Professional Documents
Culture Documents
SUBMITTED BY
LOCATION: CHANDIGARH
ACKNOWLEDGEMENT
At the ecstatic time of presenting my project on
First of all, I bow the almighty God for blessing me with enough patience and strength to go
through this challenging face of life.
I express my sincere thanks to DSP BlackRock Mutual Fund Company for giving me
an opportunity to work with them through this summer project. It gives me a sense of
great pride to acknowledge the fact that working on this project has added value to
my learning process.
My humble thanks and feigned gratefulness to Mr. BimalJeet Singh, my company
guide and Mr. IqbalBhatti who emitted signals of profound knowledge and deep
insight without which it would have been difficult to give a physical shape to the
project.
I would also like to thank Ms. LipikaNangia and Ms. Nishi Kalia who supportedme
and help me to understand the practical working of the mutual fund industry.
I wish to acknowledge with regards the staff and officials of the DSP BlackRock Mutual
Fund Company Ltd. for their support during my internship.
30. Bibliography
31. Annexures
Figures
Fig 1 Concept of MF
Fig 2 Structure of MF
Fig 8 Investment in MF
BlackRock holds 40% stake in DSP BlackRock Investment Managers Independent firm in
ownership and governance.
DSP BlackRock
DSP BlackRock Investment Managers is a joint venture between DSP
Group and BlackRock
Our Values
5
Values
Client focus
We listen carefully to our clients.
We put our clients first and at the heart of all we do.
We listen and deeply understand our clients businesses, risk and issues.
We help our clients better meet their investment goals.
We anticipate trends and help clients plot the future course.
Consistently exceed our client‘s expectations. Make decisions close to our clients.
Designation
Name
Pradeep Dokania Director
Antonios Biniaris Additional Director
Balance Sheet
Income
Sales Turnover 649.63 1,236.52 1,160.21 480.96 363.05
Excise Duty 0.00 0.00 0.00 0.00 0.00
Net Sales 649.63 1,236.52 1,160.21 480.96 363.05
Other Income 164.50 35.31 119.37 7.12 6.73
10
11
Mar '09 Mar '08 Mar '07 Dec '05 Dec '04
12
13
14
I did my Summer Internship Project with DSP BlackRock Asset Management Company Ltd.
(www.dspblackrock.com) from May 2010 to 15th July 2010.
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a) Learning about the Mutual Fund Industry and their importance in the current
scenario.
b) The nature of project involved the whole survey of how to calculate the value and
performance of mutual fund and by comparing these values from different company‘s
mutual funds.
c) Know about the risks associated with mutual funds and the difference in the
evaluation of debt funds and equity funds.
d) I learned the difference of investing in mutual fund and other investment (bank/post
office) products.
e) The scope of the project was also to find out that what factors forces the customers
to buy a particular mutual fund. I learned what things investor should keep in mind
before investing into any fund apart from that I have also seen what Indian investors
think about mutual fund and how much they are aware about mutual funds.
f) Opportunity to learn about the ups and downs in the market and its impact on the
performance of various schemes.
g) The presentations of DSP BlackRock MF that I gave to our alternate distribution
channel‘s employees helped me to get exposed to various problems that the
distributors face during selling of mutual fund schemes and how to tackle with such
problems.
h) I have learned that mutual funds now present perhaps the most appropriate
investment opportunity for most investors. As financial markets become more
sophisticated and complex, investors need a financial intermediary who provides the
required knowledge and professional expertise on successful investing.
i) Learning about several business operations of the company.
j) Corporate Exposure during training made me more confident and outgoing.
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I have done my best to make it a genuine study. But there are some chances of mistakes. A
critical appraisal of anyone will be heartily welcomed.
Abstract
Mutual fund industry in India is relatively new with a lot of untapped market. After the
opening up of this industry since 1993 there has been no looking back and the ‗Assets
under Management‘ have only been rising. The industry today is facing stiff competition
with each player fighting for a bigger mind share and market size.
I have selected this project in order to know the changing trends in mutual fund industry
post entry load waiver and the resultant impact on the IFA segment. It is also done in order
to know as to how much knowledge the investor has about the mutual funds and their
performance and to study in detail the results of investing in this alternate channel of
investment. During the course of mu training I have made use of various test and
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The first part of the project involves the whole survey of how to calculate the value and
performance of mutual fund and by comparing these values from different company‘s
mutual funds. The project also includes comparison of mutual fund with other bank/post
office products. The research also includes what things investor should keep in mind before
investing into any fund.
In the second part of the project a market research was conducted to determine the level of
investor awareness & marketing strategy followed by the organization to promote the fund
as well as performance evaluation of the mutual funds offered by DSP Blackrock Mutual
Fund in Chandigarh, Panchkula and Mohali region. The scope of the project was also to
find out those factors which forces the customers to buy a particular mutual fund and those
factors which discourage the investor to buy them. Apart from
that I have also tried to find out what investors thinks about mutual fund i.e. how much are
they aware about mutual funds.
The project also contains about the history of mutual funds, investing strategies, conceptual
framework, risk associated and investment philosophy.
The primary research required going to various employees and speaking to relationship
managers of various banks and customers present in Chandigarh, Panchkula and Mohali.
The secondary research required exploring research papers, newspapers, magazines, fact
sheets of various funds and their offer documents.
Ch. 1- Introduction
The one investment vehicle that has truly come of age in India in the past decade is mutual
funds. Today, the mutual fund industry in the country manages around Rs 329,162 crore
(As of Dec, 2006) of assets, a large part of which comes from retail investors. And this
amount is invested not just in equities, but also in the entire gamut of debt instruments.
Mutual funds have emerged as a proxy for investing in avenues that are out of reach of
most retail investors, particularly government securities and money market instruments.
Specialization is the order of the day, be it with regard to a scheme‘s investment objective
or its targeted investment universe. Given the plethora of options on hand and the hard-sell
adopted by mutual funds vying for a piece of your savings, finding the right scheme can
sometimes seem a bit daunting. Mind you, it‘s not just about going with the fund that gives
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Very simply, a mutual fund is an investment vehicle that pools in the monies of several
investors, and collectively invests this amount in either the equity market or the debt
market, or both, depending upon the fund‘s objective. This means you can access either
the equity or the debt market, or both, without investing directly in equity or debt.
The essential features of the mutual funds distinguishing from other of the
investments are:-
The mutual fund is a trust into which many relatively small investors invest their
money to form a large pool of cash which is then invested in securities by the manager of
the trust.
The price at which units can be bought and sold is governed solely by the value of
the underlying securities held bythe MF and dealing in units are on the basis of net market
value of the investment per unit.
of MF are obliged to redeem any units in issue on demand or certain
The managers
specified period.
dividend income that the MF receives on its investments is paid out to unit
All
holders.
Since the unit held by investor evidences the ownership of the fund‘s assets, the
value of an investors part ownership is determined by the NAV of the number of units held.
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned through
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Figure 1
Savings form an important part of the economy of any nation. With savings invested in
various options available to the people, the money acts as the driver for growth of the
country. Indian financial scene too presents multiple avenues to the investors. Though
certainly not the best or deepest of markets in the world, it has ignited the growth rate in
mutual fund industry to provide reasonable options for an ordinary man to invest his
savings.
Investment goals vary from person to person. While somebody wants security, others might
give more weightage to returns alone. Somebody else might want to plan for his child‘s
education while somebody might be saving for the proverbial rainy day or even life after
retirement. With objectives defying any range, it is obvious that the products required will
vary as well.
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Though still at a nascent stage, Indian MF industry offers a plethora of schemes and serves
broadly all type of investors. The range of products includes equity funds, debt, liquid, gilt
and balanced funds. There are also funds meant exclusively for young and old, small and
large investors. Moreover, the setup of a legal structure, which has enough teeth to
safeguard investors‘ interest, ensures that the investors are not cheated out of their hard-
earned money. All in all, benefits provided by them cut across the boundaries of investor
category and thus create for them, a universal appeal.
Investors of all categories could choose to invest on their own in multiple options but opt for
mutual funds for the sole reason that all benefits come in a package.
i) Sponsor
ii) Trust/trustee
iii) Asset Management Company
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Trust
The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian
Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration
Act, 1908.
Trustee
Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals).
The main responsibility of the Trustee is to safeguard the interest of the unit holders and
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Asset Management Company (AMC)
The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The
AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to
act as an asset management company of the Mutual Fund. At least 50% of the directors of
the AMC are independent directors who are not associated with the Sponsor in any
manner. The AMC must have a net worth of at least 10 crore at all times.
Registrar and Transfer Agent
The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to
the Mutual Fund. The Registrar processes the application form, redemption requests and
dispatches account statements to the unit holders. The Registrar and Transfer agent also
handles communications with investors and updates investor records.
Custodian
A custodian is an agent, bank, trust company, or other organization which holds and
safeguards an individual's, mutual funds, or investment company's assets for them.
1. Professional Management
Mutual Funds provide the services of experienced and skilled professionals, backed by a
dedicated investment research team that analyses the performance and prospects of
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2. Diversification
Mutual Funds invest in a number of companies across a broad cross-section of industries
and sectors. This diversification reduces the risk because seldom do all stocks decline at
the same time and in the same proportion. You achieve this diversification through a Mutual
Fund with far less money than you can do on your own.
3. ConvenientAdministration
Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as
bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds
save your time and make investing easy and convenient.
4. ReturnPotential
Over a medium to long-term, Mutual Funds have the potential to provide a higher return as
they invest in a diversified basket of selected securities. Apart from liquidity, these funds
have also provided very good post-tax returns on year to year basis. Even historically, we
find that some of the debt funds have generated superior returns at relatively low level of
risks. On an average debt funds have posted returns over 10 percent over one-year
horizon. The best performing funds have given returns of around 14 percent in the last one-
year period. In nutshell we can say that these funds have delivered more than what one
expects of debt avenues such as post office schemes or bank fixed deposits. Though they
are charged with a dividend distribution tax on dividend payout at 12.5 percent (plus a
surcharge of 10 percent), the net income received is still tax free in the hands of investor
and is generally much more than all other avenues, on a post-tax basis.
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6. Liquidity
In open-end schemes, the investor gets the money back promptly at net asset value related
prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock
exchange at the prevailing market price or the investor can avail of the facility of direct
repurchase at NAV related prices by the Mutual Fund. Since there is no penalty on pre-
mature withdrawal, as in the cases of fixed deposits, debt funds provide enough liquidity.
Moreover, mutual funds are better placed to absorb the fluctuations in the prices of the
securities as a result of interest rate variation and one can benefits from any such price
movement.
7. Transparency
Investors get regular information on the value of your investment in addition to disclosure
on the specific investments made by your scheme, the proportion invested in each class of
assets and the fund manager's investment strategy and outlook.
8. Flexibility
Through features such as regular investment plans, regular withdrawal plans and dividend
reinvestment plans; you can systematically invest or withdraw funds according to your
needs and convenience.
9. Affordability
A single person cannot invest in multiple high-priced stocks for the sole reason that his
pockets are not likely to be deep enough. This limits him from diversifying his portfolio as
well as benefiting from multiple investments. Here again, investing through MF route
enables an investor to invest in many good stocks and reap benefits even through a small
investment. Investors individually may lack sufficient funds to invest in high-grade stocks. A
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10. ChoiceofSchemes
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.
11. WellRegulated
All Mutual Funds are registered with SEBI and they function within the provisions of strict
regulations designed to protect the interests of investors. The operations of Mutual Funds
are regularly monitored by SEBI.
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Income from
Income from dividends-(investor-
dividends-(investor- free & DDT-individual
free & DDT-NIL) & HUL-14.025 &
others-22.440
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2. Restrictive gains
Diversification helps, if risk minimization is your objective. However, the lack of investment
focus also means you gain less than if you had invested directly in a single security.
Assume, Reliance appreciated 50 per cent. A direct investment in the stock would
appreciate by 50 per cent. But your investment in the mutual fund, which had invested 10
per cent of its corpus in Reliance, will see only a 5 per cent appreciation.
3. Taxes
During a typical year, most actively managed mutual funds sell anywhere from 20 to 70
percent of the securities in their portfolios. If your fund makes a profit on its sales, you will
pay taxes on the income you receive, even if you reinvest the money you made.
4. Management risk
When you invest in a mutual fund, you depend on the fund's manager to make the right
decisions regarding the fund's portfolio. If the manager does not perform as well as you had
hoped, you might not make as much money on your investment as you expected. Of
course, if you invest in Index Funds, you forego management risk, because these funds do
not employ managers.
There are a wide variety of Mutual Fund schemes that cater to your needs, whatever your
age, financialposition, risk tolerance and return expectations. Whether as the foundation of
your investmentprogramme or as a supplement, Mutual Fund schemes can help you meet
your financial goals.
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By Investment
By structure Other Schemes
Objectives
Other Debt
Small cap fund
Schemes
Any Other
Equity Fund
Figure 3
(AI) By Structure
Open-Ended Schemes
These do not have a fixed maturity. You deal directly with the Mutual Fund for your
investments and redemptions. The key feature is liquidity. You can conveniently buy and
sell your units at Net Asset Value ("NAV") related prices.
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Schemes that have a stipulated maturity period (ranging from 2 to 15 years) are called
close-ended schemes. You can invest directly in the scheme at the time of the initial issue
and thereafter you can buy or sell the units of the scheme on the stock exchanges where
they are listed. The market price at the stock exchange could vary from the scheme's NAV
on account of demand and supply situation, Unit holders' expectations and other market
factors.
One of the characteristics of the close-ended schemes is that they are generally traded at a
discount to NAV but closer to maturity, the discount narrows. Some close-ended schemes
give you an additional option of selling your units directly to the Mutual Fund through
periodic repurchase at NAV related prices. SEBI Regulations ensure that at least one of the
two exit routes are provided to the investor.
Interval Schemes
These combine the features of open-ended and close-ended schemes. They may be traded
on the stock exchange or may be open for sale or redemption during predetermined
intervals at NAV related prices.
Aim to provide capital appreciation over the medium to long term. These schemes normally
invest amajority of their funds in equities and are willing to bear short-term decline in value
for possible futureappreciation. These schemes are not for investors seeking regular
income or needing their money backin the short term.
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Aim to provide regular and steady income to investors. These schemes generally invest in
fixed income securities such as bonds and corporate debentures. Capital appreciation in
such schemes may be limited.
Ideal for
Retired people and others with a need for capital Stability and regular
income Investor who need some income to supplement their earnings.
Balanced Schemes
Aim to provide both growth and income by periodically distributing a part of the income and
capital gains they earn. They invest in both shares and fixed income securities in the
proportion indicated in their offer documents. In a rising stock market the NAV of these
schemes may not normally keep pace, or fall equally when the market falls.
Ideal for:
Money Market/Liquid Schemes
Aim to provide easy liquidity, preservation of capital and moderate income. These schemes
generally invest in safer, short-term instruments such as treasury bills, certificates of
deposit, commercial paper and inter-bank call money. Returns on these schemes may
fluctuate, depending upon the interest rates prevailing in the market.
Ideal for:
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These schemes offer tax rebates to the investors under tax laws as prescribed from time to
time. This is made possible because the Government offers tax incentives for investment in
specified avenues. For example, Equity Linked Savings Schemes (ELSS) and Pension
Schemes. The details of such tax saving schemes are provided in the relevant offer
documents.
Ideal for:
This category includes index schemes that attempt to replicate the performance of a
particular index such as the BSE Sensex or the NSE 50, or industry specific schemes
(which invest in specific industries) or sectorial schemes (which invest exclusively in
segments such as A Group shares or initial public offerings)
Growth Plan:
In this plan, dividend is neither declared nor paid out to the investors but it is built
into the value of the NAV. In the other words, the NAV increases over time due to
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SIPs entail an investor to invest a fixed sum of money at regular intervals in MF scheme the
investor has chosen. This may help you gain from any appreciation in the event of upside or
alternatively, average your cost during downside. Seeing the present volatility in the market
SIP is the best option available to the investor due to regular entry into the market which
causes rupee cost averaging and hence covers the volatility.
Systematic Withdrawal Plan (SWPs):
These plans are best suited for people nearing retirement. In these plans investor invest in
a mutual fund scheme and is allowed to withdraw a fixed sum of money at regular intervals
to take care of expenses.
Systematic Transfer Plan (STP):
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Equity
The investment philosophy of DSP revolves around the concept of growth oriented
stocks, which are available at relatively attractive valuations.
DSP MF uses a combination of the top down and bottom up approaches for
investment.
It invests with a medium term view, with an investment horizon of at least 18months.
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Liquid Fund
The investment philosophy of this scheme is to invest in short term money market debt
instruments like T-bills, commercial paper, debentures, certificate of deposits,etc. to provide
a higher than average rate of return.
Income Fund
The income fund invests in all type of debt instruments. The investment philosophy can
be broadly defined as consisting of active duration and interest rate management to give
optimal returns. The fund is mainly between Government Securities and Corporate Bonds
with some residual investments in money market instruments.
Gilt Fund
Gilt fund invest in the gilt edged government securities, which is predominantly a wholesale
market. It allows retail investors to participate in this market. The Gilt Fund aims to
maximize returns by active interest rate management, with zero credit risk. Active interest
rate management involves studying the domestic and international politico-economic
scenario as well as in-depth analysis of the liquidity in the system, the shape of the yield
curve and the spreads between various sectors on the curve.
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Equity Fund:
Investment Strategy: The Investment Manager prefers adopting a top-down approach with
regard to investment in equity and equity related securities. This approach encompasses an
evaluation of the key economic trends, an analysis of various sectors in the economy
leading to an outlook on their future prospects and a diligent study of various investment
opportunities within the favored sectors. The Investment Manager will conduct in – house
research in order to identify both value and growth stocks. The analysis will focus, among
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Minimum Investment
Initial: Rs.5000/-
Additional: Rs.1000/-
Systematic: Rs.1000/-
i) For ―all direct‖ applications received br AMC i.e. applications received through
internet facility offered (www.dspblackrock.com), on application forms that are not
routed through any distributor/agent/broker and submitted to AMC office or
collection center/investment service center.
ii) Else 2.25%.
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DSP Tax Saver Scheme is an Open ended Equity Linked Savings Scheme (ELSS) from
DSP Mutual fund which offers investors tax benefits on an investment up to 1 Lakh under
Section 80C of Indian Income Tax Act 1961. The fund was launched in the year 2007 and is
one of the top performers in the ELSS category.
Scheme Highlights:
Entry Load-NIL
Exit Load-NIL
DSP BlackRock Opportunities Fund
DSP Opportunities Fund is diversified equity scheme, with a flexible investing style. It will
invest in sectors, which the fund Manager believes would outperform others in the short to
medium-term. By virtue of its flexible investment pattern, the fund is uniquely positioned to
increase concentration sectors which look promising. As markets evolve and grow, new
opportunities for growth keep emerging. DSP Opportunities would endeavor to capture
these opportunities to generate wealth for its investors.
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Additional: Rs1000/-
Systematic: Rs.1000/-
iii) For ―all direct‖ applications received by AMC i.e. applications received through
internet facility offered (www.dspblackrock.com), on application forms that are not
routed through any distributor/agent/broker and submitted to AMC office or
collection center/investment service center.
iv) Else 2.25%.
Though India is a minor player in the global mutual fund industry, its AUM as a proportion of
the global AUM has steadily increased and has doubled over its levels in 1999.
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The mutual fund industry in India has evolved little over three decades but thereal impetus
has come after the changes in the mutual fund regulations in early 80s.Private and foreign
mutual funds are operating in the Indian market and constitute asubstantial portion of the
mutual fund industry. Today the industry consists of Unit Trustof India, mutual funds
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The Reserve Bank‘s Currency and Finance report 1997-1998 shows that theinvestors‘
appetite for risk has diminished considerably. As much as 46% of the financialsavings of
the household sector found its way back to bank deposits; 12% went in toGovernment
savings plans and 18% in to provident funds. Only a miniscule 2% woundup in the capital
market and 4% in company deposits. The mutual fund product designershave identified a
strategic gap in the product offering in the capital market and now arefighting a loosing
battle with government savings plans, bank deposits and providentfunds. They are
providing cheque facility on money market mutual funds to make themmore enticing and
guilt funds for the risk averse.Product innovations and new product combinations have
started rolling in to theIndian market.
IMPACT OF TECHNOLOGY
Mutual fund, during the last one decade brought out several innovations in their products
and is offering value added services to their investors. Some of the value added services
that are being offered are:
• Electronic fund transfer facility.
• Investment and re-purchase facility through internet.
• Added features like accident insurance cover, med claim etc.
• Holding the investment in electronic form, doing away with the traditional form of
unitcertificates.
• Cheque writing facilities.
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The innovation the industry saw was in the field of distribution to make it more easily
accessible to an ever increasing number of investors across the country. For the first time in
India the mutual fund start using the automated trading, clearing and settlement system of
stock exchanges for sale and repurchase of open-ended de-materialized mutual fund units.
Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP) were options
introduced which have come in very handy for the investor to maximize their returns from
their investments. SIP ensures that there is a regular investment that the investor makes on
specified dates making his purchases to spread out reducing the effect of the short term
volatility of markets. SWP was designed to ensure that investors who wanted a regular
income or cash flow from their investments were able to do so with a pre-defined
automated form. Today the SW facility has come in handy for the investors to reduce their
taxes.
Step One- Identify your investment needs. Your financial goals will vary, based on your
age, lifestyle, financial independence, family commitments, level of income and expenses
among many other factors. Therefore, the first step is to assess your needs.
Step Two- Choose the right Mutual Fund. Once you have a clear strategy in mind, you
now have to choose which Mutual Fund and scheme you want to invest in. The offer
document of the scheme tells you its objectives and provides supplementary details like the
track record of other schemes managed by the same Fund Manager. Some factors to
evaluate before choosing a particular Mutual Fund are:
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The following charts could prove useful in selecting a combination of schemes that
satisfy your needs.
Aggressive Plan
Growth Scheme
Income Scheme
Investor seeking Income & moderate growth.
Investor looking for growth & stability with moderate risk
Conservative Plan
Growth Scheme
Income Scheme
Money Scheme
Balanced Scheme
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Step Six- Start early It is desirable to start investing early and stick to a regular investment
plan. If you start now, you will make more than if you wait and invest later. The power of
compounding lets you earn income on income and your money multiplies at a compounded
rate of return.
Step Seven-The final step all you need to do now is to get in touch with a Mutual Fund or
yourAgent/broker and start investing. Reap the rewards in the years to come. Mutual Funds
are suitable for every kind of investor-whether starting a career or retiring, conservative or
risk taking, growth oriented or income seeking.
What fees and commissions will you pay when you invest in mutual
funds?
The fees and commissions you may be charged can vary widely from one fund, and one
dealer, to the next. Some of the charges may be negotiable, but you should make sure that
you understand all of the costs before you invest. There are two main costs to consider –
themanagement and operating expenses that are charged tothe fund each year, and the
sales charges (or loads) that you pay when you buy or sellthe fund.
Management and Operating Expenses are expenses paid each year by the fund and
include such things as the manager‘s fees, legal and accounting fees, custodial fees and
bookkeeping costs. The Management Expense Ratio (MER) is the percentage of the
fund‘s average net assets that these expenses represent. For example, if a $100 million
fund has $2 million in costs for the year its MER will be 2%. MERs can range from under
1% per year for some money market funds to almost 3% for some equity funds. The higher
the MER, the greater the impact on the fund‘s performance and the return to its investors
because these expenses are removed before the value is reported.
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For example, you might have to paya 6% fee if you redeem the fund after one year, 4% if
youredeem after three years, and no commission if you redeemafter seven years.An
increasing number of funds are being sold on a no-loadbasis, in which investors pay no
sales charges, but beforeyou decide that a no-load fund is right for you, consider thefund‘s
performance, its management expense ratio and thelevel of service and advice you will
receive.
Some mutual fund managers employ their own sales force to sell their mutual funds. Most,
however, rely on independently operated dealers to sell their funds and pay sales
incentivesto these dealers to encourage them to do so. These incentives generally take the
form of sales commissions, but fund managers can also pay for some of the marketing and
educational costs incurred by a dealer. You do not pay these sales incentives directly. The
mutual fund manager pays them to dealers out of the management fees it receives from its
mutual funds.
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Mutual fund managers also pay trailing commissions to dealers. Trailing commissions are
paid as long as you hold the fund. They are generally paid quarterly and typically range
from 0.25% to 1.0% of the value of the funds held by the dealer‘s clients. The amount of
trailing commission paid to your dealer can depend on the type of mutual fund you buy and
on the load that you pay. Generally, mutual fund firms pay lower trailing commissions on
fixed income and money market funds than for equity funds.
The sales incentives paid by the fund manager are described in the fund‘s prospectus. You
can also ask your financial adviser for details. Securities regulations govern the types of
incentives that can be paid and the sales practices that must be followed by both mutual
fund firms and dealers.
Thirty years ago, fund shareholders usually compensated financial advisers for their
assistance through a front-end load—a one-time, upfront payment for current and future
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Under this framework, 12b-1 fees can also be used to compensate financial intermediaries,
such as retirement plan record keepers and discount brokerage firms, for the services they
provide to fund shareholders. Although they can be used to pay for advertising and
marketing, 12b-1 fees are primarily used to compensate financial advisers and other
financial intermediaries for assisting fund investors before (40 percent of fees collected) and
after they purchase fund shares (52 percent of fees collected)
Fig 6
No-load share classes have no front-end load or CDSL, and have a 12b-1 fee of 0.25
percent or less. Originally, no-load share classes were offered by mutual fund sponsors that
sold directly to investors. Now, investors can purchase no-load funds through employer-
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The introduction of Rule 12b-1 changed the means by which financial advisers were
compensated. The maximum front-end load fees that funds might charge declined sharply
in the 1980s as funds adopted 12b-1 fees as an alternative way to compensate financial
advisers and intermediaries for providing services to fund shareholders. Since 1990, 12b-1
fees paid by shareholders rose from $1.1 billion to $10.6 billion This increase reflects, in
part, the roughly tenfold increase in mutual fund assets and the more than twofold increase
in the number of households owning funds since 1990.
12b-1 Fees Paid Reflect Asset Growth and Shift in Source of Financial Advisers’
Compensation
Billions of dollars, selected years*
1
Data exclude mutual funds available as investment choices in variable annuities and
mutual funds that invest primarily in other mutual funds. 2Front-end load = 0 percent, CDSL
= 0 percent, and 12b-1 fee ≤ 0.25 percent. Sources: Investment Company Institute and
Lipper
Figure 7
49
There has also been a shift by investors toward no-load share classes. No-load share
classes have consistently attracted more net new cash than load share classes in recent
years (Figure 7). In 2010, for example, no-load share classes of long-term funds garnered
$253 billion in net new cash, compared to an outflow of $33 billion for load share classes.
Cumulatively, these flows have led to a concentration of long-term fund assets in no-load
share classes; by 2010, no-load share classes of long-term funds had $5.1 trillion in total
net assets compared to $2.6 trillion in load share classes (figure7). The shift toward no-load
funds should not be taken as indicating that investors are eschewing advice from financial
advisers. To be sure, some of the flows to no-load funds owe to ―do-it-yourself‖ investors.
However, much of the shift represents a change in the way investors compensate their
financial advisers, with many investors now paying for financial advice directly out of their
pockets instead of indirectly through their mutual funds. Flows from 401(k) plans and other
retirement accounts also are often invested in no-load funds.
As with most things in the modern world, the financial services industry moves at a rapid
pace. Financial markets change constantly and become increasingly more complex.
Regulators review the opportunities to obtain high quality products and control the basis on
which advice is given. Financial institutions compete aggressively with each other to bring
new and improved products to the market..........
it isn't too difficult to see why so many people find financial services confusing!
Choosing the most suitable financial products will often play an essential role in helping to
50
IFAs are your guide to the market and will undertake detailed research and comparisons
relating to financial products available and then recommend a way forward. An IFA will ‗shop
around' on your behalf to ensure your needs are catered for fully and that any product
recommended is the most suitable and provides value formoney.
Whether your needs are simple or complex it pays to ensure you receive the right financial
advice at the right time and Independent Financial Advisors will be happy to assist you.
When you own shares in a mutual fund you may get dividends from the fund
company that were from the dividends earned by the individual stocks held by the fund. In
additional you may get a ―distribution‖ of short term and long term capital gains. These are
usually issued in November or December.
Investors don‘t like getting distributions from a mutual fund because this means taxes
have to be paid. Investors emotionally feel that they should only have to pay tax when they
take the initiative to sell an investment. However a mutual fund is a collective investment
and when the fund manager sells assets then that may trigger a capital gain which must be
paid by the individual shareholders because a mutual fund is a ―pass-through‖ entity
where taxable events in the fund are passed through to the individual shareholders.
51
Strings, woodwinds and brass. Stocks, bonds and cash. What do these very different
things have in common? They are all parts of a whole and when they work together, they
52
Asset allocation is important for portfolio performance. And what exactly is asset
allocation? It's a systematic division and risk management of your investment among
various asset classes such as fixed income or equities. By having a portfolio that holds
different types of investments, you help reduce your risk and portfolio volatility.
Markets and asset classes do not move in tandem: What's hot today may be cold
tomorrow. Spreading your investment among different types of asset classes and
markets—stocks and bonds, domestic and foreign markets—lets you position yourself to
seize opportunities as the performance cycle shifts from one market or asset class to
another.
Depending on your investment style and goals, your asset allocation will vary. One
should work with his financial advisor to create a personalized asset allocation for his
portfolio.
Asset allocation—not stock or mutual fund selection, not market timing—is generally the
most important factor in determining the return on your investments. In fact, according to
research which earned the Nobel Prize, asset allocation (the types or classes of securities
owned) determines approximately 90% of the return. The remaining 10% of the return is
determined bywhich particular investments (stock, bond, mutual fund, etc.) you select and
when you decide to buy them.
As for market timing—that is, moving in and out of an investment or an investment class in
anticipation of a rise or fall in the market—it‘s been proven that the modern market cannot
be timed. Market timing strategies, such as moving your money into stocks when the
market is rising or out of stocks when it‘s falling, just do not work.
53
Sound financial advice from a trusted and competent advisor is very important as the
investment world is populated by many "advisors" who either are unqualified or don't have
your best interests at heart.
In a nutshell, following are the basic investment guidelines one should live by:
Determine your financial profile, based on your time horizon, risk tolerance, goals
and financial situation. For more sophisticated investment analysis, this profile
should be translated into a graph or curve by a computer program.
Find the right mix of "asset classes" for your portfolio. The asset classes should balance
each other in a way that will give the best return for the degree of risk you are willing to
take. Financial advisors can determine the proper mix of assets for your financial profile.
Over time, the ideal allocation for you will not remain the same; it will change as your
situation changes or in response to changes in market conditions.
LITERATURE REVIEW
Literature on mutual fund performance evaluation is enormous. A few research studies that
haveinfluenced the preparation of this paper substantially are discussed in this section.
Sharpe, William F. (1966) suggested a measure for the evaluation of portfolio performance.
Drawing onresults obtained in the field of portfolio analysis, economist Jack L. Treynor has
suggested a newpredictor of mutual fund performance, one that differs from virtually all
those used previously byincorporating the volatility of a fund's return in a simple yet
meaningful manner.
54
Mishra, et al., (2002) measured mutual fund performance using lower partial moment. Inthis
paper, measures of evaluating portfolio performance based on lower partial moment are
developed.
Risk from the lower partial moment is measured by taking into account only those states in
which returnis below a pre-specified ―target rate‖ like risk-free rate. Kshama Fernandes
(2003) evaluated index fundimplementation in India. In this paper, tracking error of index
funds in India is measured .Theconsistency and level of tracking errors obtained by some
55
(Jensen‘s alpha) that estimates how much a manager‘s forecasting ability contributes to
fund‘s returns.
As indicated by Statman (2000), the e SDAR of a fund portfolio is the excess return of the
portfolio over the return of the benchmark index, where the portfolio is leveraged to have
the benchmark index‘s standard deviation. S.Narayan Rao,ET. al., evaluated performance
of Indian mutual funds in a bear market through relative performance index, risk-return
analysis, Treynor‘s ratio, Sharpe‘s ratio, Sharpe‘s measure , Jensen‘s measure, and
Fama‘s measure. The study used 269 open-ended schemes (out of total schemes of 433)
for computing relative performance index. Then after excluding funds whose returns are
less than risk-free returns, 58 schemes are finally used for further analysis. The results of
performance measures suggest that most of mutual fund schemes in the sample of 58 were
56
Research Methodology
Sample Size: 80
SURVEY ANALYSIS
OBJECTIVES
I conducted a survey to assess the popularity and awareness among people about the,
mutual funds. For the purpose we chose a random sample of 80 end consumers in the city
of Chandigarh, Panchkula and Mohali. The methodology adopted was that of questionnaire.
The question addressed the basic questions relating to investment in mutual Funds and for
distributors also.
Sampling Method
58
Research instrument
The research instrument used for this survey is a structured questionnaire. The
questionnaire contains both open-ended and close ended questions. The questionnaire
provides a provision with respect to rating scales.
Assumptions
The sample selected represents the population fully.
The data has been collected by administering an open and close ended
questionnaire to sample of end investors andwith the assumption that the primary data
collected is true and reflects the actual preferences of the investors.
The sample selected has thorough knowledge of the subject.
Limitations of Study
The respondents who have not given any information are not included in the sample
but do come under the population.
Factors like change in tax and regulatory framework has not been considered.
Performance Evaluation
59
The investor‘s funds are deployed in a portfolio of securities by the fund manager. The
value of these investments keeps changing as the market price of the securities change.
Since investors are free to enter and exit the fund at any time, it is essential that the market
value of their investments is used to determine the price at which such entry and exit will
take place. The net assets represent the market value of assets, which belong to the
investors, on a given date.
Net Asset Value or NAV of a mutual fund is the value of one unit of investment in the fund,
in net asset terms.
(Market value of investment + current assets and other assets + Accrued income – current
liabilities and other liabilities – less accrued expenses) / No. of Units Outstanding as at the
NAV date.
NAV of all schemes must be calculated and published at least weekly for closed – end
schemes and daily for open- end schemes.
60
Percentage change in NAV is an absolute measure of return, which finds the NAV
appreciation between two points of time, as a percentage.
e.g.: If NAV of one fund changes from Rs. 20 to Rs. 22 in 12 months then
Converting a return value for a period other than one year, into a value for one year, is
called as annualisation. In order to annualize a rate, we find out what the return would be
for a year, if the return behaved for a year, in the same manner it did, for any other
fractional period.
e.g.: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months then
The total return method takes into account the dividends distributed by the mutual fund, and
adds it to the NAV appreciation, to arrive at returns.
e.g.: If the NAV of one fund changes from Rs.20 to Rs.22 in 6 months if in between
dividend of Rs.4 has been distributed then
= {(Value of holdings at the end of the period / value of the holdings at the beginning) – 1} X
100
e.g.: An investor buys 100 units of a fund at Rs.10.5 on January 1, 2009. On June 30, 2009
he receives dividends at the rate of 10%. The ex- dividend NAV was Rs.10.25. On
December 31, 2009, the fund‘s NAV was 12.25.
28.05%
This method is basically used for calculating the return for more than 1 year. In this method
return is calculated with the following formula:
A = P X (1 + R / 100) N
A = Maturity value.
e.g.: If amount invested is Rs.100 & in the end we get return of Rs.200 & period of
investment is 10 years then annualized compounded return is
62
Rate = 7.2%
Credit quality of the portfolio is measured by looking at the credit ratings of the investment
in the portfolio. Mutual Fund fact sheets show the composition of the portfolio and the
investments in various asset classes over time.
Portfolio turnover ratio is the ratio of lesser of asset purchased or sold by funds in the
market to the net assets of the fund.
If portfolio ratio is 100% means portfolio has been changed fully. When portfolio ratio is high
means expense ratio is high.
In order to meaningfully compare funds some level of similarity in the following factors has
to be ensured:
63
Equity Funds
Index fund – an index fund invests in the stock comprising of the index in the same
ratio. This is a passive management style.
For example,
Market Index Fund - BSE Sensex
Nifty Index Fund - NIFTY
The difference between the return of this fund and its index benchmark can be
explained by ―TRACKING ERROR‖.
Debt Funds :
Debt fund can be judged against a debt market index e.g. I-BEX. In the Indian
Context, CRISIL and some private players like I-sec, have tried to develop some
indices to which debt funds can benchmark themselves. The market has different
64
Debenture Low
65
66
67
Whenwe compare one company‘s mutual fund with other company then we have to see the
following things:
The performance of fund can be compared with similar scheme of other mutual fund.
We should also see the investment objective and rating profile of portfolios.
Average maturity of debt portfolio should be same.
Size of fund should be same ( Big Small)
The investment objectives and risk profiles
Expense ratio
68
Questionnaire Analysis
69
90
80
70
60
yes
50
no
40
total
30
20
10
0
Options
Figure 8
Interpretation
The study conducted on 80 persons revealed that 78.75% person invests in mutual
funds and 21.25% people do not invest in the schemes of the mutual funds.
Ranking Scale 5 4 3 2 1
Reasons Strongly Agree Neutral Strongly Disagree
Agree disagree
Risky 31 27 11 6 5
Lack of Awareness 18 16 20 18 8
Lack of Funds 12 19 14 20 15
70
Decision Influencer
Decision Influencer
14%
Family
38% Relatives
11%
Friend
TV
Internet
25% MF Agent
7%
5%
Figure 9
Interpretation:
From the above analysis it may be concluded that 38% people‘s decision to invest in mutual
funds is affected by mutual fund agent. So there is a need to concentrate on updating the
skills of the agents to enable them to motivate the potential customers. Second variable i.e.
the friend‘s circle will also be able to motivate more people for investment in mutual funds
rather than traditional investment avenues.
71
80
70
60
50
Equity
40 Debt
Balanced
30
Liquid
20
10
0
Frequency
Figure 10
Interpretation:
The analysis revealed that 85% people feel that equity schemes are the most risky
schemes. Only 10% people think that balanced schemes are risky. Since some proportion
under balanced scheme is also invested in the equity, this cannot be termed as more risky.
Similarly liquid scheme has also been considered as more risky by 5 % people. Investment
72
Therefore the conclusion is drawn that lack of awareness about the different MF schemes is
the main reason for giving proper opinion by the respondents.
35
30
25 Stock Market
Property
20
Bank
15 Mutual Fund
10 other
0
Observed
Figure 11
Interpretation:
The analysis revealed that people in our country have still the same mind-set of investing in
traditional, safer investments even at low returns. Accordingly, 45% people think that bank
73
Options Yes No
Frequency 68 12
Proportion 85% 15%
80
70
60
50
40 yes
No
30
20
10
0
Frequency
Figure 12
Interpretation:
The analysis revealed that 85% people were aware of the income – tax incentives available
on investing in some of the MF schemes notified under Income-Tax Act and only 15%
people were not aware.
74
40
35
30
25 Excellent
Very Good
20
Good
15
Average
10 Poor
0
Observed
Figure 13
Interpretation:
The analysis revealed that the quality of service provided by the MF agents is not very
satisfactory as only 8.75% people said that the service provided by the agents are
excellent, 47.5% and 17.5% people said that quality provided by the MF agents is good and
very good respectively. About 26% people were not satisfied with the quality of service
provided by the MF agents. It is suggested that agents should be highly motivated about
their knowledge and skill required periodical updating.
75
70%
60%
50%
comparing with other MF
40%
studying past performance
30% Distributors advice
20%
10%
0%
Figure 14
Interpretation:
The analysis revealed that 70% people take suggestions of the distributors or advisors
before making investment in MF and 20% people compare with other MF and only 10%
people study the past performance of the fund.
76
Yes
NO
Figure 15
Interpretation:
The analysis revealed that only 27.5% people are aware about the entry and exit load
charged on their investment and 72.5% people are not aware of entry and exit load.
Bibliography
77
BOOKS:
WEBSITES:
http://en.wikipedia.org
http://dspblackrock.com
www.amfi.com
www.mutualfundsindia.com
www.moneycontrol.com
http://investopedia.com/articles/mutualfunds
http://kotakmutualfund.com
www.muthootfinance.com
www.cviindia.com
Annexures
78
Personal Information:
Name: _____________________
Gender:
Male
Female
Age:
20-25
25-35
35-45
45-55
55+
Monthly Income:
>10000
10000 – 25000
25000 – 40000
40000 – 55000
55000 +
Q2) What are the Reasons for investing in Mutual Funds? 5 --------- 1
79
Q 3) what are the Reasons for not investing in Mutual Funds? 5 ------------- 1
Family
Friends
Relatives
MF agents
Equity
Debt
Balanced
Liquid
80
Bank
Stock Market
Property
Mutual Funds
Others _______________
Q7) Do you know about the Income-tax incentives available in any of the Mutual Fund
Schemes?
Yes
No
Excellent
Very good
Good
Average
Poor
Q10) Being a MF investor are you aware of the various charges like entry and exit load?
Yes No
81