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INTRODUCTION TO THE COMPANY:

CHOLAMANDALAM DISTRIBUTION SERVICES LTD. (CDSL) is an


independent Financial Advisory and Investment company and is one of the
few to have been registered with Association of Mutual Fund in India
(AMFI) for having undertaken to adhere to AMFI Guidelines and Norms for
Intermediaries. CDS is a fully owned subsidiary of Cholamandalam Financial
Services Group, a part of Rs. 4200 Crore Murugappa Group – one of the
most trusted business houses in India.

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.

PRODUCTS OFFER BY CHOLAMANDALAM FINANCIAL SERVICES


GROUP:

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.

5. Non Life Insurance (Personal Lines)


Personal Accident, Health, Travel, Householders, Shopkeepers and Motor
Insurance, Small Business.

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6. Direct Equity
IPOs, Stock Broking and Depository Services (through Cholamandalam
Securities Ltd.)

SERVICES OFFER BY CHOLAMANDALAM FINANCIAL SERVICES:

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.

4. Portfolio Review and Rebalancing


Advising regularly on actual risk level versus ideal risk levels and the need to
change portfolio.

5. Regular News
Updates through email and newsletters.

STRENGTHS OF CHOLAMANDALAM FINANCIAL SERCICES :


1. Research
All product tie-ups, selection and recommendations are screened by a
centralized Research wing and communicated regularly through presentations
(group and one-on-one), house visits, newsletters and research publications.
2. Customized Solution
Each individual has unique financial planning requirements that vary across
his lifecycle. Backed by extensive research, CDS packages and financial
products to suit the needs of each individual depending on specific investment
objectives, tax liabilities, age profile, family circumstances and their risk
appetite. Based on these it provides customized solution to each of its clients
as per their needs and requirements.
3. Convenience
Provides all these products and services at clients’ doorstep – free of cost.

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THE INDIAN FINANCIAL SYSTEM

THE INDIAN FINANCIAL SYSTEM

The Indian Financial System comprises a variety of intermediaries, markets, and


instruments that are related in the manner shown below, it provides the principal means
by which savings are transformed into investments.

Financial Institutions
Funds Funds
Commercial Banks
Insurance Companies
Deposits / Shares
Mutual Funds Loans
Provident Funds
Non-banking Financial Companies

Suppliers of Funds Demanders of Funds


Funds
Private
Individuals Placement Individuals
Businesses Businesses
Governments Securities Governments

Financial Markets
Funds Funds
Money Market
Capital Market
Securities Securities

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FINANCIAL MARKETS
A financial market is a market for creation and exchange of financial assets. If we buy or
sell financial assets, we will participate in financial markets in some way or the other.

Functions of Financial Markets:


1. Financial markets facilitate price discovery. The continuous interaction among
numerous buyers and sellers who throng financial markets helps in establishing
the prices of financial assets.
2. Financial markets provide liquidity to financial assets. Investors can readily sell their
financial assets through the mechanism of financial markets.
3. Financial markets considerably reduce the cost of transaction. Two major costs
associated with transaction are search costs and information costs.

THE INDIAN FINANCIAL SYSTEM

Financial Markets perform an important function of mobilization of savings and


channellising them into the most productive uses. The financial market in India can be
divided into four broad categories:

a) Money Market

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b) Debt Market
c) Forex Market
d) Capital Market

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FINANCIAL INTERMEDIARIES
Financial intermediaries are firms that provide services and products that customers may
not be able to get more efficiently by themselves in financial markets. A
good example of financial intermediary is a mutual fund, which pools the
financial resources of many people and invests in a basket of securities.

Reserve Bank
of India

Commercial Developmental Insurance Other Mutual Non-Banking


Banks Financial Companies Public Funds Financial
Institutions Sector Corporations
Financial
Institutions

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

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MUTUAL FUNDS: AN INTRODUCTION

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.

THE MUTUAL FUND OPERATION FLOW CHART


INVESTORS

Passed Pool their


back to money with

RETURNS FUND
MANAGER

Generate Invest in

SECURITIES

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THE HISTORY OF MUTUAL FUND

Origin: In 1774, a Dutch merchant invited subscription from investors to set up an


investment trust by the name of Eendragt Maakt Magt (translated into English, it means
‘Unity Creates Strength’), with the objective of providing diversification at low cost to
small investors.
The birth of the Investors Trust in US was in 1924; it had started a chain of events that
would bring mutual funds to American homes for good. There was an initial euphoria
among American investors over a new investment vehicle, but much of this died with the
onset of the Great Depression in1929. But the birth of a powerful market regulator,
laying down of rules for all industry participants, enhancement of legislation for the
mutual fund had once again did it and it never stopped up till now.

Mutual Fund – in India:


History of Mutual Funds in India: (Reference: amfiindia.com)

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.

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MUTUAL FUND – A GLOBALLY PROVEN INVESTMENT

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.

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GROWTH IN ASSETS
(Rs. In Crores)

113005

61028 68472

13455

1984-89 1989-94 1998-99 1999-2000

NUMBER OF SCHEMES

337
277

167

21
1984-89 1989-94 1998-99 1999-2000

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How the Mutual Fund Industry Has Grown

Total assets under management in Rs. Crore

160000
140000 140000
120000 121000
100000
80000
60000
40000 47000
20000
0 25 172 4560
1965 1974 1987 1993 2003 2004

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OTHER INVESTMENT OPTIONS AND COMPARISION WITH MUTUAL FUND

Investment Avenues available to the Indian Investors are as follows:


1. Bank Deposits
2. Equity Instruments
3. Debentures
4. Fixed Deposits by Companies
5. Bonds
6. RBI Relief Bonds
7. Public Provident Fund
8. National Saving Certificates / National Saving Schemes
9. Monthly Income Schemes
10. Life Insurance
11. Mutual Funds

• Mutual Funds Vs. Other Investment:

Product Return Safety Liquidity Tax Benefit Convenience

Bank Deposit Low High High No High


Equity Instrument High Low High or No Moderate
Low
Debentures Moderate Moderate Low No Low
Fixed Deposits by Moderate Low Low No Moderate
Companies
Bonds Moderate Moderate Moderate Yes Moderate
Life Insurance Moderate High Low Yes Moderate
Mutual Funds Moderate Moderate High No High
(Open-ended)
Mutual Funds Moderate Moderate High Yes High
(Close-ended)
RBI Relief Bonds Moderate High Low Yes Moderate
PPF Moderate High Low Yes Moderate
National Saving Moderate High Low Yes Moderate
Certificates
Monthly Income Moderate High Low Yes Moderate
Schemes

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.

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• Direct Equity Investment Vs. Mutual Fund Investing:

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.

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MUTUAL FUNDS FOR WHOM?

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.

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WHY MUTUAL FUNDS?

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:

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Investing in a Mutual Fund reduces paperwork and helps you avoid many
problems such as bad deliveries, delayed payments and unnecessary follow up
with brokers and companies. Mutual Funds save time and make investing easy
and convenient.

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.

10. Well Regulated:


All Mutual Funds are registered with SEBI and they function within the
provisions of strict relations designed to protect the interests of investors. The
operations of Mutual Funds are regularly monitored by SEBI.

11. Minimize Operating Costs:


Mutual funds having large investible funds at their disposal avail economies of scale.
The brokerage fee or trading commission may be reduced substantially. The reduced
operating costs obviously increases the income available for investors.

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Investing in securities through mutual funds has many advantages like – option to
reinvest dividends, strong possibility of capital appreciation, regular returns, etc. Mutual
funds are also relevant in national interest. The test of their economic efficiency as
financial intermediary lies in the extent to which they are able to mobilise additional
savings and channelising to more productive sectors of the economy.

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CLASSIFICATION OF MUTUAL FUND SCHEMES

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.

(b) Close Ended Schemes:

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Such schemes have a definite period after which their shares/ units are redeemed.
Unlike open-ended funds, these funds have fixed capitalisation, i.e., their corpus
normally does not change throughout its life period. Close ended fund units trade
among the investors in the secondary market since these are to be quoted on the
stock exchanges. Their price is determined on the basis of demand and supply in the
market. Their liquidity depends on the efficiency and understanding of the engaged
broker. Their price is free to deviate from NAV, i.e., there is every possibility that
the market price may be above or below its NAV. If one takes into account the issue
expenses, conceptually close ended fund units cannot be traded at a premium or over
NAV because the price of a package of investments, i.e., 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. In India as per SEBI (MF)
Regulations every mutual fund is free to launch any or both types of schemes.

B. PORTFOLIO CLASSIFICATION OF FUNDS:


Following are the portfolio classification of funds, which may be offered. This
classification may be on the basis of (a) Return, (b) Investment Pattern, (c)
Specialised sector of investment, (d) Leverage and (e) Others.

(a) Return Based Classification:


To meet the diversified needs of the investors, the mutual fund schemes are made to
enjoy a good return. Returns expected are in form of regular dividends or capital
appreciation or a combination of these two.

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

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a blend of immediate average return and reasonable capital appreciation are
known as “ middle of the road” funds. Such funds divide their portfolio in
common stocks and bonds in a way to achieve

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the desired objectives. Such funds have been most popular and appeal to the
investors who want both growth and income.

A BIG MUTUAL FUND INDUSTRY TODAY


GiltELSS
3% 1%

Liquid/Money
Market
10%

Balanced
11%
Income
63%
Growth
12%

TOTAL ASSETS : Rs. 1.2 Lakh Crore across 401 Schemes

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(b) Investment Based Classification:
Mutual funds may also be classified on the basis of securities in which they
invest. Basically, it is renaming the subcategories of return based
classification.

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.

(c) Sector Based Funds:


There are number of funds that invest in a specified sector of economy. While such
funds do have the disadvantage of low diversification by putting all their all eggs in
one basket, the policy of specialising has the advantage of developing in the fund
managers an intensive knowledge of the specific sector in which they are investing.
Sector based funds are aggressive growth funds which make investments on the
basis of assessed bright future for a particular sector. These funds are characterized
by high viability, hence more risky.

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AHMEDABAD MARKET”
Type of Fund Characteristics Recommendation time
frame of
investment
Sector Fund Concentration on specific 5 years
sectors and are
designed to give
diversification in
that sector.
Diversified Growth Gives superior returns but 3 – 5 years
Fund highly volatile in
the short term.
Best suited for
wealth
accumulation
and long term
goal.
Balanced Funds Gives an optimal mix of 2 – 3 years
capital
appreciation and
stability of
capital.
Income Funds Gives modest returns but are ½ - 3 years
more stable in
value. Best
suited for current
– regular
income.
Money Market Funds Provides total principal Less than 6 months
safety and more
attractive yields
compared to
bank deposits.
Best suited for
instant access to
money.

A REPORT ON “ PROSPECTING CUSTOMERS FOR INVESTMENT IN MUTUAL FUND-


AHMEDABAD MARKET”
OTHER INVESTMENT PLANS AND SERVICES IN MUTUAL FUNDS

1) SYSTEMATIC INVESTMENT PLAN

Systematic Investment Plan (SIP) is a simple, time-honored strategy designed to help


investors to accumulate wealth in a discipline manner over the long-term and to plan a
better future for them. SIP is more suitable for a salaried employee with investible
savings every month and who wishes to generate better returns than other instruments
at a low risk of price volatility.

How do SIPs work? Instead of a lumpsum amount, you invest a pre-specified


amount in a scheme at pre-specified intervals. The number of units that accrue to you
on each periodic investment is a function of the then prevailing net asset value (NAV)
of the scheme you have opted for. Thus irrespective of market conditions, your cost of
investment will be mostly lower than the average cost of market prices.

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.

1. Power of compounding – The benefit of starting early

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.

2. Rupee Cost Averaging – The power of disciplined investment


Investing would be simple if you always pick the best time to buy and sell.
However, timing the market consistently can be difficult task and you could be
hit with a loss sooner at later. What you need is an automatic market timing
mechanism like Rupee Cost Averaging (RCA) that eliminates the need to time
your investments. In other words, with RCA you don’t have to worry about
where share prices or interest rates are headed. You just invest a fixed amount at
regular interval, regardless of NAV. The idea is that you buy fewer units when
NAV is higher and more when it is lower. This is in line with our natural desire
to buy low and sell high and when money is invested regularly, the average cost
unit is smoothened out over time – over high and low NAV.

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AHMEDABAD MARKET”
RCA however, does not guarantee a profit. But with a sensible and long-term
investment approach, it can smoothen out the market ups and downs and reduce
the risk of investing in volatile markets.

How do SIPs better market average?

Rising Market Falling Market Volatile Market


Month Amount NAV Units NAV Units NAV Units
Invested Allotted Allotted Allotted
(Rs.)
1 1000 10 100 10 100 10 100

2 1000 12 83.33 8 125 12 83.33

3 1000 14 71.43 6 166.67 8 125

4 1000 16 62.5 4 250 10 100

TOTAL 4000 52 317.26 28 641.67 40 408.33

Average Cost 12.61 6.23 9.8


per Units
(Total (Average Cost 13) (Average Cost 7) (Average Cost 10)
Investment/Total
Units Allotted)

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.

3. Convenience – Save yourself the trouble of doing the same thing


Investor does not have to take time out from his busy schedule for managing
his investments. Enroll for the SIP by starting an account and providing the
fund with post-dated cheques of periodic investment (monthly, quarterly)
based on his convenience. Investor can relax once he has enrolled the form
along with post-dated cheques. Fund then bank his cheques on the requested
date and credit the units to his account. Besides the fund will send quaterly
reports giving complete transparency about his investments.

4. A boon for small investors (Low income group)

A REPORT ON “ PROSPECTING CUSTOMERS FOR INVESTMENT IN MUTUAL FUND-


AHMEDABAD MARKET”
SIP has proved to be a boon for small investors, who has got a small saving every
month, but cannot find a suitable scheme to invest. Mutual funds SIP plan
provides a higher return than other small saving scheme.

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AHMEDABAD MARKET”
2) AUTOMATIC REINVESTMENT PLAN (ARP)

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.

3) SYSTEMATIC WITHDRAWAL PLAN (SWP)

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.

4) SYSTEMATIC TRANSFER PLAN

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.

A REPORT ON “ PROSPECTING CUSTOMERS FOR INVESTMENT IN MUTUAL FUND-


AHMEDABAD MARKET”
MUTUAL FUND CONSTITUENTS

All mutual funds comprise four constituents – Sponsors, Trustees,


Asset Management Company (AMC) and Custodians.
a) Sponsors:
The sponsors initiate the idea to set up a mutual fund. It
could be a registered company, scheduled bank or financial
institution. A sponsor has to satisfy certain conditions, such
as capital, record (at least five years’ operation in financial
services), de-fault free dealings and general reputation of
fairness. The sponsors appoint the Trustee, AMC and
Custodian. Once the AMC is formed, the sponsor is just a
stakeholder.
b) Trust/ Board of Trustees:
Trustees are like internal regulators in a mutual fund, and their job is to protect the
interest of unit holders. Sponsors appoint trustees. Trustees float and market
schemes, and secure necessary approvals. They check if the AMC’s investments are
within well-defined limits, whether the fund’s assets are protected, and also ensure
that unit holders get their due returns. They also review any due diligence by the
AMC. For major decisions concerning the fund, they have to take the unit holders
‘consent. They submit reports every six months to SEBI; investors get an annual
report. Trustees are paid annually out of the fund’s assets – 0.5 percent of the weekly
net asset value.

c) Fund Managers/ AMC:


An AMC-Asset Management Company is the legal entity
formed by the sponsor to run a mutual fund. They are the
ones who manage money of the investors. There is the head
of the fund house, generally referred to as the chief
executive officer (CEO). Under him comes the chief
investment officer (CIO), who shapes the fund’s investment
philosophy, and the fund managers, who manage its
schemes. They are assisted by a team of analysts, who track
markets, sectors and companies. An AMC takes decisions,
compensates investors through dividends, maintains proper
accounting and information for pricing of units, calculates the
NAV, and provides information on listed schemes. It also
exercises due diligence on investments, and submits
quarterly reports to the trustees. A fund’s AMC can neither
act for any other fund nor undertake any business other than
asset management. Its net worth should not fall below Rs. 10
Crore. And, its fee should not exceed 1.25 percent if
collections are below Rs. 100 Crore and 1 percent if

A REPORT ON “ PROSPECTING CUSTOMERS FOR INVESTMENT IN MUTUAL FUND-


AHMEDABAD MARKET”
collections are above Rs. 100 Crore. SEBI can pull up an AMC
if it deviates from its prescribed role.
d) Custodian:
Often an independent organisation, it takes custody of securities
and other assets of mutual fund. Its responsibilities include
receipt and delivery of securities, collecting income-distributing
dividends, safekeeping of the units and segregating assets and
settlements between schemes. Their charges range between
0.15-0.2 percent of the net value of the holding. Custodians can
service more than one fund.

FUND STRUCTURE AND ITS CONSTITUENTS

FUND STRUCTURE

FUND SPONSOR

TRUSTEES

ASSET MANAGEMENT COMPANY

DEPOSITORY AGENT CUSTODIAN

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AHMEDABAD MARKET”
BASIC PRINCIPLES ON WHICH A MUTUAL FUND OPERATES

1. Open-ended / Closed-end Schemes:


Based on the accessibility they provide investors, mutual fund schemes can be
classified into ‘open-ended’ and ‘close-end’. Open-ended schemes, as their mane
suggests, don’t have a fixed tenure and are always open for investment. We can
invest them any time. Same for withdrawals. This ease can entry and exit makes
them more popular choice among both mutual funds and investors.
Close-end schemes, on the other hand, are of fixed tenure, which is stated at the
time of the birth itself. Such schemes invite subscriptions only once during their
lifetime, at the time of launch. And we can sell our units in the market. Most of
the closed-end schemes are listed on stock exchange.

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.

4. Net Asst Value (NAV):


Units are allotted on the basis of a scientific pricing mechanism. This price,
measured per unit, is called the net asset value (NAV) of the unit. Just as a share
or bond is bought and sold at a price, a mutual fund is bought and sold at NAV.
If, we invest Rs. 10,000 in a scheme when its NAV is Rs. 10, then we get 1000
units of that scheme.
NAV of any scheme tells how much each unit of it worth at any point in time,
and is therefore the simplest measure of how it is performing.

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:

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AHMEDABAD MARKET”
This is what fund charges for managing investors’ money. Fund managers have to
be paid a fee, as do the other constituents involved in managing money. All this
entails costs, which schemes recovers from investors, within limits. Every year, a
fund charges some amount to scheme’s NAV, reducing returns by that amount.
SEBI rules allow equity schemes to charge a maximum of 2.5% of corpus as
expenses every year; the corresponding figure for debt schemes is 2.25%.

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.

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AHMEDABAD MARKET”
REGULATIONS FOR MUTUAL FUND IN INDIA

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.

SCHEMES OF MUTUAL FUND

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.

INVESTMENT OBJECTIVES AND VALUATION POLICIES

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AHMEDABAD MARKET”
17. Money collected under any scheme of a mutual fund shall be invested only in
transferable securities in the money market or in the capital market or in privately
placed debentures or securities debts.
18. Provided that money collected under any money market scheme of a mutual fund
shall be invested only in money market instruments in accordance with directions
issued by the Reserve Bank of India.
19. The mutual fund can not able to borrow except to meet temporary liquidity needs of
the mutual funds for the purpose of repurchase, redemption of units or payment
of interest or dividend to the unit holders.
20. The mutual fund can not advance any loan for any purpose.
21. Each mutual fund should compute and carry out valuation of its investments in its
portfolio and publish the same in accordance with the valuation norms specified
in schedule 80.
22. Each mutual fund should compute the Net Asset Value of each scheme by dividing
the net assets of the scheme by the number of units outstanding on the valuation
date.
23. The Net Asset Value of the scheme should be calculated and published atleast in two
daily newspapers at intervals of not exceeding one week.
24. The price at which the units may be subscribed or sold and the price at which such
units may be repurchased by the mutual fund should be available to the investors.

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

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AHMEDABAD MARKET”
be made with prior approval of the Board of Trustee and the Board of Asset
Management Company.
31. No mutual fund should own more than 10% of any company’s paid up capital
carrying voting rights under all its schemes.
32. Transfers of investments from one scheme to another (switch over) in the same
mutual fund should be allowed if-
a. Such transfer is done at the prevailing market price for quoted instruments
on spot basis.
b. The securities so transferred should be in conformity with he investment
objective of the scheme to which such transfer is being done.

I. Transfer of investment may be done in another scheme of the same asset


management company or any other without charging any fees.
II. The initial issue expenses in respect of any scheme may not exceed six per
cent of the funds raised under the scheme.
III. Each mutual fund should get the securities purchased or transferred in the
name of the mutual fund on account of the concerned scheme, wherever
investments are intended to be of long-term nature.
IV. Each mutual fund can diversified its portfolio of each scheme as per
market condition and this should be published by that fund in the
monthly fact sheets issued to investors.
V. No mutual fund scheme should make any investment in;
1) Any unlisted security of an associate or group company of the sponsor, or
2) Any security issued by way of private placement by an associate or group
company of the sponsor, or
3) The listed securities of group companies of the sponsor, which are in
excess of 30% of the net asset of all the schemes of a mutual fund.

• 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.

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AHMEDABAD MARKET”
TAX ASPECTS OF MUTUAL FUND

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.

• Taxation in hands of funds:


When we talk about a mutual fund for taxation purposes, we mean the legally
constituted trust that holds the investors’ money. It is this trust that earns and receives
income from investments it makes on behalf of investors. Most countries do not
impose any tax on this entity – the trust – because income it earns is meant for the
investors. The trust is considered to be only a pass through entity. It would double the
tax payment when first trust and then an investor pays tax on same amount of
income. Generally the trust is exempted and the investor pays the tax on his share of
the income.

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.

• Taxation in hands of the investors:


Tax rebate available to individual investor on subscriptions to mutual funds in
accordance with section 88 of the Income Tax Act.
Investment upto Rs. 10,000 in an equity linked saving schemes qualifies for tax
rebate of 20%.
However, total investment eligible for tax rebate under section 88 is not allowed to
exceed fro Rs. 60,000.

• Taxation on dividends received from mutual funds


From financial year 2002-2003 the dividend in hands of investors is completely tax-
free. There is no dividend tax to be paid by investors. Tax is already paid by funds at
the rate of 12.5% before distributing to investors.

• Taxation on capital gain in hands of the investors:


Capital gains tax is charged when something is sold at profit. If the investor sells his
units and earns capital gain, the investor is subjected to the Capital Gain Tax.

1. Capital Gain on sale of units for short term:


If units are held for not more than 12 months, they will be treated as short-term
capital gain. The tax charged depends on the income bracket of the investor.

A REPORT ON “ PROSPECTING CUSTOMERS FOR INVESTMENT IN MUTUAL FUND-


AHMEDABAD MARKET”
2. Capital Gain on sale of units for long term:
If units are held for more than 12 months, they will be treated as long-term
capital gain.
Here investor gets the benefit of ‘Indexation’ by which his purchase price is
marked up by an inflation index.
The tax charged at either 10% flat rate or 20% with indexation at investor’s
option.

• Wealth Tax:
Ownership of units is not considered as ‘wealth’ under the Wealth Tax Act, and is
therefore not charged to wealth tax.

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AHMEDABAD MARKET”
RIGHTS AND DUTIES OF AN INVESTOR

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 of proportionate ”Beneficial Ownership”


Unit-holders have the right to have beneficial ownership of the scheme’s assets. They
have right to have dividend and/or income declared under the scheme. The right to
assets, income etc. is in proportion that the units held by the unit-holder bears to the
total number of the fund units issued and outstanding.

Right to have timely services


• Unit-holders are entitled to receive dividend warrants within 30 days of the date
of declaration
• Unit-holders have the right to payment of interest at 15% per annum in the event
of failure on the part of the mutual fund to dispatch the redemption or
repurchase proceeds within 10 working days such interest must be born by the
AMC.
• When any investor is failed to claim redemption proceeds or dividends due to
him, he has the right to do so within a period of 3 years of the due date at the
prevailing NAV. After 3 years, he will be paid at the NAV applicable at the
end of the third year.
• For initial offers in case of open-ended schemes, investors have a right to expect
the allotment of units and dispatch of account statement to be completed
within 30days from the closure of the initial offer period.

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.

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AHMEDABAD MARKET”
Right to approve changes in fundamental attributes of the scheme
A change in ‘fundamental attributes’ of a scheme (type of scheme, investment
objective, terms of issue), or trust or fees and expenses payable or any other change
which would modify the scheme and affects interest of investors can’t be carried out
until investors are individually informed in writing and advertisements about the
proposed changes are given in an English newspaper having countrywide circulation
and in a newspaper published in the language of the region in which the head office
is located.

Right to terminate the AMC


The approval of an AMC of a fund can be terminated by 75% of the unit-holders of
the scheme with the prior approval of SEBI.

Right to wind-up a scheme


If 75% of the investors pass a resolution demanding the Trustees to wind-up a
scheme prior to its earlier fixed duration then fund has to repay the investors. This
right applies to both close-ended funds and open-ended funds.

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.

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AHMEDABAD MARKET”
MARKETING OF MUTUAL FUNDS

MARKETING STRATEGIES ADOPTED BY THE MUTUAL FUNDS


The present marketing strategies of mutual funds can be divided into two main headings:
i) Direct marketing
ii) Selling through intermediaries
iii) Joint Calls

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.

2) Selling through intermediaries:


Intermediaries contribute towards 80% of the total sales of mutual funds.
These are the people/ distributors who are in direct touch with the investors.

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AHMEDABAD MARKET”
They perform an important role in attracting new customers. Most of these
intermediaries are also involved in selling shares and other investment
instruments. They do a commendable job in convincing investors to invest in
mutual funds. A lot depends on the after sale services offered by the
intermediary to the customer. 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.
Regular Meetings with distributors: Most of the funds conduct monthly/bi-
monthly meetings with their distributors. The objective is to hear their
complaints regarding service aspects from funds side and other queries related
to the market situation. Sometimes, special training programmes are also
conducted for the new agents/ distributors. Training involves giving details
about the products of the fund, their present performance in the market, what
the competitors are doing and what they can do to increase the sales of the
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.

MARKETING OF MUTUAL FUNDS: CHALLENGES AND OPPORTUNITIES


When we consider marketing, we have to see the issues in totality, because we cannot
judge an elephant by its trunk or by its tail but we have to see it in its totality. When we
say marketing of mutual funds, it means, includes and encompasses the following
aspects:
• Assessing of investors needs and market research;
• Responding to investors needs;
• Product designing;
• Studying the macro environment;
• Timing of the launch of the product;
• Choosing the distribution network;
• Finalising strategies for publicity and advertisement;
• Preparing offer documents and other literature;
• Getting feedback about sales;
• Studying performance indicators about fund performance like NAV;
• Sending certificates in time and other after sales activities;
• Honouring the commitments made for redemptions and repurchase;

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• Paying dividends and other entitlements;
• Creating positive image about the fund and changing the nature of the market itself.
The above are the aspects of marketing of mutual funds, in totality. Even if there is a
single weak-link among the factors, which are mentioned above, no mutual fund can
successfully market its funds.
Widening, Broadening and Deepening the Markets
There are certain issues that are directly linked with the marketing of mutual funds, the
first of which is widening, broadening and deepening of the market for the mutual fund
products. Consider the geographical spread of the investors in the mutual fund industry.
Almost 80% of the funds are mobilised from less than 10 centres in the country. In fact
there are only around 35 centres in the country, which account for almost 95% of the
funds mobilised. Considering the vast nature of this country, the first priority is that the
geographic spread has to be widened and the market has to be deepened. Secondly, the
mutual funds must try to spread their wings not only within the country, but also outside
the country.

A. Markets in Rural and Semi-Urban Areas


There exists a large investor base in rural and semi-urban areas, having a population
of about one lakh, which normally has access to only post office savings and bank
deposits. This is the single largest untapped market for mutual funds in India.
Rural marketing, unlike the marketing of mutual funds in the metros and urban
areas, would require a completely different strategy, and different means of
communication to the target customer. Typically, investors in the rural and semi-
urban areas are not well educated and are inadequately exposed to the capital market
mechanisms. Therefore, more emphasis has to be given to the electronic media and
other forms of publicity such as wall paintings, hoardings, and educational films. It
is also important to utilise the services of local intermediaries like gram sevaks,
postmasters, school teachers, agricultural co-operative societies and rural banks. It
would therefore be more expensive to market mutual funds in such markets than
marketing in the cities.
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 ,
translate that awareness into increased fund mobilsation. The retail distribution
network, comprising of the district representatives and the collection centres can be
best utilised to create such awareness and expand the market. Simplification of
literature in regional languages, group meetings in these semi-urban and rural areas,
visits by mobile vans with some audio visual aids and the like, should help develop
these markets. In other words, the untapped markets in the country should ideally be
the first thing that the mutual funds in India should endeavour to tap, not entirely
relying upon the investors in the 35 odd cities of the country. By concentrating on
these areas, the investor base will get more broad based. Once the semi urban
population gets acquainted with the concept of mutual funds, it will naturally give
the much needed stability to the market.

B. Overseas Markets

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The second aspect with respect to the widening and deepening the market is
expanding the overseas investor base. A target group with large potential, which can
be tapped is Non-Resident Indians(NRI). If offered after sales services of
international standard, reasonable return and easy access to information, NRI’s are
willing to invest in Indian mutual funds. The expansion of the distribution network
and quick dissemination of information, coupled with prompt and timely service,
efficient collection and remittance mechanism, will play an important role in
mobilising and retaining these funds. NRI’s will also require a continuous presence
in their market, because that generates trust and confidence, which translates into
sustained mobilisation of funds.

PRODUCT INNOVATION AND VARIETY


A. Investor Preferences
The challenge for the mutual funds is in the tailoring the right products that will help
mobilising savings by targeting investors’ needs. It is necessary that the common
investor understands very clearly and loudly the salient features of funds, and
distinguishes one fund from the another. The funds that are being launched today are
more or less look-alikes, or plain vanilla funds, and not necessarily designed to take
into account the investors’ varying needs.
The Indian investor is essentially risk averse and is more passive than active. He is
not interested in frequently changing his portfolio, but is satisfied with safety and
reasonable returns. Importantly, he understands more by emotions and sentiments
rather than a quantitative comparison of funds’ performance with respect to an
index. Mere growth prospects, in an uncertain market, are not attractive to him. He
prefers one bird in the hand to two in bush, and is happy if assured a rate of
reasonable return that he will get on his investment. The expectations of a typical
investor, in order of preference are the safety of funds, reasonable return and
liquidity.
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. That purpose may be his child’s education and career
development, medical expenses, health care after retirement, or the need for steady
and sure income after retirement. In a country where social security and social
insurance are conspicuous more by their absence, mutual funds can pool their
resources together and try to mobilise funds to meet some of the social needs of the
society.

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.

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The industry can also design separate funds to attract semi-urban and rural investors,
keeping their seasonal requirements in mind for harvest seasons, festival seasons,
sowing seasons, etc.

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.

Retail through agents


The alternative distribution channels that are available are selling, or using lead managers
and brokers along with sub-brokers, for selling units. The experience of UTI has been
that, if necessary motivation and incentive is provided to the retailer agents, they are
likely to be more successful than the lead managers. This is because, there is a sense of
loyalty amongst agents, in anticipation of getting continuous business throughout the
year, and the trust and credibility that has been generated or will be generated by being
loyal to one institution. Statistics reveal that the wastage ratio of application forms in the
lead manager concept, is much higher than in the retail agency system. Savings in
advertisement and publicity expenses is also affected, as the target of communication is
restricted to a few group of individuals, since the agent will function as a facilitator,
informer and educator. The reduced cost benefit will ultimately accrue to the investor in
the form of higher returns.
In such a system, one achieves brand loyalty through continuous interaction between
agents and investors. Building a team of agents and other distribution network such as
distribution and collecting agents and franchise offices, will provide the investor the
opportunity of having continuous interaction and contact with the mutual fund.
Therefore, retail distribution through the agents is a preferred alternative for distributing
mutual fund products.

ADVERTISING AND SALES PROMOTION


By their very nature, mutual funds require higher advertisement and sales promotion
expenses than any consumer product offering measurable performance. Different kinds
of advertising and sales promotion exercises are required to serve the needs of different
classes of investors. For instance, an aggressive ‘push’ marketing strategy is required for
retail markets, where investors are not adequately aware of the product and do not have
specialised skill in financial market, in contrast with ‘pull’ marketing strategies for the
wholesale market.
There are certain issues with reference to advertisement, publicity literature and offer
documents, which deserve attention. Most of the mutual fund advertisements look
similar, focusing on scheme features, returns and incentives. An investor exposed to the

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increasing number of mutual fund products finds that all the available brands are rather
identical, and cannot appreciate any distinction.
The present form of application, brochures and other literature is generally lengthy,
cumbersome and at times complicated leading to higher emphasis on advertisement. One
of the limiting factors is the regulatory framework governing advertisements of mutual
fund products. For instance, in the offer documents, mutual funds are required to
mention the fund objectives in clear terms. Immediately thereafter, the first risk factor
that has to be mentioned is that there is no certainity whether the objectives of the fund
will be achieved or not. Some more relaxations in these may facilitate bringing more
novelty in advertisements, within a broad framework, without luring investors through
false promises, and will certainly improve the situation.
Another hurdle is the statutory disclaimer required to be carried along with every
advertisement. Mutual funds have to provide risk factors.
Under the present mutual fund regulations, a prior approval by SEBI is a must before a
mutual fund can launch its fund. In the regulation itself, a period of one month has been
provided. But in a month’s time, perhaps the situation may so change, that the timing of
launch gets affected. The requirement for getting approval, which normally takes about 2
months’ time, defeats the purpose for which the fund was designed also.

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QUALITY OF SERVICE
This industry primarily sells quality of services, given that the performance cannot be
promised. It is with this attribute along with procedural simplicity, that the fund
gradually builds its brand and its class of loyal investors. The quality of services are
broadly categorised as:
ϖ Timely services after the sale of the units; and
ϖ Continuous reporting of investment performance.
Mutual fund managers must give due attention and evaluate their performance on each
front. They may also consider an option of conducting a service audit for controlling and
improving the quality of service.

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

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This segment characterizes large number of participants but low individual
volumes. It consists of individuals, Hindu Undivided Families, and firms. It may be
further sub-divided into:
i. Salaried class people;
ii. Retired people;
iii. Businessmen and firms having occasional surpluses;
iv. HUF’s for long term investment purpose.

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

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tax treaties. The range of suitable products are required to design to divert the funds
flowing into bank accounts.

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

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that, “ Mutual Funds have to agree to present performances in an annualised fashion,
over a longer period. The industry as a whole should standardise its performance.”

The winning formula as industry watchers put it is the troika of performance, service
and trust for meeting long term needs or goals.

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FINDINGS DURING SUMMER TRAINING AT CHOLAMANDALAM
DISTRIBUTION SERVICES LTD.

Before undergoing my summer training at Cholamandalam Distribution Services Ltd.


(CDSL). We were not so familier with Mutual Funds and its concept. During the first
week we were given the detailed knowledge about mutual fund, various fund houses as
well as various schemes of different funds. As CDSL provides distribution services we
are able to get knowledge and learning of different fund houses. We were taught by Mr.
Vrajesh Kirtania and Mr. Mehul Ved at Ahmedabad office. We were told to go in the
field with sales executives of the company and closely observed the conversation
between the client and a sales executive. We had been with other sales executive for two
clients individually, this a part of our training to learn how to deal with customers and
how to recommend schemes to them as per their requirements. From this practicle
training even we came to know about, what were the questions arising in the minds of
clients. This training provided us the confidence required to deal with clients, which
according to us no theoretical training would have provided. We were providing mutual
fund advisory to various clients during my summer training.

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.

• Responses of the clients towards mutual funds:


• Some of the chartered accountants were not at all willing to invest or even advise
their clients to invest in mutual funds because of their bitter experience about
US-64.
• Generally salaried employees, retired ones and small businessmen who have not
lost the trust on mutual funds and who wants low risk, safety, liquidity and
transperancy were willing to invest in mutual funds.
• As I entred in the market after such a huge crash with 800 points, means after
Black Monday (dated 17th May) market had crashed by anything so that it
became very difficult to convince clients to invest in such a down market
senario. In that senario market had seen without any direction as the Budget
for the financial year 2004-2005 was being announced on 8th July. In this
uncertain condition we recommended our clients to go for SIPs to avoid
market risk and to absorb thecurrent volatility.

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• clients who wanted to invest were generally adviced to invest in Monthly Income
Plans due to the present condition of equity market.
• We had suggested Systematic Investment Plans to most of the clients who were
salaried employees or having very small amount of savings, as SIPs absorbe
market volatility it gives good returns on investment even in falling market.
• As market was very volatile and falling no client was ready to invest in equity
schemes.
• As mutual fund return are based on NAV and not fixed like FDs it is
comparatively very difficult to convince a person for mutual fund than FD.

• Keys to become successful mutual fund distributor and advisor:

1. Know your products


To make a favourable impression on clients, we need to understand mutual fund
schemes in which we deal and be able to explain their investment objectives, risk,
and any specific features of the schemes. Also require to keep ourselves up to
date with market track record, track record of schemes and the overall
performance of mutual fund industry.

Before recommending any scheme we must know:


1) The strnghts of the asset management companies and sponsors of various
funds
2) Plans available and advantages of such plans.
3) Nature of the schemes ( does it provide growth option and/or dividend
option)
4) Potential for returns
5) Tax benefits
6) Operational details such as how to buy, how to sell, how to transfer and
their procedures.,etc.

2. Know your clients


Financial needs of different clients are different, it depends upon their age,
earnings, savings, their requirements, standard of living etc.

Some broad types of clients:


ϖ Young and accumulating: Typically under 40, seeking to build capital for a
long-term goal such as buying a house, buying a car, children’s education
or a family wedding and for other family requirements. They are willing
to take higher risk for higher returns.
ϖ Middle-aged with family commitments: Typically between 40 to 60, in their
prime earning years and with family responsibilities that require a large
and periodic expenditures. They may willing to sacrifice higher returns for
a regular and stable income with low risk.
ϖ Retired : Typically over 60, seeking regulat income to meet their regular
expenses and primarily concern with safety of their principal.
ϖ Institutions and High Networth Individuals(HNIs):Corporates, banks, trusts,
business houses and waelthy investors who seek an appropriate combination
of tax benefit and income depending upon their returns for a stable investment
and lower risk

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3. Prioritize your clients:
To make the most of our time, we must identify clients with whom we can
establish a good business relationship. There are 3 types of clients respective,
potential and independent minded. The respective clients are those who are
ready to work with you to develop a financial plan and have discipline to
invest regularly. The potential clients are those who wishes to become
successful invesstor, but does not discipline or patience to do so. If we work
closely with these clients then they will become our rank clients. The
independent minded clients are those who do not use financial intermediaries
and prefer direct investing. These clients need to be cultivated over time.

4. Understand your client’s needs:


For us to able to recommend a sound financial plan to our clients, we must
understand their need and priorities. Find out client’s:

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.

5. Help them to choose their investment avenues:


Having understood clients profile and needs, we now have to advice them
schemes to invest in. it might be a selection of only one scheme or funf or
combination of various schemes.
There are three types of fiancial planning that will be advices to clents as per
their requirements and ability ti invest.

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.

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6. Encourage regular investments:
Advice clients to invest early and stick to a regular investment plan. This will
help them to make more money because the power of compounding enables
cliens to earn income on income and their money to multily at compounded
rates.

7. Provide personalized services to clients:


One of the most important responsibilities of a professional advisor is to provide
promt, effeicent and courteous services to his clients. By this way he can built up
lasting relationship with his clients.
ϖ Making periodic calls for providing advices for further investment or for
redemption as per market conditions.
ϖ Assessing any change in their personal cicunstances which may call for a
review of the financial plan recommnded by advisor.
ϖ Regular updation client’s portfolio as per NAV on daily or weekly basis.
ϖ Informing them about new schemes and products that could be useful to them
ϖ Providing market related informations through e-mails or letters.

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

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RESEARCH ANALYSIS

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

The study the Mutual Fund Market of Ahmedabad.

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

Primary data has been collected through well – equipped Questionnaire by


interviewing investors and having an informal talk during the meeting with
respondents. Questionnaire has been attached as an Annexure – 1.

• Secondary Data

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Secondary data about Mutual Funds have been collected from the fact sheets of
various Mutual Funds available from Cholamandalam Distribution Service Ltd
(CDSL). Information is also gathered from various books, magazines and
websites.

SAMPLING PLAN

• Sampling Unit

The sampling unit primarily consists of investors like chaetered accountants,


professionals, retailers, businessmen, industrialists, salaried persons, retired employees
etc. Stratified random sampling method has being used. The sampling unit is
taken from regions of Ahmedabad.

• 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 of surveyed data was done by several ways. e.g.


i. To study level of awareness for various investment avenues and their preferences
among respondents.
j. To study the most likely place for investment when respondents’ bank term
deposits are likely to mature.
k. To study attributes considered by investors while making investments.
l. To study degree of risk that investors are likely to take while selecting
investment instrument.

• Analysis carried out to study level of awareness for various investment avenues
and their preferences among respondents.

A REPORT ON “ PROSPECTING CUSTOMERS FOR INVESTMENT IN MUTUAL FUND-


AHMEDABAD MARKET”
2%1% 5% 4%
26%
3%

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%

Insurance Bank Deposits Mutual Fund Direct Equity

For the above analysis it is cleared that Bank Deposits are most likely place for
investors to park their funds.

• Analysis carried out to study different attributes considered by investors while


making investments.

A REPORT ON “ PROSPECTING CUSTOMERS FOR INVESTMENT IN MUTUAL FUND-


AHMEDABAD MARKET”
8% 20%

72%

Rate of Return Safety of Capital Liquidity

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%

Moderate Current Income and Safe


Current Income and Moderate Risk
High Returns and Moderate High Risk
High Returns and High Risk

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.

A REPORT ON “ PROSPECTING CUSTOMERS FOR INVESTMENT IN MUTUAL FUND-


AHMEDABAD MARKET”
• Analysis of various Mutual Fund Schemes:

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.

A REPORT ON “ PROSPECTING CUSTOMERS FOR INVESTMENT IN MUTUAL FUND-


AHMEDABAD MARKET”
MARKET PLAYERS SUMMARY
Players Public / Private Sponsor / Collaboration
Sector
Alliance Mutual Fund Private Alliance Capital
Standard Chartered Mutual Private Standard Charrtered Bank
Fund
Birla Sunlife Mutual Fund Private Birla & Sun Life
BOB Mutual Fund Public Bank of Baroda
BOI Mutual Fund Public Bank of India
Cholamandalam Mutual Fund Private Cholamandalam Finance &
Cazenove Asset Mgmt.
DSP Merrill Lynch Mutual Private DSP & Merrill Lynch
Fund
Dundee Mutual Fund Private Dundee Bancroft. Canada
Escort Mutual Fund Private Escort Group
First India Mutual Fund Private First Leasing & MetLife
LIC Mutual Fund Public Life Insurance Corp. of India
HDFC Mutual Fund Private HDFC
ICICI Prudential Mutual Fund Private ICICI Prudential
Franklin Templeton Mutual Private Franklin Templeton India Ltd
Fund
IDBI Principle Mutual Fund Private IDBI and Principle Group, USA
IL & FS Mutual Fund Public IL & FS
ING Saving Trust Mutual Fund Private ING Vyasa Bank
Indbank Mutual Fund Public Indian Bank
JM Mutual Fund Private JM Finance
Kotak Mahindra Mutual Fund Private Kotak Mahindra
Kotak Pioneer Mutual Fund Private Investment Trust of India &
Pioneer Group
GIC Mutual Fund Public General Insurance Corp. of
India
Morgan Stanley Mutual Fund Private Morgan Stanly
PNB Mutual Fund Public Punjab National Bank
Relience Mutual Fund Private Relience Group
SBI Mutual Fund Public State Bank of India
Shriram Mutual Fund Private Shriram Group
Sundaram Mutual Fund Private Sundaram Finance & Newton
Asset Mgmt., UK
Tata Mutual Fund Private Tata & Td Waterhouse, USA
Taurus Mutual Fund Private Creditcapital & Lazard Bros.
Unit Trust of India Mutual Fund Public Government of India, RBI, SBI,
IDBI

A REPORT ON “ PROSPECTING CUSTOMERS FOR INVESTMENT IN MUTUAL FUND-


AHMEDABAD MARKET”
ANALYSIS OF VARIOUS MUTUAL FUND SCHEMES OFFERED BY DIFFERENT FUNDS

Name of Sharp P/E Expenss R Risk AUM in Al


Scheme e Ratio Ratio Ratio % Square Grade Rs. In
Cr
HDFC Equity 1.57 13.11 2.22 0.82 Low 979.1298 0
Fund
HDFC Growth 1.37 12.3 2.25 0.81 Below 308.0233 0
Fund Average
Templeton 1.31 11.38 2.28 0.66 Average 1607.228 0
Bluechip Fund
Templeton 1.60 13.56 2.00 0.89 Below 641.7033 0
Prima Fund Average
ICICI 1.00 12.06 2.22 0.91 Above 489.74 0
Prudential Average
Growth Fund
ICICI 1.47 12.2 2.31. 0.8 Average 661.54 0
Prudential
Power Fund
Relience Vision 2.06 14.63 1.75 0.7 Low 990.28 0
Fund
Relience 1.87 11.33 2.3 0.73 Below 495.62 0
Growth Fund Average

A REPORT ON “ PROSPECTING CUSTOMERS FOR INVESTMENT IN MUTUAL FUND-


AHMEDABAD MARKET”
BIBLIOGRAPHY

Books

& Hand Book for Writers and Editors, S.S. Rao


& Mutual Fund Advisors, NIS Sparta Ltd.
& Financial Management, Prasanna Chandra
& AMFI Test Work Book
& The Layman’s Guide to Mutual Funds, HSBC Mutual Fund
& Monthly Fact Sheets Issued by Fund Houses

Websites

www.mutualfundindia.com www.cholamandalam.com
www.moneycontrol.com www.sebi.com
www.amfiindia.com

We are indebted to the following persons for their kind cooperation

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

A REPORT ON “ PROSPECTING CUSTOMERS FOR INVESTMENT IN MUTUAL FUND-


AHMEDABAD MARKET”

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