financial year 1999-2000 matches the whole of 1998-99.S. The Financial Express September. 99) This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk.
Risk Investment options Network Low Less High penetration Moderate More Low but improving Liquidity At a cost Better Quality of assets Not transparent Transparent Interest Minimum balance between 10th. To achieve these objectives mutual funds adopt different strategies and accordingly offer different schemes of investments. thanks to technology and increased awareness. marketing and aggressive concept selling will drive savings into the lap of the Indian Mutual Fund industry in the next millennium. fund managers predicted at the Second Economic Times Roundtable on mutual funds held last week. & 30th. On this basis 24 . Innovative distribution. they said . Of everyEveryday calculation Guarantee month Maximum Rs. would lead to more investors putting their money into mutual funds. Fund chiefs predicted that ease of transactions. when small savings account s too began moving into mutual funds.1 lakh on deposits None Bankers better watch out! The Indian mutual fund industry will soon start relieving the banking system of its prized deposits. The day was not far. Types of Mutual Funds Any mutual fund has an objective of earning income for the investors and/ or getting increased value of their investments.
Otherwise. The portfolio mix of such schemes has to be investments. i. The reason is that investor can any time approach mutual fund for sale of such units. which are actively traded in the market. A. Such fund stands ready to buy or sell its securities at any time. Since there is always a possibility of withdrawals. This is the reason that generally open-ended schemes are equity based. Further.. it will not be possible to calculate NAV. It implies that the capitalization of the fund is constantly changing as investors sell or buy their shares. Moreover. (a) OPERATIONAL CLASSIFICATION Open Ended Schemes: As the name implies the size of the scheme (Fund) is open – i.e. Moreover. No minute to minute fluctuations in rates haunt the investors. open-ended and close-ended which are offered by the mutual funds. No intermediaries are required. desiring frequently traded securities. In such funds. Any portfolio scheme can be either open ended or close ended. option to reinvest its dividend is also available. the management of such funds becomes more tedious as 25 . Open-ended schemes have comparatively better liquidity despite the fact that these are not listed. Portfolio classification projects the combination of investment instruments and investment avenues available to mutual funds to manage their funds. the realizable amount is certain since repurchase is at a price based on declared net asset value (NAV). Entry to the fund is always open to the investor who can subscribe at any time.. the shares or units are normally not traded on the stock exchange but are repurchased by the fund at announced rates.the simplest way to categorize schemes would be to group these into two broad classifications: Operational Classification and Portfolio Classification. open-ended schemes hardly have in their portfolio shares of comparatively new and smaller companies since these are not generally traded. Operational classification highlights the two main types of schemes. not specified or pre-determined.e.
B. i. Crisis may be on two fronts. Their price is free to deviate from NAV. (b) Close Ended Schemes: Such schemes have a definite period after which their shares/ units are redeemed. In India as per SEBI (MF) Regulations every mutual fund is free to launch any or both types of schemes. i.. to match quick cash payments. (b) Investment Pattern. He could very well have to sell his most liquid assets. i. 26 . funds cannot have matching realization from their portfolio due to intricacies of the stock market. If one takes into account the issue expenses. which may be offered. Close ended fund units trade among the investors in the secondary market since these are to be quoted on the stock exchanges.e. Their price is determined on the basis of demand and supply in the market. by virtue of this situation such funds may fail to grab favorable opportunities. Fund managers have to face questions like ‘what to sell’. their corpus normally does not change throughout its life period. one is. these funds have fixed capitalization. Thus. This classification may be on the basis of (a) Return. success of the open-ended schemes to a great extent depends on the efficiency of the capital market. PORTFOLIO CLASSIFICATION OF FUNDS: Following are the portfolio classification of funds.e. Their liquidity depends on the efficiency and understanding of the engaged broker. Second. conceptually close ended fund units cannot be traded at a premium or over NAV because the price of a package of investments.e. there is every possibility that the market price may be above or below its NAV. that unexpected withdrawals require funds to maintain a high level of cash available every time implying thereby idle cash. Unlike open-ended funds.managers have to work from crisis to crisis.. Further.. cannot exceed the sum of the prices of the investments constituting the package. Whatever premium exists that may exist only on account of speculative activities.
(d) Leverage and (e) Others. Such funds which offer a blend of immediate average return and reasonable capital appreciation are known as “middle of 27 . Obviously. (a) Return based classification: To meet the diversified needs of the investors. iii. These funds can further be splitted up into categories: those that stress constant income at relatively low risk and those that attempt to achieve maximum income possible. the higher the potential risk of the investment. An investor who selects such funds should be able to assume a higher than normal degree of risk. Income funds are floated. Conservative Funds: The fund with a philosophy of “all things to all” issue offer document announcing objectives as: (i) To provide a reasonable rate of return. Such funds invest in growth oriented securities which can appreciate through the expansion production facilities in long run. Their objective is to maximize current income. Such funds distribute periodically the income earned by them. Returns expected are in form of regular dividends or capital appreciation or a combination of these two. even with the use of leverage. (iii) To achieve capital appreciation consistent with the fulfillment of the first two objectives. Growth Funds: Such funds aim to achieve increase in the value of the underlying investments through capital appreciation. Income Funds: For investors who are more curious for returns. the higher the expected returns. (ii) To protect the value of investment and. ii. the mutual fund schemes are made to enjoy a good return.(c) Specialized sector of investment. i.
(b) Investment Based Classification: Mutual funds may also be classified on the basis of securities in which they invest. Balanced Fund: The funds. unestablished companies. invest most of their investible shares in equity shares of companies and undertake the risk associated with the investment in equity shares. 28 . because these have almost all their capital in equity. as the name implies. Obviously risk is low in such funds. it is renaming the subcategories of return based classification. The emphasis is on liquidity and is associated with lower risks and low returns. Such funds are clearly expected to outdo other funds in rising market. The strength of these funds is the expected capital appreciation. Basically. etc. Naturally. Such funds will put more emphasis on equity share investments when the outlook is bright and will tend to switch to debentures when the future is expected to be poor for shares. iii. Such funds have been most popular and appeal to the investors who want both growth and income. this type of fund is expected to be very secure with a steady income and little or no chance of capital appreciation.the road” funds. Equity funds again can be of different categories varying from those that invest exclusively in high quality ‘blue chip’ companies to those that invest solely in the new. In this category we may come across the funds called ‘Liquid Funds’ which specialize in investing short-term money market instruments. are known as balanced funds. which have in their portfolio a reasonable mix of equity and bonds. Bond Funds: such funds have their portfolio consisted of bonds. debentures. Equity Fund: Such funds. Such funds divide their portfolio in common stocks and bonds in a way to achieve the desired objectives. they have a higher degree of risk. ii. i.
even if some securities lose value. 29 . These managers decide what securities the fund will buy and sell.(c) Sector Based Funds: There are number of funds that invest in a specified sector of economy. Other securities in the portfolio will respond to the same economic conditions by increasing in value. • Regulatory oversight: Mutual funds are subject to many government regulations that protect investors from fraud. For example. These funds are characterized by high viability. the value of the overall portfolio should gradually increase over time. economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Sector based funds are aggressive growth funds which make investments on the basis of assessed bright future for a particular sector. When a portfolio is balanced in this way. the policy of specializing has the advantage of developing in the fund managers an intensive knowledge of the specific sector in which they are investing. While such funds do have the disadvantage of low diversification by putting all their all eggs in one basket. Advantages & Disadvantages of Mutual Funds Advantages of Mutual Funds The advantages of investing in a Mutual Fund are: • Diversification: The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. hence more risky. • Professional Management: Most mutual funds pay topflight professionals to manage their investments.
make a call. Expenses for Index Funds are less than that. or over the Internet. Write a check. • Convenience: You can usually buy mutual fund shares by mail. • Low cost: Mutual fund expenses are often no more than 1. Investors encounter fewer risks when they invest in mutual 30 . no matter how balanced the portfolio. the value of mutual fund shares will go down as well.• Liquidity: It's easy to get your money out of a mutual fund. phone. they automatically buy stock in companies that are listed on a specific index • • • • • Transparency Flexibility Choice of schemes Tax benefits Well regulated Drawbacks of Mutual Funds: Mutual funds have their drawbacks and may not be for everyone: • No Guarantees: No investment is risk free.5 percent of your investment. and you've got the cash. If the entire stock market declines in value. because index funds are not actively managed. Instead.
Some funds also charge sales commissions or "loads" to compensate brokers. anyone who invests through a mutual fund runs the risk of losing money. even if you reinvest the money you made. However. you depend on the fund's manager to make the right decisions regarding the fund's portfolio. if you invest in Index Funds.funds than when they buy and sell stocks on their own. most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If the manager does not perform as well as you had hoped. or financial planners. because these funds do not employ managers. • Taxes: During a typical year. you will pay taxes on the income you receive. Mutual fund constituents All mutual funds comprise four constituents – Sponsors. financial consultants. you might not make as much money on your investment as you expected. you will pay a sales commission if you buy shares in a Load Fund. 31 . If your fund makes a profit on its sales. • Management risk: When you invest in a mutual fund. Of course. • Fees and commissions: All funds charge administrative fees to cover their day-to-day expenses. you forego management risk. Even if you don't use a broker or other financial adviser.
default free dealings and general reputation of fairness. such as capital. A fund’s AMC can neither act for any other fund nor undertake any business other than asset management. 100 crore. Fund Managers/ AMC: They are the ones who manage money of the investors. Its net worth should not fall below Rs. The sponsors appoint the Trustee. SEBI can pull up an AMC if it deviates from its prescribed role. and secure necessary approvals. calculates the NAV. whether the fund’s assets are protected. It could be a registered company. They submit reports every six months to SEBI. For major decisions concerning the fund. Trust/ Board of Trustees: Trustees hold a fiduciary responsibility towards unit holders by protecting their interests. and submits quarterly reports to the trustees. An AMC takes decisions. and provides information on listed schemes. 32 . investors get an annual report. Asset Management Company (AMC) and Custodians. and also ensure that unit holders get their due returns. And. the sponsor is just a stakeholder.5 percent of the weekly net asset value. AMC and Custodian. scheduled bank or financial institution. They check if the AMC’s investments are within well-defined limits.25 percent if collections are below Rs. compensates investors through dividends. Trustees are paid annually out of the fund’s assets – 0. It also exercises due diligence on investments. Once the AMC is formed. maintains proper accounting and information for pricing of units. Sponsors: The sponsors initiate the idea to set up a mutual fund. A sponsor has to satisfy certain conditions. record (at least five year’s operation in financial services). its fee should not exceed 1. Trustees float and market schemes.Trustees. 100 crore and 1 percent if collections are above Rs. 10 crore. They also review any due diligence by the AMC. they have to take the unit holders’ consent.
most people refer loosely to the NAV per unit as NAV.Custodian: Often an independent organisation. We also abide by the same convention. safekeeping of the units and segregating assets and settlements between schemes. it takes custody of securities and other assets of mutual fund. ignoring the "per unit". Its responsibilities include receipt and delivery of securities. In other words. if any + Dividends/interest accrued Amount due on unpaid assets 33 . The most important part of the calculation is the valuation of the assets owned by the fund.2 percent of the net value of the holding. if the fund is dissolved or liquidated. This gives rise to the concept of net asset value per unit. The detailed methodology for the calculation of the asset value is given below. It is calculated simply by dividing the net asset value of the fund by the number of units. Once it is calculated. the NAV is simply the net value of assets divided by the number of units outstanding. by selling off all the assets in the fund. collecting income-distributing dividends. this is the amount that the shareholders would collectively own.15-0. Custodians can service more than one fund. represented by the ownership of one unit in the fund. Their charges range between 0. Calculation of NAV The net asset value of the fund is the cumulative market value of the assets fund net of its liabilities. which is the value. Asset value is equal to Sum of market value of shares/debentures + Liquid assets/cash held. However.
For illiquid and unlisted and/or thinly traded shares/debentures. valuation is done on the basis of the last or closing market price on the principal exchange where the security is traded. are calculated on a daily basis. For debentures and bonds. But. Expenses including management fees. The value of fixed interest bearing securities moves in a direction opposite to interest rate changes Valuation of debentures and bonds is a big problem since most of them are unlisted and thinly traded.Expenses accrued but not paid Details on the above items For liquid shares/debentures. the value has to be estimated. dividends are proposed at the time of the Annual General meeting and become due on the record date. with every passing day. This gives considerable leeway to the AMCs on valuation and some of the AMCs are believed to take advantage of this and adopt flexible valuation policies depending on the situation. Interest is payable on debentures/bonds on a periodic basis say every 6 months. accrued interest on a particular day is equal to the daily interest rate multiplied by the number of days since the last interest payment date. Usually. Marketing strategies adopted by the Mutual funds 34 . which is calculated by dividing the periodic interest payment with the number of days in each period. value is estimated on the basis of yields of comparable liquid securities after adjusting for illiquidity. For shares. In the intermediate period. Thus. There is a gap between the dates on which it becomes due and the actual payment date. this could be the book value per share or an estimated market price if suitable benchmarks are available. custody charges etc. at the daily interest rate. interest is said to be accrued. it is deemed to be "accrued".
Answers their queries and is generally successful in taking appointments with those people.40%. the branch officer also called Business Development Associate (BDA) in some funds then meets the prospect and gives him all details about the various schemes being offered by his fund. Advertisements in newspapers and magazines: The funds regularly advertise in business newspapers and magazines besides in leading national dailies. Once the appointment is fixed.The present marketing strategies of mutual funds can be divided into three main headings: • Direct marketing • Selling through intermediaries. Sometimes people belonging to a particular profession are also contacted through phone and are then informed about the fund. Telemarketing: In this case the emphasis is to inform the people about the fund. Some of the important tools used in this type of selling are: Personal Selling: In this case the customer support officer of the fund at a particular branch takes appointment from the potential prospect. The customer support officer (CSO) then mails the literature of the schemes offered by the fund. The purpose to keep investors aware about the schemes offered by the fund and their performance in recent past. The names and phone numbers of the people are picked at random from telephone directory. Generally the conversion rate in this form of marketing is 15% . 35 . The CSO calls on the people to whom the literature was mailed. The conversion rate in this mode of selling is in between 30% . Direct mail: This one of the most common method followed by all mutual funds. • Joint Calls Direct Marketing: This constitutes 20 percent of the total sales of mutual funds. Addresses of people are picked at random from telephone directory. It is then the job of BDA to try his best to convert that prospect into a customer. The follow up starts after 3 – 4 days of mailing the literature.20%.
Joint Calls: This is generally done when the prospect seems to be a high net worth investor. Generally such hoardings are put near UTI offices in order to tap people who are at present investing in UTI schemes. 36 . special training programmes are also conducted for the new agents/ distributors. their present performance in the market. Sometimes. Both the fund and the agent provide even after sale services in this particular case. Training involves giving details about the products of the fund. These are the people/ distributors who are in direct touch with the investors. Regular Meetings with distributors: Most of the funds conduct monthly/bi-monthly meetings with their distributors. Selling through intermediaries: Intermediaries contribute towards 80% of the total sales of mutual funds. Whenever a top official visits a particular branch office. around 60%. Customers prefer to work with those intermediaries who give them right information about the fund and keep them abreast with the latest changes taking place in the market especially if they have any bearing on the fund in which they have invested. The conversion rate is very high in this situation. They perform an important role in attracting new customers. A lot depends on the after sale services offered by the intermediary to the customer. The hoarding and banner generally contains information either about one particular scheme or brief information about all schemes of fund. Meetings with HNI’s: This is a special feature of all the funds. Most of these intermediaries are also involved in selling shares and other investment instruments. what the competitors are doing and what they can do to increase the sales of the fund. This generally develops a faith among the HNI’s towards the fund. The BDA and the agent (who is located close to the HNI’s residence or area of operation) together visit the prospect and brief him about the fund. The objective is to hear their complaints regarding service aspects from funds side and other queries related to the market situation. he devotes atleast one to two hours in meting with the HNI’s of that particular area. They do a commendable job in convincing investors to invest in mutual funds. generally.Hoardings and Banners: In this case the hoardings and banners of the fund are put at important locations of the city where the movement of the people is very high.
Marketing of funds: Challenges and Opportunities When we consider marketing. Timing of the launch of the product. Product designing. Honoring the commitments made for redemptions and repurchase. Choosing the distribution network. includes and encompasses the following aspects: • • • • • • • • • • • • • • Assessing of investors needs and market research. Paying dividends and other entitlements. Finalizing strategies for publicity and advertisement. it means. Sending certificates in time and other after sales activities. Studying performance indicators about fund performance like NAV. Preparing offer documents and other literature. When we say marketing of mutual funds. 37 . Creating positive image about the fund and changing the nature of the market itself. Responding to investors needs. Getting feedback about sales. because we cannot judge an elephant by its trunk or by its tail but we have to see it in its totality. Studying the macro environment. we have to see the issues in totality.
would require a completely different strategy. Consider the geographical spread of the investors in the mutual fund industry. more emphasis has to be given to the electronic media and other forms of publicity such as wall paintings. This is the single largest untapped market for mutual funds in India. unlike the marketing of mutual funds in the metros and urban areas. Considering the vast nature of this country. In fact there are only around 35 centers in the country. broadening and deepening of the market for the mutual fund products. in totality.The above are the aspects of marketing of mutual funds. Typically. Markets in Rural and Semi-Urban Areas There exists a large investor base in rural and semi-urban areas. A. school teachers. and different means of communication to the target customer. the first priority is that the geographic spread has to be widened and the market has to be deepened. but also outside the country. and educational films. It is also important to utilize the services of local intermediaries like gram sevaks. Secondly. Therefore. which account for almost 95% of the funds mobilized. BROADENING AND DEEPENING THE MARKETS There are certain issues that are directly linked with the marketing of mutual funds. WIDENING. Rural marketing. investors in the rural and semi-urban areas are not well educated and are inadequately exposed to the capital market mechanisms. the first of which is widening. Almost 80% of the funds are mobilized from less than 10 centers in the country. postmasters. Even if there is a single weak-link among the factors which are mentioned above. 38 . hoardings. no mutual fund can successfully market its funds. having a population of about one lakh. which normally has access to only post office savings and bank deposits. the mutual funds must try to spread their wings not only within the country.
efficient collection and remittance mechanism. B. not entirely relying upon the investors in the 35 odd cities of the country. coupled with prompt and timely service. Overseas Markets The second aspect with respect to the widening and deepening the market is expanding the overseas investor base. Simplification of literature in regional languages. It is necessary that the common 39 . If offered after sales services of international standard. NRI’s will also require a continuous presence in their market. A target group with large potential. it will naturally give the much needed stability to the market. comprising of the district representatives and the collection centers can be best utilized to create such awareness and expand the market. The expansion of the distribution network and quick dissemination of information. The mutual fund industry can collectively undertake this job of creating awareness among the rural population about the mutual funds as a new form of savings. should help develop these markets. Once the semi urban population gets acquainted with the concept of mutual funds. NRI’s are willing to invest in Indian mutual funds. because that generates trust and confidence. PRODUCT INNOVATION AND VARIETY A.agricultural co-operative societies and rural banks. the investor base will get broader based. The retail distribution network. In other words. reasonable return and easy access to information. By concentrating on these areas. visits by mobile vans with some audio visual aids and the like. It would therefore be more expensive to market mutual funds in such markets than marketing in the cities. Investor Preferences The challenge for the mutual funds is in the tailoring the right products that will help mobilizing savings by targeting investors’ needs. translate that awareness into increased fund mobilsation. will play an important role in mobilizing and retaining these funds. group meetings in these semi-urban and rural areas. which can be tapped is non-resident Indians. the untapped markets in the country should ideally be the first thing that the mutual funds in India should endeavour to tap. which translates into sustained mobilization of funds.
medical expenses. and distinguishes one fund from another. He is not interested in frequently changing his portfolio. He prefers one bird in the hand to two in bush. health care after retirement. Mere growth prospects. 40 . The investor is ready to invest his money over a long periods. provided there is a purpose attached to it which is linked to his social needs and therefore appeals to his sentiments and emotions. festival seasons. sowing seasons. The other area where mutual funds are concentrating is the money market mutual funds. or the need for steady and sure income after retirement. The funds that are being launched today are more or less look-alikes. sectoral funds. Product Innovations With the debt market now getting developed. The expectations of a typical investor. and is happy if assured a rate of reasonable return that he will get on his investment. by floating funds that are designed to primarily have debt instruments in their portfolio. in an uncertain market. but is satisfied with safety and reasonable returns.investor understands very clearly and loudly the salient features of funds. index funds. reasonable return and liquidity. etc. That purpose may be his child’s education and career development. B. are not attractive to him. The Indian investor is essentially risk averse and is more passive than active. The industry can also design separate funds to attract semi-urban and rural investors. gilt funds besides equity funds. In a country where social security and social insurance are conspicuous more by their absence. Importantly. and not necessarily designed to take into account the investors’ varying needs. he understands more by emotions and sentiments rather than a quantitative comparison of funds’ performance with respect to an index. keeping their seasonal requirements in mind for harvest seasons. in order of preference are the safety of funds. mutual funds are tapping the investors who require steady income with safety. mutual funds can pool their resources together and try to mobilize funds to meet some of the social needs of the society. or plain vanilla funds.
Building a team of agents and other distribution network such as distribution and collecting agents and franchise offices. for selling units. in anticipation of getting continuous business throughout the year. This is because. informer and educator. one achieves brand loyalty through continuous interaction between agents and investors. 41 . In such a system. is much higher than in the retail agency system. Retail through agents The alternative distribution channels that are available are selling. shares – provided the market is moving favorably – also attract direct investments from retail investors.DISTRIBUTION NETWORK Among the competitors to the mutual fund industry. retail distribution through the agents is a preferred alternative for distributing mutual fund products. if necessary motivation and incentive is provided to the retailer agents. Savings in advertisement and publicity expenses is also affected. banks with their friendly neighborhood presence offer the advantage of extensive network. Therefore. they are likely to be more successful than the lead managers. Statistics reveal that the wastage ratio of application forms in the lead manager concept. there is a sense of loyalty amongst agents. since the agent will function as a facilitator. will provide the investor the opportunity of having continuous interaction and contact with the mutual fund. as the target of communication is restricted to a few group of individuals. finance companies with their hefty upfront incentives offer higher returns. The experience of UTI has been that. It is against this background that the merits and demerits of the alternative methods of distribution have to be studied. Life Insurance Corporation with its dedicated sales force is offering insurance products. and the trust and credibility that has been generated or will be generated by being loyal to one institution. or using lead managers and brokers along with sub-brokers. The reduced cost benefit will ultimately accrue to the investor in the form of higher returns.
a prior approval by SEBI is a must before a mutual fund can launch its fund. in the offer documents. focusing on scheme features. The present form of application. An investor exposed to the increasing number of mutual fund products finds that all the available brands are rather identical.ADVERTISING AND SALES PROMOTION By their very nature. Under the present mutual fund regulations. mutual funds are required to mention the fund objectives in clear terms. returns and incentives. mutual funds require higher advertisement and sales promotion expenses than any consumer product offering measurable performance. which deserve attention. an aggressive ‘push’ marketing strategy is required for retail markets. the first risk factor that has to be mentioned is that there is no certainty whether the objectives of the fund will be achieved or not. Mutual funds have to provide risk factors. But in a month’s time. where investors are not adequately aware of the product and do not have specialized skill in financial market. Immediately thereafter. publicity literature and offer documents. and will certainly improve the situation. brochures and other literature is generally lengthy. cumbersome and at times complicated leading to higher emphasis on advertisement. For instance. Most of the mutual fund advertisements look similar. One of the limiting factors is the regulatory framework governing advertisements of mutual fund products. a period of one month has been provided. There are certain issues with reference to advertisement. without luring investors through false promises. perhaps the situation may so change. For instance. that the timing of 42 . In the regulation itself. within a broad framework. Different kinds of advertising and sales promotion exercises are required to serve the needs of different classes of investors. and cannot appreciate any distinction. Some more relaxation in these may facilitate bringing more novelty in advertisements. Another hurdle is the statutory disclaimer required to be carried along with every advertisement. in contrast with ‘pull’ marketing strategies for the wholesale market.
will come to the fund again and again. Most of this information if tabulated and analyzed. It is with this attribute along with procedural simplicity. Knowing the customer thoroughly is of utmost importance. but it also contains vital information. would provide important insights into investor needs. defeats the purpose for which the fund was designed also. it is not only an application. given that the performance cannot be promised. it is not possible for mutual fund industry to test market and have pilot projects before launch. Mutual fund managers must give due attention and evaluate their performance on each front. The qualities of services are broadly categorized as: • • Timely services after the sale of the units. QUALITY OF SERVICE This industry primarily sells quality of services. It is in this context that direct marketing will assume increased importance. if satisfied. which normally takes about 2 months’ time. preferences and behavior and enables us to target customers need more accurately. can help reduce network. It is a continuous activity. deeper loyalty and reduced costs.launch gets affected. focusing and concentrating on a particular geographic area where the fund has a strong presence and proven marketing network. They may also consider an option of conducting a service audit for controlling and improving the quality of service. At the same time. Very little research 43 . to achieve better penetration. The requirement for getting approval. and Continuous reporting of investment performance. Unlike the consumer goods industry. MARKET RESEARCH Investment in mutual fund is not a one-time activity. The same investor. When the investor sends his application. can help reduce issue expenses and ultimately translate into higher returns for the investor. that the fund gradually builds its brand and its class of loyal investors.
It consists of individuals. Hindu Undivided Families. and share the information for appropriate use. but the industry can collectively have a data bank. 44 . Safety of principal. Businessmen and firms having occasional surpluses. Time period for investment. HUF’s for long term investment purpose. ii. Retired people. Salaried class people. Dividend or interest income. Market Segmentation Different segments of the market have different risk-return criteria. On the basis of these attributes the mutual fund market may be broadly segmented into five main segments as under. etc.on investor preference is available. iii. Different investment attributes an investor expects in a financial product are: • • • • • • • Liquidity. Not only that. Tax treatment. Regulatory restrictions. It may be further subdivided into: i. on the basis of which they take investment decisions. Capital appreciation. and differential preference for various investments attributes of financial product. 1) Retail Segment This segment characterizes large number of participants but low individual volumes. iv. in a particular segment also there could be different sub-segments asking for yet different risk-return attributes. and firms.
Each class of participants. It consists of various types of trusts. regular income and hedge against inflation rather than liquidity and capital appreciation. and regular income more than capital appreciation. Similarly. educational trust. charitable trusts. public sector units. This class normally looks for more specialized professional investment skills of the fund managers and expects a structured product than a ready-made product. family trust. It has been observed that prospects in different classes of income levels have different patterns of preferences of investment. value and ethics. religious trust. financial institutions. The marketing strategy involving indirect selling through agency network and creating awareness through appropriate media would be more effective in this segment. It consists of banks. each with different objectives. namely. 2) Institutional Segment This segment characterizes less number of participants. Its basic investment need would be safety of the principal. This class offers vast potential to the fund managers. insurance corporations. It requires more of a personalized and direct marketing to sustain and increase volumes. It lacks specialised investment skills in financial markets and highly susceptible to mob behaviour. social environment. and nature of work. media habits. such as banks. if the regulators relax guidelines and allow the trusts to invest freely in mutual funds. this class requires security of the principal. high volumes segment. 45 . provides a niche to the fund managers in this segment. foreign institutional investors. social trust. etc. 3) Trusts This is a highly regulated. the investment preferences for urban and rural prospects would differ and therefore the strategies for tapping this segment would differ on the basis of differential life style. provident and pension funds. Broadly.These may be further classified on the basis of their income levels. The tax features and regulatory restrictions are the vital considerations in their investment decisions. and large individual volumes. liquidity.
They need short term parking place for their fund. They normally prefer easy exit with repatriation of income and principal. The range of suitable products are required to design to divert the funds flowing into bank accounts. which typically become due for the payment within a year or quarter or even a month.4) Non-Resident Indians This segment consists of very risk sensitive participants.. Given the relaxation in the regulatory guidelines. Changes that have taken place since the advent of the Net 46 . 5) Corporates Generally. Alternatively. fund managers are expected design products to this segment. the products also required to be marketed through appropriately different marketing strategies. Marketing to this segment requires special kind of products for groups of foreign countries depending upon the provisions of tax treaties. Not only is that. at times referred as ‘fair weather friends. they also get surplus fund due to the seasonality of the business. each segment and sub-segment have their own risk return preferences forming niches in the market.’ They need the highest cover against political and exchange risk. This segment offers a vast potential to specialized money market managers. the investment need of this segment is to park their occasional surplus funds that earn return more than what they have to pay on account of holding them. They also hold a strategic importance as they bring in crucial foreign exchange – a crucial input for developing country like ours. Thus. Mutual funds managers have to analyze in detail the intrinsic needs of the prospects and design a variety of suitable products for them.
As per SEBI regulations. With smaller administrative costs more funds would be mobilized . sites like AOL offer detailed research and financial details about the functioning of different funds and their performance statistics.line. • In India.25% and equity funds can charge 2.A fund manager must be ready to tackle the volatility and will have to maintain sufficient amount of investments which are high liquidity and low yielding investments to honor redemption. bond funds can charge a maximum of 2. since servicing them would be easier on the Net. • Better advice: Mutual funds could provide better advice to their investors through the Net rather than through the traditional investment routes where there is an additional channel to deal with the Brokers. • New investors would prefer online: Mutual funds can target investors who are young individuals and who are Net savvy. Mutual funds could bring down their administrative costs to 0. the benefits are passed down and hence Mutual Funds are able to attract mire investors and increase their asset base. There are many sites such as 47 .6 million net users who are prime target for these funds and this could just be the beginning. The Internet users are going to increase dramatically and mutual funds are going to be the best beneficiary. • Net based advertisements: There will be more sites involved in ads and promotion of mutual funds. In the U.• Lower Costs: Distribution of funds will fall in the online trading regime by 2003. a is witnessing a genesis in this area . Direct dealing with the fund could help the investor with their financial planning. Therefore if the administrative costs are low.S.75% if trading is done on.5% as administrative fees. • India has around 1. brokers could get more Net savvy than investors and could help the investors with the knowledge through get from the Net.
Returns provided by mutual funds are a function of the returns in the underlying asset class in which the fund invests. Their poor performance has been amplified by the closed end discounts i. which has been poor.com and indiafn. the NAV of the fund would fall to a lesser extent – but fall it will.g. E. If the investor in the fund has invested in some stocks in the 48 . they have come with reasonable returns. If one looks at some income funds.indiainfoline. This is so because these funds truly had participation from masses.com that are doing something similar and providing advice to investors regarding their investments.e. If the Govt. the prices of all stocks in the sector could fall substantially resulting in severe erosion in the NAV of the fund. One must remember that a Mutual Fund does not provide assured returns and neither can it "manufacture" returns out of thin air. Morgan Stanley Growth Fund units still trade below the original IPO price of Rs 10. It is incorrect to think that all mutual funds have performed poorly. UTI and Canbank Mutual Fund and of course Morgan Stanley Growth Fund. units of these funds quoting at sharp discounts to their NAV resulting in an even poorer return to the investor. take the case of a sector specific fund like a pharma fund which invests only in shares of pharmaceutical companies. It is only the performance of equity funds. Investors feel that after 5 years. Monthly Equity Plans of SBI Mutual Fund. with a fund like Morgan Stanley having more than 1 million investors. Reasons for bad performance of Mutual funds Most investors associate mutual funds with Master gain. comes with new regulation that severely restricts the pricing freedom of these companies resulting in negative outlook for the sector. Good funds can beat returns in their asset class to some extent but that’s all. In that case. A good fund manager would probably sell part of the fund before prices fall too much and wait for an opportune time to reinvest at lower levels once the dust has settled. No one can do anything about it.
Market Share of Mutual funds in India S. 2 3. In Crore) 1572. 4. Asset Company 1.85 10722.38 0.91 495.30 6. ABN Amro Alliance Capital Benchmark Birla Sun Life BoB Management AUM (Rs.No. investors would do well to have a look at the investments.07 49 . which they made on their own. his personal investments may have depreciated to a larger extent. 5.sector on his own. Some of these individuals were transferred from the parent organization and did not really know much about investment management. they would have done much worse than the mutual funds. in all probability.1 1341. This problem was compounded further by the Asian crisis after which cheap imports from Asia caused severe pressure on profits. In most cases. Lastly. We have received numerous requests for advice from individual investors on what to do about their own investments. One more issue is that the fund managers in many funds were not "professionally qualified and experienced".37 124. investors would have done really badly.80 0. If that were any indicator.94 0. Most mutual fund managers took some time to realize the changed circumstances wherein the open economy ushered in by the liberalization took the full impact of the global deflation in commodity prices.85 Market Share ( in %) 0. This is especially true of some of the funds floated by nationalized banks.
28 4.85 1.98 3.2 122. 23. 27. 19. 24. 29. 12. 7.46 910.11 4.35 4.37 4.24 6.54 1.21 0.26 1640.89 10.71 0.5 17196.15 2.34 1.86 0. 25. 14.26 7296.07 0.89 300 7182.07 9.10 50 . 8.38 4.13 0.27 1.79 2317.47 611. 9.86 7569.65 7074.3 122.43 10129. CanBank Cholamandalam Deutsche DSP ML Escorts Fidelity Franklin Templeton Global Insurance Co.23 176.42 8164.17 0. 18.86 2872.64 10.17 3975.51 1. 20.09 15709. 26. 11.18 4. 10.61 1925. 16.6. HDFC HSBC ING Vysya JM Financial Kotak Mahindra LIC Morgan Stanely Principal Pru ICICI Reliance Sahara SBI Standard Chartered Sundram TATA Taurus 1895.62 1495. 13. 28.4 17079. 15. 21.03 0.29 8143 1871. 17. 22.
UTI MF Total AUM 22443.00 CAPTER 4 – METHOD 51 .74 167986.30.36 100.85 13.
will come to the fund again and again. focusing and concentrating on a particular geographic area where the fund has a strong presence and proven marketing network. This study on Mutual funds in India has been based on primary as well as secondary data sources. At the same time. deeper loyalty and reduced costs. to achieve better penetration. It is in this context that direct marketing will assume increased importance. The primary data is collected by the getting the questionnaire filled from the common investor above the age of 25. preferences and behavior and enables us to target customers need more accurately.Research Methodology Investment in mutual fund is not a one-time activity. The same investor. but it also contains vital information. 52 . and share the information for appropriate use. but the industry can collectively have a data bank. When the investor sends his application. it is not possible for mutual fund industry to test market and have pilot projects before launch. it is not only an application. can help reduce issue expenses and ultimately translate into higher returns for the investor. Knowing the customer thoroughly is of utmost importance. It is a continuous activity. if satisfied. would provide important insights into investor needs. can help reduce network. Very little research on investor preference is available. Most of this information if tabulated and analyzed. Unlike the consumer goods industry.
The results for the 13 questions asked were further graphically represented. showing the favorability towards different parameters. who are the most exploited in Indian capital Market. importance of marketing Strategies in mutual funds. This was done by ascertaining the average response of all the samples for the total 13 questions asked in the questionnaire. Depending upon the choice selected by the respondent. each question having various multiple choices. 53 .For this research. I have made use of a questionnaire for ascertaining the investment pattern of a common investor. each respondent gets a total score which represents his degree of favorability towards the kind of investment he makes and his knowledge about the investments. understand the investment pattern of a common investor. The main aim of conducting the survey using a questionnaire was to understand the perception of small investors. The questionnaire consisted of 13 questions in total. analyze the type of funds available for the investor. The secondary resources used in the study are: • • • • Books Journals Magazine Articles Internet Websites.
CHAPTER 5 – RESULT 54 .
QUESTIONNAIRE ANALYSIS (Sample Size: 100) Q1. How would you rate your familiarity and experience with investments? a) Familiar and experienced b) Familiar but not experienced c) Not familiar and inexperienced C 7% A 20% 55 B 73% .
How would you describe your investment knowledge? a) You rarely have financial discussions. bonds. b) You understand how different types of mutual funds work and are confident in selecting the right ones for you. a) You are a knowledgeable investor and understand concepts such as standard deviation and beta. 60% 52% 50% 40% 33% 30% 20% 12% 10% 3% 0% A B C D 56 . because you do not understand any of the concepts.Q2. c) You understand investment basics such as stocks. and money markets and could explain how they work.
with no alternative uses for the money in the foreseeable future c) Preserving wealth. a) Keeping aside money generated from business / profession.Q3. Which of the following are possible investment motives for you with regard to a portfolio. to specifically generate alternate source of income / wealth b) Wealth creation. after accounting for inflation and taxes d) Regular income to meet present commitments and expenses e) Building a corpus to meet specific future requirements 45% 40% 35% 30% 25% 20% 15% 41% 21% 18% 9% 10% 5% 0% A B 11% C D E 57 .
What is your anticipated Investment time frame? a) b) c) d) Long term .1 to 3 years Short term .less than 1 year 16% 8% 31% 45% A B C D 58 .4 to 7 years Short-medium term .Q4.more than 7 years Medium term .
Q5. How would you like to classify your investment style? a) Conservative b) Moderate c) Aggressive 70% 60% 50% 40% 30% 30% 20% 9% 10% 0% A B C 61% 59 .
comfortable experience so far I am wary of equity investing .it has been a losing experience I want to be in equities .have not got it right so far I invest in equities .Q6.I know what it takes 3% 19% 5% 13% 21% 39% A B C D E F 60 . My experience with investing so far has been a) b) c) d) e) f) Mainly low-risk debt investments .some discomfort with interest rate risk Mainly debt investments .can't remember anything adverse Mainly debt investments .
8.000 and then move to another fund. What would you be most likely to do? a) b) c) d) I would move the money to a bank fixed deposit. I would not do anything.500 after six months.000 in a mutual fund and the value of the investment dropped to Rs.Q7. I would invest more in the fund to bring down my average cost of acquisition 5% 15% 42% 38% A B C D 61 . 10. Assume that you have invested Rs. I would wait till the value reached 10.
bonds or equivalent investments) c) A blend (blue chip and other speculative stocks/mutual funds. derivative based investments) 8% 20% 21% 51% A B C D 62 . high risk funds.Q8. Your existing portfolio consists most of? a) Cash only (time deposits and savings accounts) b) Mainly cash (as above plus some blue chip stocks. property and cash) d) Speculative (Technology/Biomedical stocks.
Q9. Your key objective when considering an investment vehicle is? a) b) c) d) e) Income only Income and some Capital Growth Balance of Capital Growth and Income Capital Growth and some Income Capital Growth Only 8% 9% 17% 27% 39% A B C D E 63 .
Q10. You would like to invest in? a) b) c) d) 35% 30% 25% 20% 14% 15% 10% 5% 0% A B C D 28% 27% Bank accounts. Debt and Debt Mutual Funds Equities and Mutual Funds Real Estate and Real Estate Funds Commodities and Commodity Funds 31% 64 .
Q11. Which type of mutual funds do you prefer? a) By Structure: i. ii. Open-ended Funds Closed-ended Funds
b) By Investment Objective: i. ii. iii. iv. c) Other Schemes: i. ii. iii. iv. Tax Saving Schemes Industry Specific Schemes Index Schemes Sectoral Schemes Growth Funds Income Funds Balanced Funds Money Market Funds
Q12. Are you aware of the tax saving benefits available in investment of mutual funds? a) Yes b) No
Q13. Do you think that advertising plays an important role in spreading the awareness amongst investors for investing in mutual funds? a) Yes b) No
CHAPTER 6 – RECOMMENDATIONS
Promote distributor for expansion of the Industry Less government involvement as far as management is concerned. Insider trading should be prohibited.Recommendations More awareness is required regarding the differences in various schemes. Fund houses should increase tie ups with more banks for direct credit facility of the dividends. Schemes to be made more investor friendly. 68 .
CHAPTER 7 – SUMMARY & CONCLUSION 69 .
Indian shareholders are getting restless to prevent corporate board from offering them inferior deals.Conclusion The Indian corporate scene is gradually transforming to cope with globalization and liberalization of the Indian economy. Mutual funds will have to do what the market fails to do.take initiative to make the market for corporate control more efficient to counter the abuse of the separation of ownership from control and the lack of contestability in the corporate boards. In an effort to realign ownership with control. The initiatives as suggested will help mutual funds not only release value for the shareholders in many inefficient companies but also in the process promote better corporate governance practices in the Indian corporate sector. Mutual funds need to devise different strategies for companies with different types of ownerships. the company should not develop a too comfortable relationship with the stakeholders. which are the root causes of existing corporate governance practices. 70 . This may also work against the interests of the minority shareholders.
CHAPTER 8 – REFRENCES 71 .
equitymaster.Rights & Remedies • Annual Investment Planner.References Books • AMFI workbook • SEBI note on investor Grievances.com 72 . Shanbhag • Investor’s Handbook.moneycontrol. Nandagopal • Mutual Fund Business.com www.Robert C.P.indiainfoline.N. Pozen Websites • • • • www.amfiindia.com www.com www.A.
google.nse-india.com ANNEXURE - 73 .• • www.com www.
Remember that there are no 'right' or 'wrong' answers. don't try to read too much into the questions).Questionnaire “Please complete the following questions. only those answers that best describe you as you are most of the time. b) You understand how different types of mutual funds work and are confident in selecting the right ones for you. 74 . Look for the closest reasonable answer (your first response is usually best. How would you rate your familiarity and experience with investments? a) Familiar and experienced b) Familiar but not experienced c) Not familiar and inexperienced Q2. How would you describe your investment knowledge? a) You rarely have financial discussions. Couples could pick a consensus response.” Q1. because you do not understand any of the concepts.
d) You are a knowledgeable investor and understand concepts such as standard deviation and beta.1 to 3 years d) Short term . How would you like to classify your investment style? a) Conservative b) Moderate c) Aggressive Q6.more than 7 years b) Medium term . after accounting for inflation and taxes d) Regular income to meet present commitments and expenses e) Building a corpus to meet specific future requirements Q4. to specifically generate alternate source of income / wealth b) Wealth creation. Q3.less than 1 year Q5. What is your anticipated Investment time frame? a) Long term . a) Keeping aside money generated from business / profession. with no alternative uses for the money in the foreseeable future c) Preserving wealth. Which of the following are possible investment motives for you with regard to a portfolio. bonds.c) You understand investment basics such as stocks.4 to 7 years c) Short-medium term . and money markets and could explain how they work. My experience with investing so far has been 75 .
d) I would invest more in the fund to bring down my average cost of acquisition Q8.comfortable experience so far d) I am wary of equity investing . 8.500 after six months.I know what it takes Q7.have not got it right so far f) I invest in equities .some discomfort with interest rate risk c) Mainly debt investments . Your key objective when considering an investment vehicle is? 76 . derivative based investments) Q9. high risk funds.000 in a mutual fund and the value of the investment dropped to Rs. Assume that you have invested Rs. bonds or equivalent investments) c) A blend (blue chip and other speculative stocks/mutual funds. Your existing portfolio consists most of? a) Cash only (time deposits and savings accounts) b) Mainly cash (as above plus some blue chip stocks.it has been a losing experience e) I want to be in equities . c) I would not do anything. b) I would wait till the value reached 10. What would you be most likely to do? a) I would move the money to a bank fixed deposit. property and cash) d) Speculative (Technology/Biomedical stocks.000 and then move to another fund. 10.can't remember anything adverse b) Mainly debt investments .a) Mainly low-risk debt investments .
ii. iii. Growth Funds Income Funds Balanced Funds 77 . Which type of mutual funds do you prefer? a) By Structure: i.a) Income only b) Income and some Capital Growth c) Balance of Capital Growth and Income d) Capital Growth and some Income e) Capital Growth Only Q10. ii. Debt and Debt Mutual Funds c) Equities and Mutual Funds d) Real Estate and Real Estate Funds e) Commodities and Commodity Funds Q11. Open-ended Funds Closed-ended Funds b) By Investment Objective: i. You would like to invest in? b) Bank accounts.
ii. Do you think that advertising plays an important role in spreading the awareness amongst investors for investing in mutual funds? a) Yes b) No Other Information: Name: ___________________ 78 . Tax Saving Schemes Industry Specific Schemes Index Schemes Sectoral Schemes Q12. iii. Are you aware of the tax saving benefits available in investment of mutual funds? a) Yes b) No Q13.iv. iv. Money Market Funds c) Other Schemes: i.
Age: _____________________ Occupation: _______________ Gender: ___________________ 79 .
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