Professional Documents
Culture Documents
Cholamandalam, incorporated in 1978 as the financial services are of Rs. 4200 Crore
Murugappa Group, is one of the leading Financial Services Groups (FSG) in India.
All its investment counselors across the country are compulsorily required to get
individual certification from AMFI and IRDA and are supported by a highly qualified
research team, fully equipped with resources to ensure that customers get access to the
best quality timely advice. Moreover, insights into the investment environment are also
achieved through constant interaction between the CDS Research team and fund
managers, bankers, treasury managers and other key players in the industry to make sure
investments performance to their best.
Cholamandalam FSG offers a wide range of financial products and services like, Mutual
Funds, Fixed Deposits, Stock Broking & Depository Services, Finance Against Shares,
Vehicle Loans, General Insurance and Investment Advisory Services.
1. Mutual Funds
Equity, Income, Balanced, Money Market, Child Care Plans, Pension Plans,
Equity Linked Saving Services (ELSS).
2. Company Deposits
Cumulative and Fixed Deposits from rated NBFCs and manufacturing
companies.
3. Bonds
Capital Gains, Tax Saving, State Government and PSU.
4. Life Insurance
Endowment, Money-back, Annuity Term, Retirement and Unit Linked Plans.
1. Tax Planning
Reducing tax outflows and filing tax documents, Answers to tax queries.
2. Retirement Planning
Saving enough using insurance and mutual funds to create a buffer on
retirement.
3. Portfolio Advice
Asset Allocation and Security Selection.
5. Regular News
Updates through email and newsletters.
Financial Institutions
Funds Funds
Commercial Banks
Insurance Companies
Deposits / Shares
Mutual Funds Loans
Provident Funds
Non-banking Financial Companies
Financial Markets
Funds Funds
Money Market
Capital Market
Securities Securities
a) Money Market
Reserve Bank
of India
Public
Sector
Life Firms
Public Insurance
All India
Sector Corporation NABARD
Institutions
Banks of India UTI
Private
sector
Insurance
Private Companies
Sector State Level
Banks Institutions Other
General
MFs
Insurance
Corporation
of India
Private
Sector
Firms
Life makes many demands of us. There’s so much to indulge in and deal with. At work
or at home, with family, friends or self. Woven into these threads is the inescapable truth
that money is a means to many an end. A house in the suburbs, good education for the
kids, a set of four wheels to zip around, an early retirement…. The end might differ, but
the means-at least one of them- to reach them remains the same: money. Earned wisely,
saved regularly, invested smartly.
Mutual Funds are investment products that operate on the principle of ‘STRENGTH IN
NUMBERS’. They collect money from a large group of investors, pool it together, and
invest them in a large and well-diversified portfolio of securities such as money market
instruments, corporate and government bonds and equity shares of joint stock companies.
A mutual fund is a pool of commingles funds invested by different investors, who have
no contact with each other. These investment vehicles don’t demand a deep
understanding of financial matter; they even don’t demand oodles of time. Mutual funds
are conceived as institutions for providing small investors with avenues of investments in
the capital market. .Since small investors generally do not have adequate time,
knowledge, experience and resources for directly accessing the capital market, they have
to rely on an intermediary, which undertakes informed investment decisions and provides
consequential benefits of professional expertise. The raison d’être of mutual funds is
their ability to bring down the transaction costs. The advantages for the investors are
reduction in risk, expert professional management, diversified portfolios, liquidity of
investment and tax benefits. By pooling their assets through mutual funds, investors
achieve economies of scale. The interests of the investors are protected by the SEBI,
which acts as a watchdog. Mutual funds are governed by the SEBI (Mutual Funds)
Regulations, 1993.
RETURNS FUND
MANAGER
Generate Invest in
SECURITIES
PhaseI-1964 to 1987 : In 1963, Unit Trust of India was set up by Parliament under UTI
Act and given a monopoly. The scheme launched by UTI was Unit Scheme-64. later in
70’s and 80’s, UTI started offering some special purpose schemes like ULIP and
Children’s Gift Growth Fund. The first equity mutual fund product was Master Share in
1986.
Phase II –1987 to 1993 : 1987 marked the entry of non-UTI, Public Sector mutual fund.
In 1987 banks, financial institutions and insurance companies in the public sector were
permitted to set up mutual funds. Some of the funds launched during this period are SBI
Mutual Fund, Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, GIC
Mutual Fund and PNB Mutual Fund.
Phase III –1993 to 1996 : Permission was granted for entry of private sector funds. It
gave a greater choice to the Indian Investors. These private funds have brought in with
them the latest product innovations, investment management techniques and investor
servicing technology that makes the Indian mutual fund industry vibrant and growing.
This phase also marked the launch of an open-end funds.
Phase IV –1996 : Investor friendly regulatory measures have been taken both by SEBI
to protect the investor, and by the government to enhance investor’s returns through tax
benefits.
As on March 2000, there were 33 Mutual Funds and 337 schemes with total assets of Rs.
1,13,005/- Crores. While around 1,40,000/- Crores of total assets are under management,
as on March 2004.
Worldwide, the Mutual Fund, or Unit Trust as it is called in some parts of the world, has
a long and successful history. The popularity of the Mutual Fund has increased manifold.
In developed financial markets, like the United States, Mutual Funds have almost
overtaken bank deposits and total assets of insurance funds.
1. As at the end of December 1999, in the US alone there were 7,791 Mutual Funds
with total assets of over US $ 6.8 Trillion (296 Lac Crores).
2. Out of the top 10 mutual funds worldwide, eight are bank sponsored. Only Fidelity
and Capital are non-bank mutual funds in the group.
3. In US about 9.7 million households are managing their assets on-line, such a facility
is not yet available in India.
4. On-line trading is a great idea to reduce management expenses from the current 2%
of total assets to about 0.75% of the total assets.
Internationally, on-line investing continues its meteoric rise. Many have debated about
the success of e-commerce and its breakthroughs, but it is true that this aspect of
technology could and will change the way financial sectors function. However, mutual
funds cannot be left far behind.
In fact advanced countries like US, mutual funds buy-sell transactions have already
begun on the net, while in India the net is used as a source of information.
Such changes could facilitate easy access, lower intermediation costs and better services
for all. A research agency that specializes in Internet technology estimates that over the
next four to five years mutual fund assets trading will grow by ten folds, where equity
trading will increase during the period by seven to eight folds. This will increase the
share of mutual funds from 34% to 40% during the period.
113005
61028 68472
13455
NUMBER OF SCHEMES
337
277
167
21
1984-89 1989-94 1998-99 1999-2000
160000
140000 140000
120000 121000
100000
80000
60000
40000 47000
20000
0 25 172 4560
1965 1974 1987 1993 2003 2004
While instruments like shares give high returns at the cost of high risk, instruments like
NSE and bank deposits give lower returns and higher safety to the investor.
Mutual Funds aim to stike a balance between risk and return and give the best of both
to the investors.
a. Identifying Stocks that have high growth potential involves through research and
monitoring of the market. It is beyond the capability of most individual
investors whereas Mutual Funds specialize in this area.
b. Diversification is the key to success in equity investments. A diversified
portfolio serves to minimize risks. An individual investor may not have the
capital to build a diversified portfolio.
c. Professional Management by Mutual Funds ensure that the best avenues are
tapped with the aid of comprehensive information and detailed research.
d. Investment Objectives of an investor are met by Mutual Funds which offer a
variety to him. He can choose from income or growth mutual funds
depending on his requirement.
e. Liquidity of Mutual Funds is high through listing on stock exchange for closed-
end funds and repurchase options for open-end funds.
f. Transaction Costs are lower in mutual funds as compared to direct investment
due to economies of scale.
g. Convenience is high for Mutual Funds as they sell through service networks,
banks and other distributors. Many funds allow investors the flexibility to
switch between schemes within a family of funds.
h. Blue Chip portfolio available to investors for as low as Rs. 2000/-.
i. High Service Standards maintained by Mutual Funds.
j. Transparency high degree of transparency is maintained by the funds.
Mutual Funds target the small investors. Most schemes keep their minimum investment
at Rs. 1000-5000. For an affordable amount such as this, investors get lots more through
a mutual fund than what would ever manage on own. e.g. on 22 April 2004, for instance,
one share of Infosys alone cost Rs. 5400, one share of Wipro Rs. 1600. If an investor
wanted to invest Rs. 5400 he would get only one stock of Infosys while investing the
same amount in mutual fund he would get more numbers of diversified stocks.
These funds can survive and thrive only if they can live up to the hopes and trusts of their
individual members. 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:
1. Limited resources in the hands of investors quite often take them away from stock
market transactions.
2. Lack of funds forbids investors to have a balanced and diversified portfolio.
3. Lack of professional knowledge associated with investment business unable investors
to operate gainfully in the market. Small investors can hardly afford to have ex-
pensive investment consultations.
4. To buy shares, investors have to engage share brokers who are the members of stock
exchange and have to pay their brokerage.
5. They hardly have access to price sensitive information in time.
6. It is difficult for them to know the development taking place in share market and
corporate sector.
7. Firm allotments are not possible for small investors on when there is a trend of over
subscription to public issues.
Mutual Funds are becoming a very popular form of investment characterized by many
advantages that they share with other forms of investment characterized by many
advantages that they share with other forms of investments and what they possess
uniquely themselves. The primary objectives of an investment proposal would fit into
one or combination of the two broad categories, i.e., Income and Capital gains. How
mutual fund is expected to be over and above an individual in achieving the two said
objectives is what attracts investors to opt for mutual funds. Mutual fund route offers
several important advantages.
1. Diversification:
A proven principle of sound investment is that of diversification which is the idea
of not putting all your eggs in one basket. By investing in many companies the
mutual funds can protect themselves from unexpected drop in values of some
shares. The small investors can achieve wide diversification on his own because
of many reasons, mainly funds at his disposal. Mutual funds on the other hand,
pool funds of lakhs of investors and thus can participate in a large basket of
shares of many different companies. Majority of people consider diversification
as the major strength of mutual funds.
2. Professional Management:
Making investments is not a full time assignment of investors. So they hardly
have a professional attitude towards their investment. When investors buy mutual
fund scheme, an essential benefit one acquires is expert management of the
money he puts in the fund. The professional fund managers who supervise fund’s
portfolio take desirable decisions viz., what scripts are to be bought, what
investments are to be sold and more appropriate decision as to timings of such
buy and sell. They have extensive research facilities at their disposal, can spend
full time to investigate and can give the fund a constant supervision. The
performance of mutual fund schemes, of course, depends on the quality of fund
managers employed.
3. Liquidity of Investment:
A distinct advantage of a mutual fund over other investments is that there is
always a market for its unit/ shares. Moreover, Securities and Exchange Board of
India (SEBI) requires the mutual funds in India have to ensure liquidity. Mutual
funds units can either be sold in the share market as SEBI has made it obligatory
for closed-ended schemes to list themselves on stock exchanges. For open-ended
schemes investors can always approach the fund for repurchase at net asset value
(NAV) of the scheme. Such repurchase price and NAV is advertised in newspaper
for the convenience of investors.
4. Convenient Administration:
5. Transparency:
Regular information on the value of investment in addition to disclosure on the
specific investments made by investors, the proportion invested in each class of
assets and the fund manager’s investment strategy and outlook is provided on
regular basis by different fund houses.
6. Flexibility:
Through features such as regular investment plans, regular withdrawal plans and
dividend reinvestment plans, investors can systematically invest or withdraw
funds according to investors’ needs and conveniences.
7. Reduced risks:
Risk in investment is as to recovery of the principal amount and as to return on it.
Mutual fund investments on both fronts provide a comfortable situation for
investors. The expert supervision, diversification and liquidity of units ensured in
mutual funds minimise the risks. Investors are no longer expected to come to
grief by falling prey to misleading and motivating ‘headline’ leads and tips, if
they invest in mutual funds.
8. Safety of Investment:
Besides depending on the expert supervision of fund managers, the legislation in
a country (like SEBI in India) also provides for the safety of investments. Mutual
funds have to broadly follow the laid down provisions for their regulations, SEBI
acts as a watchdog and attempts whole-heartedly to safeguard investors interests.
9. Tax Shelter:
Depending on the scheme of mutual funds, tax shelter is also available. As per the
union budget-99, income earned through dividends from mutual funds is 100%
tax-free to investors.
Any mutual fund has an objective of earning income for investors and/ or getting
increased value of their investments. To achieve these objectives mutual funds adopt
different strategies and accordingly offer different schemes of investments. On these
basis the simplest way to categorise schemes would be to group these into two broad
classifications: Operational Classification and Portfolio Classification.
Operational classification highlights the two main types of schemes, i.e., open-ended and
close-ended which are offered by the mutual funds.
Portfolio classification projects the combination of investment instruments and
investment avenues available to mutual funds to manage their funds. Any portfolio
scheme can be either open ended or close ended.
A. OPERATIONAL CLASSIFICATION
(a) Open Ended Schemes:
As the name implies the size of the scheme (Fund) is open – i.e., not specified or pre-
determined. Entry to the fund is always open to the investor who can subscribe at any
time. Such fund stands ready to buy or sell its securities at any time. It implies that
the capitalisation of the fund is constantly changing as investors sell or buy their
shares. Further, the shares or units are normally not traded on the stock exchange but
are repurchased by the fund at announced rates. Open-ended schemes have
comparatively better liquidity despite the fact that these are not listed. The reason is
that investor can any time approach mutual fund for sale of such units. No
intermediaries are required. Moreover, the realizable amount is certain since
repurchase is at a price based on declared net asset value (NAV). No minute to
minute fluctuations in rates haunt the investors. The portfolio mix of such schemes
has to be investments, which are actively traded in the market. Otherwise, it will not
be possible to calculate NAV. This is the reason that generally open-ended schemes
are equity based. Moreover, desiring frequently traded securities, open-ended
schemes hardly have in their portfolio shares of comparatively new and smaller
companies since these are not generally traded. In such funds, option to reinvest its
dividend is also available. Since there is always a possibility of withdrawals, the
management of such funds becomes more tedious as managers have to work from
crisis to crisis. Crisis may be on two fronts, one is, that unexpected withdrawals
require funds to maintain a high level of cash available every time implying thereby
idle cash. Fund managers have to face questions like ‘ what to sell’. He could very
well have to sell his most liquid assets. Second, by virtue of this situation such funds
may fail to grab favourable opportunities. Further, to match quick cash payments,
funds cannot have matching realisation from their portfolio due to intricacies of the
stock market. Thus, success of the open-ended schemes to a great extent depends on
the efficiency of the capital market.
Income Funds:
For investors who are more curious for returns, Income funds are floated. Their
objective is to maximize current income. Such funds distribute periodically the
income earned by them. 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, even with the use of leverage. Obviously, the
higher the expected returns, the higher the potential risk of the investment.
Growth Funds:
Such funds aim to achieve increase in the value of the underlying investments
through capital appreciation. Such funds invest in growth oriented securities
which can appreciate through the expansion production facilities in long run. An
investor who selects such funds should be able to assume a higher than normal
degree of risk.
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, (ii) To
protect the value of investment and, (iii) To achieve capital appreciation
consistent with the fulfillment of the first two objectives. Such funds which offer
Liquid/Money
Market
10%
Balanced
11%
Income
63%
Growth
12%
Equity Fund:
Such funds as the name implies, invest most of their investible shares in equity
shares of companies and undertake the risk associated with the investment in
equity shares. Such funds are clearly expected to outdo other funds in rising
market, because these have almost all their capital in equity. 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, unestablished
companies. The strength of these funds is the expected capital appreciation.
Naturally, they have a higher degree of risk.
Debt Funds:
Such funds have their portfolio consisted of bonds, debentures, etc. this type of
fund is expected to be very secure with a steady income and little or no chance of
capital appreciation. Obviously risk is low in such funds. In this category we may
come across the funds called ‘Liquid Funds’ which specialize in investing short-
term money market instruments. The emphasis is on liquidity and is associated
with lower risks and low returns.
Balanced Fund:
The funds, which have in their portfolio a reasonable mix of equity and debt, are
known as balanced funds. 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.
This disciplined approach for investing will provide the investors with the following
benefits:
1) Reduces average cost
2) Can be done regularly even for savings of Rs 1000
3) Encourages disciplined investing,
4) Eliminates the need to decide when to invest
5) Avoids the temptation to time the market.
Most of us regard investing as a necessary evil and delay it until the last
movement. In short, the longer you delay, the greater will be the financial
burden on you to meet your goals. On the other hand, you would be amazed
what you could achieve by saving a small sum of money regularly at an early
age. In other words, the earlier you invest, greater will be the power of
compounding and higher will be the benefits.
As one can see, the average cost per unit under an SIP programme results in
an average cost which is lower than most of the prices at which one bought
units.
This require investor to invest a fixed sum periodically, thereby let the investor save in
a discipline manner. The mode of investment could be through direct debit to the
investor’s salary or bank account. Such plans are also known as systematic investment
plan. Investor looking for ‘rupee cost averaging’ will generally opt for funds that offer
this facility.
A modification of ARP is the Voluntary Accumulation Plan (VAP) that allows the
investor flexibility with respect to the amount and frequency of investment.
Such plan allows the investor to make systematic withdrawals from his fund
investment account on periodic basis, thereby providing the same benefit as regular
income. The amount withdraw is treated as redemption of units at the applicable NAV
as specified in the Offer Document. E.g. the withdrawal could be at the NAV on the
first day of the month of payment. The investor is usually required to maintain a
minimum balance in his fund account under this plan.
As investor withdraws regularly this will also reduce effect of income tax at the end of
maturity period.
Investors should note the difference between SWP and Monthly Income Plan, as the
former allows the investor to get back the principle amount invested while the later
only pays the income part on a regular basis.
This plan allows the investor to transfer a specified amount from one scheme to
another on a periodic basis within the same fund. A transfer will be treated as
redemption of units from the scheme from which the transfer is made, and is invested
in the scheme in which transfer is made. Such redemption or investment will be at the
applicable NAV for the respective scheme as specified in the Offer Document. It is
necessary for the investor to maintain minimum balance in the scheme from which
transfer is made. Many funds do not charge any transaction fees for this service it is an
added advantage for the active investors.
FUND STRUCTURE
FUND SPONSOR
TRUSTEES
2. Corpus:
The total money available with a scheme, at any point in time, is referred to as the
‘corpus’ or ‘assets under management’.
3. Unit:
Mutual fund issues ‘units’ against investment. A unit is the currency of a fund.
What a share is to a company; a unit is to a fund.
5. Load:
Fund houses levy a nominal charge, on most of their schemes to meet their
processing costs and to discourage investors from leaving. This charge is referred
as ‘load’, it is the price that investor pays over and above the fund’s NAV when
that investor buy or sell units.
Investors pay ‘entry load’ at the time of buying and ‘exit load’ at the time of
selling. Loads are always expressed as a percentage of the NAV, and have effect
of reducing returns.
An entry load increases NAV, which places fewer units, an exit load decreases
NAV which reduces sale proceeds.
6. Expenses:
7. Disclosures:
From time to time, fund houses will share information with investors relating to
schemes. Under SEBI rules, fund houses have to send to all unitholders annual
reports, disclosing the complete portfolio of all their schemes, and publish half-
yearly results in newspapers. These documents shed light on scheme’s
performance over various time periods, and how it stands up in the given market
conditions. Most of the fund houses update their scheme portfolio on their
websites even quicker. Its information, investors can use to make an informed
decision about their investment in the schemes.
8. Redemption:
Whenever an investor wants to sell his units, partly or fully, in mutual fund it is
called ‘repurchase’ or ‘redemption’. Mutual fund will pay the scheme’s NAV
prevailing on that date of redemption minus the exit load.
SEBI was established to promote the orderly and healthy development of securities
market and to provide adequate investor protection. SEBI has an independent
constituted board with regulatory powers over stock exchange, merchant banking,
brokers, registrar and transfer agents, custodians, mutual funds and capital issues.
SEBI issues guidelines for various market players to conform with. All players need
to register with SEBI and consent to comply with the regulations of SEBI. In the
case of mutual funds, the SEBI guidelines were first issued in the SEBI Mutual Fund
Regulations of 1993. In December 1996, SEBI published the revised Mutual Fund
Regulations, 1996, regulating several aspects including management fees, expenses,
NAV calculation and standardized reporting practices.
9. The asset management company shall launch no scheme unless the trustees approve
such scheme and a copy of the offer document has been filed with the Board.
10. Every mutual fund has to pay filling fees along with the offer document.
11. The offer document should contain disclosures which are adequate in order to enable
the investors to make informed investment decision including the disclosure on
maximum investments proposed to be made by the scheme in the listed securities
of the group companies of the sponsor.
12. No one can issue any application form for units of mutual fund until the
memorandum containing such information is issued. With each application form
fund house has to provide such a memorandum providing guidelines to investors.
13. Each close-ended scheme should be listed on a recognized stock exchange within six
months from the closure of the subscription.
14. A closed-ended scheme should be fully redeemed at the end of the maturity period.
Unless a majority of the unit holders otherwise decide for its rollover by passing a
resolution.
15. The mutual fund and asset management company should be liable to refund the
application money to the applicants.
16. The asset management company should issue to the applicant whose application has
been accepted, unit certificates or a statement of accounts specifying the number
of units allotted to the applicant as soon as possible within six weeks from the
date of closure of the initial subscription list and/or from the date of receipt of the
request from the unit holders in any open ended schemes.
GENERAL OBLIGATIONS
25. Each asset management company should keep and maintain proper books of
accounts, records and documents, for each scheme so as to explain its transactions
and to disclose at any point of time the financial position of each scheme and in
particular give a true and fair view of the state of affairs of the mutual fund and
can intimate to the Board the place where such books of accounts, records and
documents are maintained.
26. The financial year for all the schemes should end as of Mach 31st of that year.
27. Each mutual fund or the asset management company should prepare an annual report
and annual statement of accounts for each scheme.
28. Each mutual fund should have an annual statement of accounts audited by an auditor
who is not in any way associated with the auditor of the asset management
company.
RESTICTION ON INVESTMENTS
29. A mutual fund can not invest more than 15% of its NAV in debt instruments issued
by a single issuer, which are rated not below investment grade by a credit rating
agency authorized to carry out such activity under the Act. Such investment limit
may be extended to 20% of the NAV of the scheme with the prior approval of the
Board of Trustee and the Board of Asset Management Company.
30. A mutual fund scheme can not invest more than 10% of NAV in unrated debt
instruments issued by a single issuer and the total investment in such instruments
should not exceed 25% of the NAV of the scheme. All such investments should
• No mutual fund scheme should invest more than 10% of its NAV in the equity shares
or equity related instruments of any company. This limit of 10% is not applicable
to index fund and sector specific schemes.
• A mutual fund scheme can not invest more than 5% of its NAV in the equity shares
or equity related investments in case of open-ended scheme and 10% in case of close-
ended scheme.
Investors often view the tax angle as an important consideration while deciding on the
appropriate investment. This section examines the area of mutual fund taxation with
respect to taxation of income (dividend and capital gain) in the hands of fund itself and
the income when received in the hands of the investors.
Tax provision:
ϖ Income earned by any mutual fund registered with SEBI or setup by a public
sector bank/financial institution or authorized by RBI is exempt from tax.
ϖ Income distributed to unit holders by a closed-end or debt fund has to pay a
distribution tax of 10% plus surcharge of 1%. This is also applicable to open-
end funds which have less than 50% allocation to equity.
• Wealth Tax:
Ownership of units is not considered as ‘wealth’ under the Wealth Tax Act, and is
therefore not charged to wealth tax.
The Offer Document of a scheme lays down investors’ rights. Investor is the owner
of the scheme and assets of that company, and it is therefore imperative that they are
aware of their rights with respect to the scheme’s assets, its management, and
resources to the trustee, the AMC and other constituents. The important rights of the
unit-holders are outlined below:
Right to be informed
• Unit-holders have right to obtain all the information from the trustee that may
have an adverse bearing on their investment.
• Unit-holders have the right to inspect major documents of the fund. Such
documents include material contracts (trustee deed, the investment
management agreement, the custodian services agreement and the registrar
and transfer agency agreement), memorandum and article of association of
the AMC, recent audited financial statements, the texts of SEBI regulations,
Indian Trust Act and the Offer Document of the scheme.
• Each unit-holder has the right to receive a copy of the annual financial statement.
• Each unit-holder has the right to receive a complete statement of scheme’s
portfolio before expiry of one month from the close of each half year (31st March
and 30th Sept.), unless such statement of portfolio should be published in one
English daily, circulating countrywide and in a newspaper published in the
language of the region in which the head office is located.
Investors’ Obligations
It is the duty of investors to carefully study the Offer Document before investing in a
scheme. He must appreciate the fundamental attributes of the scheme, the risk
factors, his rights, fund’s and sponsor’s track record. Failure to effectively study the
Offer Document does not entitle him later to have resource to the fund, the trustees or
the AMC.
The investor should regularly study financial statements, portfolio of scheme and
research reports published by mutual fund to monitor performance of scheme. He has
right to ask the trustee for any information that he requires, but monitoring is entirely
investor’s own responsibility.
1) Direct Marketing:
This constitutes 20 percent of the total sales of mutual funds. 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. Once the
appointment is fixed, 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. The conversion
rate in this mode of selling is in between 30% - 40%.
Telemarketing: In this case the emphasis is to inform the people about the
fund. The names and phone numbers of the people are picked at random from
telephone directory. Sometimes people belonging to a particular profession
are also contacted through phone and are then informed about the fund.
Generally the conversion rate in this form of marketing is 15% - 20%.
Direct mail: This one of the most common method followed by all mutual
funds. Addresses of people are picked at random from telephone directory.
The customer support officer (CSO) then mails the literature of the schemes
offered by the fund. The follow up starts after 3 – 4 days of mailing the
literature. The CSO calls on the people to whom the literature was mailed.
Answers their queries and is generally successful in taking appointments with
those people. It is then the job of BDA to try his best to convert that prospect
into a customer.
Advertisements in newspapers and magazines: The funds regularly advertise
in business newspapers and magazines besides in leading national dailies. The
purpose to keep investors aware about the schemes offered by the fund and
the their performance in recent past.
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. Generally such hoardings are put near UTI offices in order to tap
people who are at present investing in UTI schemes. The hoarding and banner
generally contains information either about one particular scheme or brief
information about all schemes of fund.
3) Joint Calls:
This is generally done when the prospect seems to be a high net worth investor.
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
conversion rate is very high in this situation, generally, around 60%. Both the
fund and the agent provide even after sale services in this particular case.
Meetings with HNI’s: This is a special feature of all the funds. Whenever a top official
visits a particular branch office, he devotes atleast one to two hours in meeting with the
HNI’s of that particular area. This generally develops a faith among the HNI’s towards
the fund.
B. Overseas Markets
B. Product Innovations
With the debt market now getting developed, mutual funds are tapping the investors
who require steady income with safety, by floating funds that are designed to
primarily have debt instruments in their portfolio. The other area where mutual
funds are concentrating is the money market mutual funds, sectoral funds, index
funds, gilt funds besides equity funds.
DISTRIBUTION NETWORK
Among the competitors to the mutual fund industry, Life Insurance Corporation with its
dedicated sales force is offering insurance products; banks with their friendly
neighbourhood presence offer the advantage of extensive network; finance companies
with their hefty upfront incentives offer higher returns; shares – provided the market is
moving favourably – also attract direct investments from retail investors. It is against this
background that the merits and demerits of the alternative methods of distribution have to
be studied.
MARKET RESEARCH
Investment in mutual fund is not a one-time activity. It is a continuous activity. The same
investor, if satisfied, will come to the fund again and again. When the investor sends his
application, it is not only an application, but it also contains vital information. Most of
this information if tabulated and analysed, would provide important insights into investor
needs, preferences and behaviour and enables us to target customers need more
accurately, to achieve better penetration, deeper loyalty and reduced costs. It is in this
context that direct marketing will assume increased importance. Knowing the customer
thoroughly is of utmost importance. Unlike the consumer goods industry, it is not
possible for mutual fund industry to test market and have pilot projects before launch. At
the same time, focusing and concentrating on a particular geographic area where the fund
has a strong presence and proven marketing network, can help reduce network, can help
reduce issue expenses and ultimately translate into higher returns for the investor. Very
little research on investor preference is available, but the industry can collectively have a
data bank, and share the information for appropriate use.
MARKET SEGMENTATION
Different segments of the market have different risk-return criteria, on the basis of which
they take investment decisions. Not only that, in a particular segment also there could be
different sub-segments asking for yet different risk-return attributes, and differential
preference for various investment attributes of financial product.
Different investment attributes an investor expects in a financial product are:
ϖ Liquidity,
ϖ Capital appreciation,
ϖ Safety of principal,
ϖ Tax treatment,
ϖ Dividend or interest income,
ϖ Regulatory restrictions,
ϖ Time period for investment, etc.
On the basis of these attributes the mutual fund market may be broadly segmented
into five main segments as under.
1) Retail Segment
These may be further classified on the basis of their income levels. It has been
observed that prospects in different classes of income levels have different patterns
of preferences of investment. Similarly, 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, value and ethics, social
environment, media habits, and nature of work. Broadly, this class requires
security of the principal, liquidity, and regular income more than capital
appreciation. It lacks specialised investment skills in financial markets and highly
susceptible to mob behaviour. The marketing strategy involving indirect selling
through agency network and creating awareness through appropriate media would
be more effective in this segment.
2) Institutional Segment
This segment characterises less number of participants, and large individual
volumes. It consists of banks, public sector units, financial institutions, foreign
institutional investors, insurance corporations, provident and pension funds. This
class normally looks for more specialised professional investment skills of the fund
managers and expects a structured product than a ready-made product. The tax
features and regulatory restrictions are the vital considerations in their investment
decisions. Each class of participants, such as banks, provides a niche to the fund
managers in this segment. It requires more of a personalised and direct marketing
to sustain and increase volumes.
3) Trusts
This is a highly regulated, high volumes segment. It consists of various types of
trusts, namely, charitable trusts, religious trust, educational trust, family trust, social
trust, etc. each with different objectives. Its basic investment need would be safety
of the principal, regular income and hedge against inflation rather than liquidity and
capital appreciation. This class offers vast potential to the fund managers, if the
regulators relax guidelines and allow the trusts to invest freely in mutual funds.
4) Non-Resident Indians
This segment consists of very risk sensitive participants, at times referred as ‘fair
weather friends.’ They need the highest cover against political and exchange risk.
They normally prefer easy exit with repatriation of income and principal. They also
hold a strategic importance as they bring in crucial foreign exchange – a crucial
input for developing country like ours. Marketing to this segment requires special
kind of products for groups of foreign countries depending upon the provisions of
5) Corporates
Generally, the investment need of this segment is to park their occasional surplus
funds that earn returns more than what they have to pay on account of holding
them. Alternatively, they also get surplus fund due to the seasonality of the
business, which typically become due for the payment within a year or quarter or
even a month. They need short term parking place for their fund,. This segment
offers a vast potential to specialised money market managers. Given the relaxation
in the regulatory guidelines, fund managers are expected design products to this
segment.
Thus, each segment and sub-segment have their own risk return preferences
forming niches in the market. Mutual funds managers have to analyse in detail the
intrinsic needs of the prospects and design a variety of suitable products for them.
Not only that, the products are also required to be marketed through appropriately
different marketing strategies.
Inspired Marketing will help Mutual Funds walk away with the bank Deposits
Bankers better watch out! The Indian mutual fund industry will soon start relieving the
banking system of its prized deposits.
Innovative distribution, marketing and aggressive concept selling will drive savings into
the lap of the Indian Mutual Fund industry in the next millenium, fund managers
predicted at the Second Economic Times Roundtable on mutual funds held last week.
Fund chiefs predicted that ease of transactions, thanks to technology and increased
awareness, would lead to more investors putting their money into mutual funds. The day
was not far , they said , when small savings account s too began moving into mutual
funds.
Significantly, fund chiefs were unanimous that the credibility gap which the industry
suffered for the past few years did not exist any more. All the fund chiefs were
unanimous that performance, service and support were all imperative for growth.
“Performance, transparency and after sales service and genuine retail investor interest as
opposed to hot corporate money, an important contributor to many mutual fund schemes,
will drive the industry growth. “ Performance, transparency, after sales customer service
and genuine retail investor interest are opposed to hot corporate money, an important
contributor to many mutual fund schemes, will drive the industry growth, “ Tata Mutual
Fund chief K.N. Atmaramani said. On the state of market in general, fund chiefs
attempted to allay fears that an overvalued market may pose hurdles to stock picking.
According to them, while investors may feel that information technology,
pharmaceuticals and consumer goods stocks - or the BSE Sensex for that matter – might
have peaked, new opportunities are opening up in areas like retail, healthcare and even in
internet business.
Fund chiefs also made a case for the code to prevent mutual funds from projecting short-
term gains in an attempt to attract investors into their schemes. They were of the view
The winning formula as industry watchers put it is the troika of performance, service
and trust for meeting long term needs or goals.
After this we were allowed to deal independently with the clients on behalf of the
company. We met various clients such as chaetered accountants, professionals, naval
officers, retailers, businessmen, industrialists, salaried persons, retired employees and
others.
During our training we had visited various AMCs like HDFC Asset Management
Company Ltd, Birla Sunlife Assset Management Company Ltd and ICICI Prudential
Asset Management Company Ltd. Where we had a seperaate learning setion conducted
by their Marketing Managers to teach us mutual fund market, present market senario and
various schemes offered by them.
ϖ Investment objectives: Try to establish what client real need is. We must
probe our clients so that their real needs come out and as per their money
requiremets we should suggest them to innvest in.
ϖ Risk tolerance: Are they willing to take higher risk for higher returns or
would they prefere to play it safe and accept lesser returns.
ϖ Return expectations: What kind of returns they are expecting from their
investments, how long they are willing to wait and in what form do they
want e.g. capital appreciation or regualr income.
ϖ Cash flow requirements: How much liquidity they want and when do they
want it.
ϖ Tax benefits: Are clients looking for any tax benefits.
Aggressive Plan: This plan may suited to investors in their prime earining and
willing to take higher risk for higher returns, it is more suitable to clients
seeking growth over a long-term.
Moderate Plan: This plan may suited to investors seeking moderate income
and growth, and looking for stability and growth with moderate risk.
Conservative Plan: more suitable to retireds and other investors who need
regular income and want to preserve their capital, looking for low risk and
there by conservatively low returns.
Stay in touch with clients on a regular basis not only provides more business from
them but also earn the business of their friends and relatives by getting positive
reference from them, this will be created through providing best solution, better
services and through creating faith
We had conducted a market reasearch during our summer training to findout investment
preferences and views of different people from different strata of the society. For this
research we had prepared a questionnarie (Please refere Annexure – 1) to be filled up by
clients to whom we met during our training period.
RESEARCH OBJECTIVE
• Primary Objective
1. Secondary Objective
Along with the primary objective the secondary objective for the research are:
a. To know the investment preferences of people from different strata of society
about avenues.
b. To compare various investment avenues.
c. To know the awareness level for Mutual Funds.
d. To know investors opinion about Mutual Funds.
e. To find out the awareness of various schemes offered by Mutual Funds.
f. To create awareness about Mutual Funds.
g. To analyze various schemes offered by different funds as per investment
objectives.
h. To find out High Net Worth Individuals who regularly invest in Mutual Funds.
RESEARCH DESIGN
Research Design is done mainly on the basis of Observation and Questionnaire rolled
out to know the views and details of the investors. The analysis is based on the
information gathered through questionnaire.
SOURCES OF DATA
• Primary Data
• Secondary Data
SAMPLING PLAN
• Sampling Unit
• Sample Size
Though large sample gives more reliable results than small samples but increases
the cost, time and non-sampling error. Keeping in view these constraints 100
respondents were chosen. Attempts have been made to see that samples are
chosen from different strata and are equally distributed.
ANALYSIS
• Analysis carried out to study level of awareness for various investment avenues
and their preferences among respondents.
24%
10%
14% 11%
Bank Deposits
Direct Equities
RBI Bonds
Postal Schemes
NSC/KVP/PPF
Infrastructure and Other Bonds
Equity Mutual Funds
Debt Mutual Funds
Gold/Jewelry
Real Estate
As it is observed from the above analysis, investors are more preferred Bank deposits and
NSC/KVP/PPF as an investment instrument than any other and their preference level is
around 24% to 26%. For the mutual fund awareness level among the investors is quite low. It
is around 2% to 3% only.
• Analysis carried out to study the most likely place for investment when
respondents’ bank term deposits are likely to mature.
12% 24%
9%
55%
For the above analysis it is cleared that Bank Deposits are most likely place for
investors to park their funds.
72%
From the above analysis it is cleared that safety of Capital is the most important
attribute considered by investors. It weights about 72% against rate of return and
liquidity.
• Analysis carried out to studty degree of risk that investors are likely to take
while selecting investment instrument.
6% 4%
35% 55%
From the above analysis it is observed that investors are more risk aversive and
more concern about safety of their capital. For safety of capital they even
sacrifice high returns at relatelavely high risk.
We have analysed various Mutual Fund Schemes offered by different Fund Houses.
This analysis was done on the basis of data provided to us from Head Office of
Cholamandalam AMC at Chennai (Please refere Annexure – 2) as well as from the
fact sheets of different Funds issued by them on monthly basis.
Looking at two effective indicators of market conditions and different risk and returns
tradeoff we can conclude that Franklin Templeton Blue Chip is most preferable
recommendation to be made, criteria selected sharp ratio, return grade Beta and r-square.
Again looking at Beta of Reliance growth and Reliance vision funds we find that
when an sensex is rising and if we have an aggressive clients those who have an
profit booking and existing strategy may go for such kind of schemes when market
conditions are bullish.
Again sharp ratio of Reliance vision and Prudential ICICI Growth are high we find
that Beta of both the schemes are also high and again it may affect the performance
when taken long term.
Books
Websites
www.mutualfundindia.com www.cholamandalam.com
www.moneycontrol.com www.sebi.com
www.amfiindia.com
Organization Person
1. Cholamandalam Distribution Mr. Mehul Ved and
Services Ltd., Ahmedabad Mr. Vrajesh Kirtania
2. HDFC Asset Management Ms. Ekta
Company Ltd., Ahmedabad
3. Birla Sunlife Asset Management Mr. Monit Ganatra
Company Ltd., Ahmedabad
4. ICICI Prudential Asset Mr. Dhananjay Maheta
Management Company Ltd.,
Ahmedabad