Mutual funds & its performance in India

PROJECT GUIDE: Mr. Kawal Nain Singh
Bhai Gurdas Institute of Engineering Technology Main Patiala SANGRUR

SubmittedS SSubmitted by:
Rajneesh kumar saini Roll No- 90112232662

MBA 4th sem. (Finance)

Mutual funds and its performance in India

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ACKNOWLEDMENT

I am sure with everyone’s blessings; this project would prove my perseverance and dedication and would provide some valuable lead to Mutual fund investors for development and prosperity. First of all, I would like to thank Prof. Satish Kapoor for giving me the opportunity to do such a wonderful project. I would like to thank Mr. Soumya Chakraborty, Mr. Shiladitya Chatterjee, Mr. Satya Datta Dey, Mr. Sujit Bharti for their numerous suggestion, guidelines and intellectual influence.

I also want to acknowledge the other faculty of our college for providing me a good support throughout the project period. I am greatly impressed by their friendly attitude and heartiest cooperation. A homely ambience is felt everywhere. This made me work more lucidly as I was able to approach anybody of them during my problem. At last, I am indebted to my parents who have been a perennial source of inspiration in every walks of my life.

Last but not least, I am thankful to all those names have not mentioned without whose cooperation this project would have not been completed.

Rajib Roy PGDBM (2k61A37) Asia Pacific Institute of Management, New Delhi.
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Mutual funds and its performance in India

CONTENTS

Topic

Page No.

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Executive Summery...…………………………………………………….3 Introduction…..………………………………………………………......4 Classification of MF Schemes………………………………………... ....7 Background……..……………………………………………………….13

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Objectives of the study………………………………………………......16 AUM…………………………………………………………………….17 Simple Way to gauge risk………………………………………………..18

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MFs of India……………………………………………………………..25

Types of investors………………………………………………………..29

Marketing strategies……………………………………………………...31

Research Methodology…………………………………………………..45

Data Analysis…………………………………………………………….48

Mutual funds and its performance in India

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Conclusion……………………………………………………………….64

..70 Bibliography……………………………………………………………... In India presently 36 mutual funds are working. Balanced funds 4.…………………………………………….    Recommendation………………………………………………………. Mutual funds can be classified on the parameter of investment objective in four main cetegories.69 Glossary………………………………………………………………….74 Questionnaire……………. private and foreign companies.75 EXECUTIVE SUMMARY OF THE PROJECT The term mutual fund itself gives its meaning. Liquid funds/ Money market funds 1. There is now vibrant competition in the Indian mutual fund industry even though all the new entrants into this industry since 1987 are small compared to the old established like UTI-MF which is still the market leader in terms of Assets under Management.. A good test of the intensity of competition among competitive or Mutual funds and its performance in India Page75 substitutable financial products is the purchase of different products by the . which pools the savings of the community and invests large funds in a fairly large and well-diversified portfolio of sound investments. which is collected and invested mutually or collectively. Equity funds 2. These categories are:1. Debt/Income funds 3. It means the fund. It acts as investment conduit. 2. It includes public.

INTRODUCTION: Mutual funds are financial intermediaries. which collect the savings of investors and invest them in a large and well-diversified portfolio of securities such as money market instruments. and liquidity of investment and tax benefits. they have to rely on an intermediary. More number of people are investing in more than one mutual funds now. who have no contact with each other. Mutual funds are governed by the SEBI (Mutual Funds) Regulations. Mutual funds are conceived as institutions for providing small investors with avenues of investments in the capital market. good service and monetary & non-monetary incentives for selecting a particular fund for distribution.investors of different mutual funds. which undertakes informed investment decisions and provides consequential benefits of professional expertise. experience and resources for directly accessing the capital market. corporate and government bonds and equity shares of joint stock companies. 4. expert professional management. diversified portfolios. 3. 1993. Although UTI-MF is the market leader in terms of Assets under Management but 40% of the respondents have shown their preference for PRU-ICICI-MF as best mutual fund. MUTUAL FUNDS FOR WHOM? Page75 These funds can survive and thrive only if they can live upto the hopes and trusts of their individual members. which acts as a watchdog. By pooling their assets through mutual funds. The raison d’être of mutual funds is their ability to bring down the transaction costs. Since small investors generally do not have adequate time. Institutional and big distributors give preference for good scheme performance. These hopes and trusts echo the peculiarities which support the Mutual funds and its performance in India . The advantages for the investors are reduction in risk. The interests of the investors are protected by the SEBI. A mutual fund is a pool of common funds invested by different investors. knowledge. investors achieve economies of scale.

Small investors can hardly afford to have expensive investment consultations.emergence and growth of such insecurity of such investors who come to the rescue of such investors who face following constraints while making direct investments: (a) Limited resources in the hands of investors quite often take them away from stock market transactions. which is the idea of not putting all your eggs in one basket. Mutual fund route offers several important advantages.e. Lack of professional knowledge associated with investment business unables investors to operate gainfully in the market. investors have to engage share brokers who are the members of stock exchange and have to pay their brokerage. By investing in many companies the mutual funds can protect themselves from unexpected drop in values of some shares. (e) (f) They hardly have access to price sensitive information in time. WHY MUTUAL FUNDS? Mutual Funds are becoming a very popular form of investment characterized by many advantages that they share with other forms of investments and what they possess uniquely themselves. mainly funds at his disposal. The small investors can achieve wide diversification on his own because of many reasons. pool funds of lakhs of investors and Page75 Mutual funds and its performance in India . Mutual funds on the other hand. Income and Capital gains.. i. (b) (c) Lack of funds forbids investors to have a balanced and diversified portfolio. (d) To buy shares. The primary objectives of an investment proposal would fit into one or combination of the two broad categories. is what attracts investors to opt for mutual funds. (g) Firm allotments are not possible for small investors on when there is a trend of over subscription to public issues. It is difficult for them to know the development taking place in share market and corporate sector. Diversification: A proven principle of sound investment is that of diversification. How mutual fund is expected to be over and above an individual in achieving the two said objectives.

an essential benefit one acquires is expert management of the money he puts in the fund. The performance of mutual fund schemes. Tax Shelter: Depending on the scheme of mutual funds. Investors are no longer expected to come to grief by falling prey to misleading and motivating ‘headline’ leads and tips. C. A. the legislation in a country (like SEBI in India) also provides for the safety of investments. The professional fund managers who supervise fund’s portfolio take desirable decisions viz.. The expert supervision.thus can participate in a large basket of shares of many different companies. Expertise Supervision: Making investments is not a full time assignment of investors. When investors buy mutual fund scheme. income earned through dividends from mutual funds is 100% Page75 tax-free at the hands of the investors. tax shelter is also available. Moreover. As per the Union Budget-2003. what scrips are to be bought. what investments are to be sold and more appropriate decision as to timings of such buy and sell. So they hardly have a professional attitude towards their investment. Majority of people consider diversification as the major strength of mutual funds. D. Securities and Exchange Board of India (SEBI) requires the mutual funds in India have to ensure liquidity. diversification and liquidity of units ensured in mutual funds reduces the risks. Mutual funds have to broadly follow the laid down provisions for their regulations. can spend full time to investigate and can give the fund a constant supervision. Mutual fund investments on both fronts provide a comfortable situation for investors. They have extensive research facilities at their disposal. Such repurchase price and NAV is advertised in newspaper for the convenience of investors. Safety of Investment: Besides depending on the expert supervision of fund managers. if they invest in mutual funds. 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. Mutual funds and its performance in India . SEBI acts as a watchdog and attempts whole heatedly to safeguard investors interests. of course. Reduced risks: Risk in investment is as to recovery of the principal amount and as to return on it. B. depends on the quality of fund managers employed. Liquidity of Investment: A distinct advantage of a mutual fund over other investments is that there is always a market for its unit/ shares.

Investing in securities through mutual funds has many advantages like – option to reinvest dividends. Any portfolio scheme can be either open ended or close ended. It Page75 Mutual funds and its performance in India . The reduced operating costs obviously increase the income available for investors. Mutual funds are also relevant in national interest. To achieve these objectives mutual funds adopt different strategies and accordingly offer different schemes of investments. Such fund stands ready to buy or sell its securities at any time. strong possibility of capital appreciation. Entry to the fund is always open to the investor who can subscribe at any time. The brokerage fee or trading commission may be reduced substantially. Portfolio classification projects the combination of investment instruments and investment avenues available to mutual funds to manage their funds.. The test of their economic efficiency as financial intermediary lies in the extent to which they are able to mobilize additional savings and channeling to more productive sectors of the economy. Operational Classification: (A) Open Ended Schemes: As the name implies the size of the scheme (Fund) is open – i. regular returns. etc. Minimize Operating Costs: Mutual funds having large invisible funds at their disposal avail economies of scale. On this basis the simplest way to categorize schemes would be to group these into two broad classifications: OPERATIONAL CLASSIFICATION AND PORTFOLIO CLASSIFICATION.. open-ended and close-ended which are offered by the mutual funds. i.E.e. Operational classification highlights the two main types of schemes. CLASSIFICATION OF MUTUAL FUND SCHEMES: Any mutual fund has an objective of earning income for the investors and/ or getting increased value of their investments.e. not specified or pre-determined.

i. there is every possibility that the market price may be above or below its NAV. Their price is free to deviate from NAV. No intermediaries are required. desiring frequently traded securities. No minute to minute fluctuations in rates haunt the investors. their corpus normally does not change throughout its life period. If one takes into account the issue expenses. option to reinvest its dividend is also available. Open-ended schemes have comparatively better liquidity despite the fact that these are not listed. the realizable amount is certain since repurchase is at a price based on declared net asset value (NAV). Their liquidity depends on the efficiency and understanding of the engaged broker. Second. The reason is that investors can any time approach mutual fund for sale of such units. which are actively traded in the market. the management of such funds becomes more tedious as managers have to work from crisis to crisis. that unexpected withdrawals require funds to maintain a high level of cash available every time implying thereby idle cash. He could very well have to sell his most liquid assets. In Mutual funds and its performance in India .. In such funds. success of the open-ended schemes to a great extent depends on the efficiency of the capital market and the selection and quality of the portfolio. funds cannot have matching realisation from their portfolio due to intricacies of the stock market. conceptually close ended fund units cannot be traded at a premium or over NAV because the price of a package of investments. Further.. (B) Close Ended Schemes: Such schemes have a definite period after which their shares/ units are redeemed.. Thus. This is the reason that generally open-ended schemes are equity based. Moreover. Whatever premium exists that may exist only on account of speculative activities. Since there is always a possibility of withdrawals. Close ended fund units trade among the investors in the secondary market since these are to be quoted on the stock exchanges.e. Moreover. Fund managers have to face questions like ‘what to sell’. Unlike open-ended funds. cannot exceed the sum of the prices of the investments constituting the Page75 package.e.implies that the capitalization of the fund is constantly changing as investors sell or buy their shares. The portfolio mix of such schemes has to be investments. to match quick cash payments. one is. open-ended schemes hardly have in their portfolio shares of comparatively new and smaller companies since these are not generally traded. Their price is determined on the basis of demand and supply in the market. i. these funds have fixed capitalisation. i. Crisis may be on two fronts. the shares or units are normally not traded on the stock exchange but are repurchased by the fund at announced rates. it will not be possible to calculate NAV. by virtue of this situation such funds may fail to grab favourable opportunities. Further. Otherwise.e.

Such funds invest in growth oriented securities which can appreciate through the expansion production facilities in long run. This classification may be on the basis of (A) Return. (B) Investment Based Classification: Page75 Mutual funds and its performance in India . Their objective is to maximize current income. An investor who selects such funds should be able to assume a higher than normal degree of risk. (D) Leverage and (E) Others. Such funds distribute periodically the income earned by them. even with the use of leverage. the mutual fund schemes are made to enjoy a good return. Obviously. which may be offered. 2. Such funds divide their portfolio in common stocks and bonds in a way to achieve the desired objectives. 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. Conservative Funds: The fund with a philosophy of “all things to all” issue offer document announcing objectives as: (i) To provide a reasonable rate of return. Such funds which offer a blend of immediate average return and reasonable capital appreciation are known as “middle of the road” funds. Returns expected are in form of regular dividends or capital appreciation or a combination of these two. Such funds have been most popular and appeal to the investors who want both growth and income.India as per SEBI (MF) Regulations every mutual fund is free to launch any or both types of schemes. the higher the potential risk of the investment. 1. 3. Income Funds: For investors who are more curious for returns. (B) Investment Pattern. Growth Funds: Such funds aim to achieve increase in the value of the underlying investments through capital appreciation. (iii) To achieve capital appreciation consistent with the fulfillment of the first two objectives. (A) Return based classification: To meet the diversified needs of the investors. (C) Specialised sector of investment. (ii) To protect the value of investment and. Income funds are floated. the higher the expected returns. Portfolio Classification of Funds: Following are the portfolio classification of funds.

These funds are characterised by high viability. which have in their portfolio a reasonable mix of equity and bonds. Balanced Fund: The funds. Asset Management Company (AMC) and Custodians. this type of fund is expected to be very secure with a steady income and little or no chance of capital appreciation. Naturally. debentures.Mutual funds may also be classified on the basis of securities in which they invest. In this category we may come across the funds called ‘Liquid Funds’ which specialize in investing short-term money market instruments. unestablished companies. as the name implies. 1. 3. Basically. Bond Funds: such funds have their portfolio consisted of bonds. etc. Equity Fund: Such funds. hence more risky. MUTUAL FUND CONSTITUENTS All mutual funds comprise four constituents – Sponsors. invest most of their investible shares in equity shares of companies and undertake the risk associated with the investment in equity shares. 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. 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. it is renaming the subcategories of return based classification. Such funds are clearly expected to outdo other funds in rising market. Trustees. they have a higher degree of risk. because these have almost all their capital in equity. Obviously risk is low in such funds. Sector based funds are aggressive growth funds which make investments on the basis of assessed bright future for a particular sector. 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. The strength of these funds is the expected capital appreciation. Sponsors: Page75 Mutual funds and its performance in India . are known as balanced funds. 2. While such funds do have the disadvantage of low diversification by putting all their all eggs in one basket. The emphasis is on liquidity and is associated with lower risks and low returns. (C) Sector Based Funds: There are number of funds that invest in a specified sector of economy.

SEBI COMPANY can pull up an AMC if itUP SETS deviates from its prescribed Custodian: MAINTIAN RECORDS OF role.The sponsors initiate the idea to set up a mutual fund. the sponsor is just a stakeholder. Their charges range between 0. maintains proper accounting and information for pricing of units. An AMC takes decisions. its fee should not exceed 1. and secure necessary approvals. Custodians can service more than one fund. TRUSTEE 100 crore. they have to take the unit holders consent. The sponsors appoint the Trustee. They also review any due diligence by the AMC.2 percent of the net value of the TO THE FUND (AS UNITS OF holding.25 percent if collections are below Rs. AMC and Custodian. Trust/ Board of Trustees: Trustees hold a fiduciary responsibility towards unit holders by protecting their interests. collecting incomeACT AS TRUSTEE INVESTORS APPOINTS SUBSCRIBE THE distributing dividends.5 percent of the weekly net asset value. and submits quarterly reports to the trustees. whether the fund’s assets are protected. They submit reports every six months to SEBI. Once the AMC is formed. A sponsor has to satisfy certain conditions. Its responsibilities include receipt and delivery of securities. Fund Managers/ AMC: They are the ones who manage money of the investors. It could be a registered company. 100 crore and 1 percent if collections are above Rs. They check if the AMC’s investments are within well-defined limits. Page75 CUSTODIAN MUTUAL FUND: RELATIONSHIP AMONGSTTHE ENTITIES INVOLVED ASSET MANAFEMENT COMPANY Mutual funds and its performance in India MANGES THE SAFE KEEPS INVESTMENT THE ASSETS OF OF . it takes custody of securities and other assets of mutual fund. and de-fault free dealings and general reputation of fairness. such as capital. investors get an annual report. and provides information on listed schemes. Trustees float and market schemes.15-0. Trustees are paid annually out of the fund’s assets – 0. and also ensure that unit holders get their due returns. It also SPONSOR REGISTRAR exercises due diligence on investments. calculates the NAV. 10 crore. Its net worth should not fall below Rs. A fund’s AMC can neither act for any other fund nor undertake any business other than asset management. For major decisions concerning the fund. AND SERVICES OF Often an independent organisation. scheduled bank or financial institution. compensates investors through dividends. And. safekeeping of MUTUAL and segregating assets and settlements the units UNITHOLDERS OF A TRUST) between schemes. record (at least five years’ operation in financial services).

SEBI GUIDELINES: The SEBI issued a set of regulations and code of conduct of 20 January. • • Mutual fund should be formed as trusts and managed by AMC Restriction to ensure those investments under all schemes do not exceed 15% of the funds in the shares and debentures of a single company. The silent features of these guidelines are a s follows: • Mutual Fund cannot deal in Option trading. not associated in any way with the AMC and registered with the board. Mutual funds and its performance in India Page75 . • The Mutual fund should have a custodian. 1993 for the smooth conduct and regulation of Mutual fund. • SEBI will grant registration to only those Mutual Fund which can prove an efficient and orderly conduct of business. short selling or carrying forward transactions in securities.

5 crore of which the minimum contribution of the sponsor should be 40%. The first scheme launched by UTI was Unit Scheme 1964. 50 crore. At the end of 1988 UTI had Rs. 20 crore and for the open-ended scheme Rs. to the regulations. • The Mutual Funds are obliged to maintain books of account. Page75 Mutual funds and its performance in India . • • • The Mutual Fund should ensure adequate disclosures to the investors SEBI can impose suspension of registration in case of violation of the provision of the SEBI act 1992. The minimum net worth of AMC is Rs.• The minimum amount to be raised with each closed ended scheme should be Rs. The history of mutual funds in India can be broadly divided into four distinct phases: First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament.6. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. • Restrictions to ensure the investments under an individual scheme do not exceed 5% of the corpus of any companies shares and investments under all schemes do not exceed 10% of the funds in the shares. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. at the initiative of the Government of India and Reserve Bank the. BACKGROUND HISTORY AND STRUCTURE OF INDIAN MUTUAL FUND INDUSTRY The mutual fund industry in India started in 1963 with the formation of Unit Trust of India. debentures or securities of a single company.700 crores of assets under management.

there were 33 mutual funds with total assets of Rs.UTI. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs. 1993 was the year in which the first Mutual Fund Regulations came into being. PNB. It is registered with SEBI and functions under the Mutual Fund Regulations. a new era started in the Indian mutual fund industry. Mutual funds and its performance in India .29.Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996.21. under which all mutual funds. Fourth Phase – since February 2003 In February 2003. SBI Mutual Fund was the first non.805 crores.835 crores as at the end of January 2003. LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. 1. The second is the UTI Mutual Fund Ltd. Punjab National Bank Mutual Fund (Aug 89). Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993. sponsored by SBI. the mutual fund industry had assets under management of Rs. Bank of India (Jun 90).44.004 crores.47. Bank of Baroda Mutual Fund (Oct 92). The Specified Undertaking of Unit Trust of India.UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87). functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the BOB and LIC. except UTI were to be registered and governed. The Unit Trust of India with Rs. Also. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. Page75 Mutual Fund Regulations. assured return and certain other schemes. At the end of 1993. As at the end of January 2003. the assets of US 64 scheme. The number of mutual fund houses went on increasing. public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. giving the Indian investors a wider choice of fund families.541 crores of assets under management was way ahead of other mutual funds. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. Indian Bank Mutual Fund (Nov 89). representing broadly.

These banks did not really Mutual funds and its performance in India . which manage assets of Rs. The graph indicates the growth of assets over the years. 2004. conforming to the SEBI Mutual Fund Regulations. As at the end of September. Page75 a good start due to the stock market boom prevailing then. there were 29 funds.000 crores of assets under management and with the setting up of a UTI Mutual Fund.With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. the mutual fund industry has entered its current phase of consolidation and growth. and with recent mergers taking place among different private sector funds.76. The problem under study: Many nationalized banks got into the mutual funds business in the early nineties and got of to understand the mutual funds business and they viewed it as another kind of banking activity.153108 crores under 421 schemes.

public and private funds. Objectives: 1. 7. To study the pattern of consumer behaviour within the available investment options and to test awareness among the consumer about the various mutual fund houses. 3. Most of these AMC’s have not been able to retain staff. 2. 6. To find out how they are performing in Indian markets. 4. To study the marketing of Mutual Fund products in India. The service levels were also very bad. The performance of most of the schemes floated by these organisations was not good. 10. 9. To have a vivid picture of major players in Mutual Fund Industry in India How effectively they are reaching their customers. float new schemes etc.Few hired specialized staff and generally chose to transfer staff from parent organisations. To enhance our knowledge about the subject. To draw a comparative picture between foreign. To study the growth of Mutual Fund Industry in India. To study the consumer awareness regarding Mutual Funds To study the preferences of the distributors for Mutual Funds. 5. 8. The experience of some of the AMC’s floated by the private sector Indian companies was also very similar. Mutual funds and its performance in India Page75 . Some schemes had offered guaranteed returns and there parent organisations had to bail out these AMC’s by paying large amount of money as the difference between the guaranteed and actual returns.

DSP Merrill Lynch Mutual Fund 10. AIG Global Investment Group Mutual Fund 3. 18.13 340055 495472.13 1353479.07 5927765. DBS Chola Mutual Fund 8. Deutsche Mutual Fund 9. Franklin Templeton Mutual Fund 13.42 1913862. Benchmark Mutual Fund 4. Canara Robeco Mutual Fund 7.Assets Under Management (AUM) as at the end of Feb-2008 (Rs in Lakhs) Mutual Fund Name Average AUM For The Month Excluding Fund Of Funds 751549. HDFC Mutual Fund HSBC Mutual Fund ICICI Prudential Mutual Fund ING Mutual Fund JM Financial Mutual Fund JPMorgan Mutual Fund Kotak Mahindra Mutual Fund LIC Mutual Fund Lotus India Mutual Fund Mirae Asset Mutual Fund Morgan Stanley Mutual Fund Mutual funds and its performance in India Page75 .83 976388. 17.87 940284.14 1.36 1440485. 20.62 316509. BOB Mutual Fund 6. Fidelity Mutual Fund 12.31 3470409. Birla Sun Life Mutual Fund 5. 23. 21. ABN AMRO Mutual Fund 2.73 292977.5 2990169.07 N/A 360658.17 8469. Escorts Mutual Fund 11. 19.24 4629197. 14.29 984471.3 1668528. 16.92 253731. 22.42 1562818. 15.32 2096808.35 14692.

Taurus Mutual Fund 33.91 1370533.85 1414072.56 2020460.38 30.54 2949296. Sundaram BNP Paribas Mutual Fund 31. Tata Mutual Fund 32.66 5246471. UTI Mutual Fund Grand Total Mutual funds and its performance in India Page75 .85 9353167.4 56546953.72 36880. 26. 25. 28.56 21095.14 6405. PRINCIPAL Mutual Fund Quantum Mutual Fund Reliance Mutual Fund Sahara Mutual Fund SBI Mutual Fund Standard Chartered Mutual Fund 1339785. 27.24. 29.

1990 & 2001? Annual returns can. which compares the quarterly and annual performance for a hypothetical volatile fund. the closest thing to an owner’s manual for a fund the portfolio’s objectives and risk factors are spelled out in detail. TABLE-A QUARTERLY AND ANNUAL RETURNS FOR A VOLATILE FUND QUARTERLY RETURNS Mutual funds and its performance in India Page75 . The prospectus: the first step is to read the prospectus. conceal a lot of volatility along the way. Take a look at table A.SIMPLE WAYS TO GAUGE RISK IN MUTUAL FUNDS.two signs that it could be more volatile than normal. 1984. Compare the results with those of similar types of funds and a market index such as the base sensitive index. however. Annual returns: another simple way to eyeball a fund’s risk is to examine its annual returns over a period of several up and down years. Several simple approaches can help to judge volatility and most don’t involve much numberscrunching. 1987. Quarterly returns: for this reason. we have to analyze quarterly or even monthly returns. an aggressive-growth fund may mention that it concentrates on a limited number of companies or uses leverage. A sector fund investing in a specific industry or precious metals would also likely experience wider swings in NAV than a conservatively managed portfolio. How did the portfolio fare in weak market years such as 1981. For example.

8 percent in years 1 and 2 respectively. Standard Deviation Standard deviation.8 The fund gained 11 percent and 14. is a way to quantify risk. Anyone who had invested in the fund just before the tumble and sold right before its rebound would have suffered a staggering blow. whereas an extremely aggressive one could have a value of 6 percent or more. Compounding the four negative quarters results in a loss of 34. Page75 Mutual funds and its performance in India . Considered by themselves. the greater the risk. It reflects the degree to which returns fluctuate around their average. A conservative equity fund might have a number below 3. as noted.0% 14. The higher the standard deviation. the annual numbers indicate relative stability. This gives you an idea of the magnitude of loss you might expect in an unusually bad month. What do these numbers mean? About thirds of the time a fund’s actual monthly return will range within plus or minus one standard deviation of its monthly average. Its return will vary within two standard deviations about 95 percent of the time. It is useful to know how a portfolio held up in particularly bad stretches such as the fourth quarter in 2000 and the third quarter of 2001. About 95 percent of the time returns should lie within the bounds of -10 percent and +14 percent. Past quarterly returns for funds are not as accessible as annual results are. Suppose an aggressive-stock portfolio has an average monthly return of 2 percent and a standard deviation of 6 percent. About two thirds of the time its monthly performance would fall within the-4 percent to + 8 percent range. However. they hide a string of negative quarterly returns.YEAR 1 2 I +100% -15 II +18% -10 III -5% +25 IV -10% +20 RETURN 11.6 percent. especially if you want them for longer periods.5 percent per month. The measure is typically calculated using monthly results. a study of past annual returns will suffice. But for most purposes.

Standard deviation allows portfolios with similar objectives to be compared over a particular time frame. Oct. such as the BSE . May June July Aug. It can also be used to gauge how much more risk a fund in one category has versus as fund in another. ABC Growth Fund is an aggressive-stock portfolio that focuses on a small number of companies and uses leverage to try to enhance its returns XYZ Income Fund is a conservative balanced portfolio holding both bonds and stocks. Table 1 Monthly Total Returns Compared to Standard Deviation Total Returns Market Month Jan Feb. Sept. Apr. Nov. Table 1 presents in mini-illustration using hypothetical data. We include the returns on a market index. as a standard of comparison. Index 7% 4 6 -4 -1 5 -4 4 3 2 -1 ABC Growth 12% -6 11 -11 5 7 -8 8 6 5 -6 XYZ Income 4% 2 3 -2 1 2 -2 3 2 1 0 Page75 Mutual funds and its performance in India . Mar.

Atleast 15 years of information would be needed to obtain meaningful results. Based on the data in Table. the X. to the return on the market. Ideally. Std. -5 4. ABC Growth has a beta of 1. standard deviations must be calculated over a sufficiently long period. beta is the slope of a regression line relating the result on the fund. the past 36 months and correlating them with the index’s monthly results. Dev. For example. The standards deviation of a bond fund’s returns would reflect price fluctuations resulting from changing interest rates (interest rate risk) or changes in the quality of the bonds held (credit risk). This confirms that the first fund carries significantly more risk than the second. Negative betas can exist but are rare. commonly the BSE. Beta reflects the sensitivity of the fund’s return to fluctuations in the market index. Standard deviation can also be used to evaluate the riskiness of bond portfolios. (In statistical jargon. a fund with a beta of 1. the greater the risk. In fact standard deviation shows that it has about twice as much variability as the market index and four times as much as XYZ. or the Y-axis variable. you would want 3 to 5 years of monthly return data.the higher the beta.0% -2 2. The beta for the average volatility.65 and XYZ Income has a beta of 0.1.0% It’s pretty clear from the negative monthly returns that ABC Growth has the greater risk.5 would be expected to advance or the stock funds have a beta of zero since their returns are independent of the stock market.0% -8 8. To be meaningful.Dec. This is often done by taking returns for. An individual could calculate standard deviations for older funds using annual return data.’ Beta relates the return on a stock or mutual fund to a market index. Page75 Mutual funds and its performance in India .48.axis variable). The Beta Measure Market risk is commonly measured by what’s known as the “beta coefficient. although many analysts commonly use 36 months. say.

Recently published research by University of Chicago Professors Eugene Fama and Kenneth French presents compelling evidence that beta is no longer a useful predictor of performance. but their betas might be well below 1. high-beta portfolios are not necessarily going to produce better returns than low-beta portfolios do.0. This is because with the overall market. R-squared ranges between 0 percent and 100 percent. such as those investing in particular industries or in precious metals. A gold portfolio might have an R-squared of only 1 percent only. the BSE versus the NIFTY index. the higher the R-Squared. funds classified as “nondiversified” could have an R-squared of 60 percent or less. This statistic indicates how much of a fund’s fluctuations are attributable to movements in the overall market. especially over shorter periods. These funds can be plenty voltaic in the sense that their standard deviations are very high. Also. Academics have criticized it on several grounds. even close to 0. Checking the “R-Squared” A measure known as “R-squared” can help spot questionable betas. The greater a fund’s diversification. If the fund has had a large cash position for some time. its RPage75 squared number would tend to rise. But. the measure isn’t necessarily a reliable indicator of future performance. Also beta’s value depends on how an investor calculates it. It would also vary depending on the market index that’s being used as a benchmark-say. its R-squared could be relatively low: This is because the returns on cash equivalents do not fluctuate in sync with the stock market. betas often don’t work for foreign-stock portfolios. This is. which replicates the S&P 500.Beta Shortcomings Beta isn’t perfect. Mutual funds and its performance in India . For instance. When the portfolio gets back to a fully invested position. well-diversified funds have R-squared values of 90 percent or higher. has an R-squared of 100 percent Large. A high-beta fund might not advance or may even decline if the market rallies. Beta won’t reveal much about funds with highly specialized portfolios. a given mutual fund would have one beta based on date stretching back 36 months and another for 60 months. The Vanguard Index Trust 500 Portfolio. Re-squared may be misleading for funds that retreat heavily into cash or into short-term fixed-income securities. For instance.

that past Mutual funds and its performance in India . with the exception of junk bonds. For example. the monthly standard deviation for bond funds averaged 1. and assetallocation funds. too has its shortcomings since It’s based on past data that might not be representative of the future. such as an arbitrarily chosen market index. 2. These portfolios often do not move in tandem with the stock market. 4. Groups with higher standard deviations also tend to have higher-average betas. with some notable exceptions such as the precious metals funds. a generally better indicator of risk than beta. When in doubt. it’s the single best risk measure for stock funds. convertible. It doesn’t depend on any relationship to another variable. would generally have much lower volatility measures. balanced. Overall. they became the subject of intense academic inquiry. This was at a time when scholars were seeking compelling evidence to show that stock markets were performances could not serve as a reliable guide to future results. 3. not just market risk. Nonetheless.1. Risk by category Some of the lower numbers are found among utility. use standard deviation. Here’s why: 1. Risk-Adjusted returns Since mutual funds are both popular and fairly easy to study and because their performance results are readily accessible. The fixed-income portfolios.It’s important to realize that the beta of a fund with a very low R-squared is generally not meaningful since that portfolio would have an extremely low correlation with the market index. Standard deviation is a broader measures than beta. a gold fund may have a beta of only 0. Why standard deviation Standard deviation. and that the only way a Page75 seeking compelling evidence to show that stock markets were efficient.4 percent during a recent three-year period. It can measure the riskiness of specialized portfolios as well as of broadly diversified ones. It can be used to gauge the variability of both and stock portfolios. as it gauges total risk. yet have a very high standard deviations. Standard deviation is a purer number.

or both. THE SHARPE AND TREYNOR RATIOS The Sharpe and Treynor ratios are two ways to gauge risk-adjusted performance. look at risk and return together. the Treynor ratio divides the risk premium by the fund’s beta. So Fund b performed better than A on a risk-adjusted basis. we would like to hold a fund that consistently earns generous returns while fluctuating less than other. or beta especially. In either case higher values are favourable as they indicate more return per unit of risk. Example: Fund A had an average return of 2 percent monthly over a three-year period when the T-Bill rate averaged 0.6 percent. investors want managers who can Mutual funds and its performance in India Page75 . Its Sharpe ratio is 0. The Portfolio’s Alpha Another risk-adjusted gauge is the portfolio’s alpha. Ideally. The risk premium can be positive or negative depending on how the fund performed.28 [(2 percent-0. Ideally.6 percent)/ 2 percent] (2 percent].4 percent. comparable investments.” of the difference between a fund’s average return and the average return on a riskless Treasury bill over the same period. Simply put. Both use what’s known as a “risk premium. If the fund fares better than predicted.fund manager or individual investor could achieve higher returns would be to take on greater risk. would affect them. Exceptional risk-adjusted performance would result from either superior stock selection. The Sharpe ratio divides the risk premium by the fund’s standard deviation.0. Its standard deviation is 5 percent per month. alpha compares the actual results of a portfolio with what would have been expected given the fund’s beta and the market’s behaviour.6 percent)/5 percent] Fund B returned 1. it has a positive alpha. Below-par performance results in a negative alpha.4 (1. Fund A’s Sharpe ratio is 0.4 percent monthly with a 2 percent standard deviation. they. The shortcomings of standard deviation. While logical and useful. one should consider not only the return but also how much risk was assumed to generate the results. When academics measure the performance of a portfolio. superior market timing. When evaluating a mutual fund. the risk-adjusted measures are not perfect.

812 Crore. 1993. which has been renamed as Prudential-ICICI Mutual Fund has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act. over GBP155 billion of funds under management. Prudential Plc. 1882 (2 of 1882). as of 31 December 2002. a) Sponsors Prudential plc (formerly known as Prudential Corporation plc) Prudential plc is a leading international financial services group providing retail financial products and services and fund management to many millions of customers worldwide. 106. more than 12 million customers and over 15. The Mutual Fund was registered with SEBI on October 13. (Since merged with ICICI Bank Ltd. Prudential Corporation Holdings Limited. ICICI Bank Limited Page75 ICICI Bank is India’s second largest bank with an asset base of Rs.consistently generate high positive alphas.). ICICI Mutual Fund was established by erstwhile ICICI Ltd. ICICI Bank provides a broad spectrum of financial services to individuals and companies. such as alpha or the Sharpe or Treynor ratios. through its wholly owned subsidiary. worldwide. Some services that monitor funds supply a riskadjusted performance measure. Mutual funds and its performance in India . Mutual Funds of INDIA Prudential -ICICI Mutual Fund Constitution of the mutual fund ICICI Mutual Fund. by execution of a Trust Deed dated August 25. 1993. As a group Prudential plc has.000 employees.

Standard life investments limited is one of the world’s major investment companies and is responsible for investing money on behalf of five million retail and institutional clients worldwide with its headquarters in Edinburgh. which includes a range of private and public equities. U.in order to meet the different needs and risk profiles of its clients . HDFC MUTUAL FUND. The mutual fund has been registered with SEBI . CONSTITUTION OF THE MUTUAL FUND HDFC mutual fund has been constituted as a trust in accordance with the provisions of the Indian trusts Act . standard life investments limited manages a diverse portfolio covering all of the major markets world –wide . Prudential plc. Ireland Canada. whereas the balance 45% shareholding of the Trustee company is being held erstwhile ICICI and is under a process of being transferred to ICICI Bank Ltd.b) The Trustee Company (The Trustee) Prudential ICICI Trust Limited. STANDARD LIFE INVESTMENTS LIMITED The standard life assurance company was established in 1825 and has considerable experience in global financial markets in 1998. through its wholly owned subsidiary. government and company bonds. standard life investments limited became the dedicated investment management company of the standard life group and is owned 100% by the standard life assurance company with global assets under management of approximately US$126 billion as at May 15. 1993 as amended form to time. 1956 is the Trustee to the Fund vide Trust Deed dated August 25. corporates and developers for the purchase or construction of residential housing it also provides property related services. and its Group companies. USA and Hong Kong . vide registration number MF/ 044/00/6 dated June 30.2000 SPONSORS HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED (HDFC) HDFC was incorporated in 1977 as the first specialized housing finance assistance to individuals. holds 55% of the shares of the Trustee.K. a company incorporated under the Companies Act. Prudential Corporation Holdings Limited. Standard life investments limited has an extensive and developing global presence with operations in the united kingdom. 1982 .2003. property investments and various derivative Mutual funds and its performance in India Page75 .

a company incorporated under the companies Act. Sponsors Page75 Mutual funds and its performance in India . The Mutual Fund was registered with SEBI on January 14.2003 under Registration Code MF/048/03/01. HDFC Trustee Company Limited is a wholly owned subsidiary of HDFC. Specified Undertaking of Unit Trust of India comprises of US 64 for which assured repurchase prices have been announced and assured return schemes. comprising of all net asset value based schemes including the scheme mentioned in the memorandum. UTI Mutual Fund has been structured in accordance with SEBI (Mutual Funds) Regulations 1996. The Specified Company has been set up as a Mutul Fund viz UTI Mutual Fund.instruments the company ‘s current holdings in UK equities account for approximately 2% of the market capitalization of the London stock Exchange . UTI Mutual Fund UTI. 1956 is the Trustee to the mutual fund vide the trust Deed. holding. THE TRUSTEE HDFC Trustee company limited. Constitution of UTI Mutual Fund The UTI Mutual Fund has been constituted as a Trust under the Indian Trust Act 1882. The UTI Act has been repealed with effect from 1st February 2003.The Division and Repeal of the Unit Trust of India Act-1963 Parliament has passed The Unit Trust of India (Transfer of Under taking and Repeal) Act 2002 (hereafter referred to as the Act) As per the Act the assets and liabilities of UTI has been bifurcated into two parts the specified undertaking and the specified company. trading or disposal of securities or any other property whatsoever for the purpose of providing facilities for the participation by persons as beneficiaries in such properties or investments and in the profits or income arising there from. The main objective of the Mutual Fund is: Pooling of capital from the public for collective investment by way of acquisition. management.

stock broking and other financial services. Office : “Reliance House”. which holds 93. Mumbai 400 020.73 Lakhs. Off CA Road. 14-'E' .532 crore (AUM as on 29th Feb 08) and an investor base of over 65.37% of the paid-up capital of RCAM. Above Satkar Hotel.Bank of Baroda. life and general insurance. 93. Punjab National Bank and State Bank of India and Life Insurance Corporation of India(LIC). Registered office: UTI Tower. in terms of net worth. RMF offers investors a well-rounded portfolio of products to meet varying investor requirements and has presence in 115 cities across the country. the balance paid up capital being held by minority shareholders. Tel: 30414800 Fax: 30414818. Reliance Mutual Fund. Near Mardia Plaza. is one of India’s leading and fastest growing private sector financial services companies. Reliance Mutual Fund constantly endeavors to launch innovative products and customer service initiatives to increase value to investors.Three leading public sector banks. Opp. has interests in asset management. with Assets Under Management (AUM) of Rs. Reliance Capital Ltd. "Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management Limited. and ranks among the top 3 private sector financial services and banking companies. a part of the Reliance .Road. Regd."Reliance Capital Ltd. Churchgate. Corporate Office : Express Building. the largest public financial investment institution and life insurer in India have entered into an agreement with the Government of India as Sponsors of the Mutual Fund.. private equity and proprietary investments. a subsidiary of Reliance Capital Limited. Reliance Mutual fund: Reliance Mutual Fund (RMF) is one of India’s leading Mutual Funds. Bandra –Kurla Complex Bandra (East)Mumbai400051. Trustee Company UTI Trustee Company Private Limited a company incorporated under the Indian Companies Act 1965 will be the first and sole trustee of the Mutual Fund under the Trust Deed dated December 9. Churchgate Station. Gn Block. 2002 executed between the sponsors and the Trustee company ( the Trustee). is one of the fastest growing mutual funds in the country. Ahmedabad 380006. Page75 Mutual funds and its performance in India .Anil Dhirubhai Ambani Group. 4th & 6th Floor.

Types of Retail Investors The Et survey on retail equity investors in the secondary market has identified different categories of investors based on their characteristics. low–gain guaranteed return avenues as passé. Many questions are raised about the behaviour of the small investor under different circumstances The answer to many of these questions and similar others is not difficult to interpret once we identify the different types of retail investors in the stock markets. ‘opportunists’. ‘cavaliers’. Mutual funds and its performance in India . The survey shows that there are five different kinds of retail investors: ‘intellectuals’. This classification is based on the attitudes of investors towards secondary market investments. Let’s explain each type of investor and understand their investment psyche and behavioural patterns. ‘reactivists’. these investors are self reliant good stock pickers and try to monetise market knowledge. asset allocation and Page75 seek the right mix of stability and reliability of returns. Also. Giving proof of their intelligence. individualist approach to investment planning and a well-defined and deliberate strategy for stock investment. and ‘gamblers’. they believe in and work towards a well-planned. they consider low-risk. INTELLECTUALS: This retail investor group forms around 17% of the total retail investment class. They are the intelligent investors who follow an intelligent.

but will trust their own judgment before making decisions. to ensure a feeling of security . These investors basically short-term investors. they have no specific investment patterns. the reactivists constantly seek new information about stocks in which they are currently invested in .They get tempted to speculate in the secondary market and once in a while. Therefore. they are not concerned with short term losses. They are very sceptical and believe that small declines can lead to larger losses if not reacted upon immediately. They manager their money themselves and under stand the industry/sector before investing. CAVALIERS: As high as 49% of the small retail equity investors are ‘cavaliers’. they actually speculate but with smaller amounts. experience and expertise. are impulsive info addicts who are vulnerable to external influences and as such.The ‘intellectuals’ are unaffected by short–term fluctuations and prefer long–term investments. their investments apart from equities are solely for tax-saving purposes. mostly in volatile sectors in order to make big gains. As such. REACTIVISTS: About 5% of the retail equity investors fall under this category. They are those who have lost money in ‘fly-by –night ‘ schemes. Therefore. They believe that dynamic and ad hoc investments will result in better profits and are prompted to act on popular opinion rather than systematic planning. Moreover. they invest aggressively into equities. much of their investments are driven by the desire to recover past losses and make profits in the future. However. They are extremely anxious about price fluctuations or short-term declines. Moreover. they are disciplined enough to observe profit targets which they have set for themselves. they constantly rely on advise from in the know people such as brokers and analysts. The cavaliers try to gather all available information and compare it with opinions from experts in the media. As they lack in confidence. they will also invest in FDs and insurance as a precautionary measure. And as they invest for the long term. OPPORTUNISTS: Page75 Mutual funds and its performance in India .

They experiment a lot. The opportunists choice of investment is biased towards well known and previously owned securities. This class perceives all securities as tradable commodities to be bought and sold in the short term. Opportunists need positive price movements to encourage their investments into equities and they will not hunt for bargains of invest on price declines. This investor class is wary of investing into equities when the market has moved up too high too soon. mostly driven by instinct and self confidence. if you have not invested in the current market. you are probably an ‘opportunist’. have a tendency to invest only as much as they are willing to lose. Ø Joint Calls Page75 Mutual funds and its performance in India . MARKETING STRATEGIES ADOPTED BY THE MUTUAL FUNDS The present marketing strategies of mutual funds can be divided into two main headings: Ø Direct marketing Ø Selling through intermediaries. they are wary of volatility in the equity market. including equities. They prefer to build a critical mass of fixed income instruments as they find fixed income options a reassuring way of safe bets. They want to be in the black all the time and as such.This class of investors account for 10% of the retail equity investor universe. The opportunists‘ choice of investments as they find fixed income options a reassuring way of safe bets. of the game and this does not act as a hindrance for future investments.’ They are the typical thrill seeking traders who link profitability to personal achievement. they ascertain fair value of stocks on gut feeling rather than any financial analysis and use sudden downward fluctuations as buying opportunities. GAMBLERS: 19% the retail investor population is made up of not actual investors. But before investing into equities. So. However. as such their stock selection is more a random exercise that lacks rationale. but will secretly verify their suggestions for fear of missing an opportunity . they do not trust brokers. prefer popular stocks with immediate profit potential. They invest into equities by imitating larger trends rather than with their individual analysis and consider equity investment as a gamble. This category is defensively pessimistic and prefers to take only familiar risks. they know completely about the risk factors and therefore. But gamblers. As a part. As they have a low risk tolerance.

Answers their queries and is generally successful in taking appointments with those people. 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 hoarding and banner generally contains information either about one particular scheme or brief information about all schemes of fund. Some of the important tools used in this type of selling are: Personal Selling: In this case the customer support officer or Relationship Manager of the fund at a particular branch takes appointment from the potential prospect. business directory. The CSO calls on the people to whom the literature was mailed. The follow up starts after 3 – 4 days of mailing the literature. 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.Direct Marketing: This constitutes 20 percent of the total sales of mutual funds. The conversion rate in this mode of selling is in between 30% 40%. Advertisement in TV/FM Channel: The funds are aggressively giving their advertisements in TV and FM Channels to promote their funds. Some fund houses have their database of investors and they cross sell their other products. Direct mail: This one of the most common method followed by all mutual funds. Addresses of 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. 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. Mutual funds and its performance in India Page75 . Generally the conversion rate in this form of marketing is 15% 20%. The names and phone numbers of the people are picked at random from telephone directory. The customer support officer (CSO) then mails the literature of the schemes offered by the fund. Once the appointment is fixed. Telemarketing: In this case the emphasis is to inform the people about the fund. It is then the job of BDA to try his best to convert that prospect into a customer. professional directory etc.

generally. what the competitors are doing and what they can do to increase the sales of the fund. it means. Regular Meetings with distributors: Most of the funds conduct monthly/bi-monthly meetings with their distributors. The conversion rate is very high in this situation. Joint Calls: This is generally done when the prospect seems to be a high net worth investor. Whenever a top official visits a particular branch office.Selling through intermediaries: Intermediaries contribute towards 80% of the total sales of mutual funds. around 60%. When we say marketing of mutual funds. Page75 Mutual funds and its performance in India . their present performance in the market. These are the people/ distributors who are in direct touch with the investors. special training programmes are also conducted for the new agents/ distributors. Both the fund and the agent provide even after sale services in this particular case. They do a commendable job in convincing investors to invest in mutual funds. includes and encompasses the following aspects:  Assessing of investors needs and market research. A lot depends on the after sale services offered by the intermediary to the customer. Most of these intermediaries are also involved in selling shares and other investment instruments. he devotes atleast one to two hours in meeting with the HNI’s of that particular area. The objective is to hear their complaints regarding service aspects from funds side and other queries related to the market situation. 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. MARKETING OF FUNDS: CHALLENGES AND OPPORTUNITIES When we consider marketing. This generally develops a faith among the HNI’s towards the fund. They perform an important role in attracting new customers. Meetings with HNI’s: This is a special feature of all the funds. Sometimes. because we cannot judge an elephant by its trunk or by its tail but we have to see it in its totality. we have to see the issues in totality. 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. Training involves giving details about the products of the fund.

Secondly. Consider the geographical spread of the investors in the mutual fund industry. broadening and deepening of the market for the mutual fund products. no mutual fund can successfully market its funds.  Getting feedback about sales. Responding to investors needs. Even if there is a single weak-link among the factors which are mentioned above.  Sending certificates in time and other after sales activities. but also outside the country. the first priority is that the geographic spread has to be their wings not only within the country. Broadening and Deepening the Markets There are certain issues that are directly linked with the marketing of mutual funds. In fact there are only around 35 centres in the country. Widening.  Finalising strategies for publicity and advertisement.  Creating positive image about the fund and changing the nature of the market itself.  Choosing the distribution network. which account for almost 95% of the funds mobilised.  Honouring the commitments made for redemptions and repurchase. the mutual funds must try to spread Mutual funds and its performance in India . Page75 widened and the market has to be deepened. The above are the aspects of marketing of mutual funds. Almost 80% of the funds are mobilised from less than 10 centres in the country.  Timing of the launch of the product.  Preparing offer documents and other literature.  Paying dividends and other entitlements. Considering the vast nature of this country. the first of which is widening. in totality.  Product designing.  Studying the macro environment.  Studying performance indicators about fund performance like NAV.

B. By concentrating on these areas.AMFI can coordinate this task on behalf of the various Mutual Fund houses. Overseas Markets The second aspect with respect to the widening and deepening the market is expanding the overseas investor base. not entirely relying upon the investors in the 35 odd cities of the country. having a population of about one lakh. The expansion of the distribution network and quick dissemination of information. This is the single largest untapped market for mutual funds in India. investors in the rural and semi-urban areas are not well educated and are inadequately exposed to the capital market mechanisms. and different means of communication to the target customer. would require a completely different strategy. Typically. and educational films. Postmasters. unlike the marketing of mutual funds in the metros and urban areas. should help develop these markets. If offered after sales services of international standard. It would therefore be more expensive to market mutual funds in such markets than marketing in the cities. It is also important to utilise the services of local intermediaries like Gram Sevaks. visits by mobile vans with some audio visual aids and the like. 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 . comprising of the district representatives and the collection centres can be best utilised to create such awareness and expand the market. A target group with large potential. the investor base will get more broad based. the untapped markets in the country should ideally be the first thing that the mutual funds in India should endeavour to tap. translate that awareness into increased fund mobilsation. In other words. School teachers. Therefore. it will naturally give the much needed stability to the market. NRI’s are willing to invest in Indian mutual funds.A. The retail distribution network. Once the semi urban population gets acquainted with the concept of mutual funds. Markets in Rural and Semi-Urban Areas There exists a large investor base in rural and semi-urban areas. Agricultural Co-operative Societies and Rural Banks. Simplification of literature in regional languages. reasonable return and . Collective Advertisements can be released . more emphasis has to be given to the electronic media and other forms of publicity such as wall paintings. coupled with prompt and Mutual funds and its performance in India Page75 resident Indians. group meetings in these semi-urban and rural areas. hoardings. Rural marketing. which normally has access to only post office savings and bank deposits. which can be tapped is noneasy access to information.

he understands more by emotions and sentiments rather than a quantitative comparison of funds’ performance with respect to an index. because that generates trust and confidence. The funds that are being launched today are more or less look-alikes. in an uncertain market. The Indian investor is essentially risk averse and is more passive than active. reasonable return and liquidity. efficient collection and remittance mechanism. That purpose may be his child’s education and career development. He prefers one bird in the hand to two in bush. NRI’s will also require a continuous presence in their market. will play an important role in mobilising and retaining these funds. Mere growth prospects.timely service. are not attractive to him. Product Innovations With the debt market now getting developed. Importantly. medical expenses. and not necessarily designed to take into account the investors’ varying needs. gilt funds besides equity funds. The investor is ready to invest his money over a long periods. health care after retirement. Investor Preferences The challenge for the mutual funds is in the tailoring the right products that will help mobilising savings by targeting investors’ needs. provided there is a purpose attached to it which is linked to his social needs and therefore appeals to his sentiments and emotions. and distinguishes one fund from the another. but is satisfied with safety and reasonable returns. sectoral funds. It is necessary that the common investor understands very clearly and loudly the salient features of funds. He is not interested in frequently changing his portfolio. mutual funds are tapping the investors who require steady income with safety. Mutual funds and its performance in India Page75 . in order of preference are the safety of funds. The expectations of a typical investor. index funds. by floating funds that are designed to primarily have debt instruments in their portfolio. In a country where social security and social insurance are conspicuous more by their absence. which translates into sustained mobilisation of funds. The other area where mutual funds are concentrating is the money market mutual funds. and is happy if assured a rate of reasonable return that he will get on his investment. or plain vanilla funds. PRODUCT INNOVATION AND VARIETY A. B. or the need for steady and sure income after retirement. mutual funds can pool their resources together and try to mobilise funds to meet some of the social needs of the society.

and the trust and credibility that has been generated or will be generated by being loyal to one institution. is much higher than in the retail agency system. or using lead managers and brokers along with sub-brokers. Therefore. It is against this background that the merits and demerits of the alternative methods of distribution have to be studied. sowing seasons. festival seasons. keeping their seasonal requirements in mind for harvest seasons. banks with their friendly neighbourhood presence offer the advantage of extensive network. The reduced cost benefit will ultimately accrue to the investor in the form of higher returns. Different kinds of Mutual funds and its performance in India . This is because. as the target of communication is restricted to a few group of individuals. Life Insurance Corporation with its dedicated sales force is offering insurance products.The industry can also design separate funds to attract semi-urban and rural investors. The experience of UTI has been that. shares – provided the market is moving favourably – also attract direct investments from retail investors. they are likely to be more successful than the lead managers. Savings in advertisement and publicity expenses is also affected. Retail through agents The alternative distribution channels that are available are selling. informer and educator. DISTRIBUTION NETWORK Among the competitors to the mutual fund industry. there is a sense of loyalty amongst agents. since the agent will function as a facilitator. Building a team of agents and other distribution network such as distribution and collecting agents and franchise offices. in anticipation of getting continuous business throughout the year. if necessary motivation and incentive is provided to the retailer agents. etc. for selling units. retail distribution through the agents is a preferred alternative for distributing mutual fund products. one achieves brand loyalty through continuous interaction between agents and investors. In such a system. mutual funds require higher advertisement and sales promotion advertising and sales promotion exercises are required to serve the needs of different classes Page75 expenses than any consumer product offering measurable performance. will provide the investor the opportunity of having continuous interaction and contact with the mutual fund. Statistics reveal that the wastage ratio of application forms in the lead manager concept. ADVERTISING AND SALES PROMOTION By their very nature. finance companies with their hefty upfront incentives offer higher returns.

focussing on scheme features. An investor exposed to the increasing number of mutual fund products finds that all the available brands are rather identical. returns and incentives. which normally takes about 2 months’ time. in contrast with ‘pull’ marketing strategies for the wholesale market. that the fund gradually builds its brand and its class of loyal investors. in the offer documents. mutual funds are required to mention the fund objectives in clear terms. The quality of services are broadly categorised as: Ø Timely services after the sale of the units. QUALITY OF SERVICE This industry primarily sells quality of services. a prior approval by SEBI is a must before a mutual fund can launch its fund. that the timing of launch gets affected. a period of one month has been provided. defeats the purpose for which the fund was designed also. brochures and other literature is generally lengthy. For instance. The present form of application. and Ø Continuous reporting of investment performance. But in a month’s time. the first risk factor that has to be mentioned is that there is no certainty whether the objectives of the fund will be achieved or not. and will certainly improve the situation. and cannot appreciate any distinction. Immediately thereafter. For instance. There are certain issues with reference to advertisement. an aggressive ‘push’ marketing strategy is required for retail markets. given that the performance cannot be promised. perhaps the situation may so change. publicity literature and offer documents. Under the present mutual fund regulations. The requirement for getting approval. Most of the mutual fund advertisements look similar. It is with this attribute along with procedural simplicity.of investors. One of the limiting factors is the regulatory framework governing advertisements of mutual fund products. cumbersome and at times complicated leading to higher emphasis on advertisement. In the regulation itself. Mutual funds have to provide risk factors. where investors are not adequately aware of the product and do not have specialised skill in financial market. Page75 Mutual funds and its performance in India . Some more relaxation’s in these may facilitate bringing more novelty in advertisements. Another hurdle is the statutory disclaimer required to be carried along with every advertisement. without luring investors through false promises. which deserve attention. within a broad framework.

it is not possible for mutual fund industry to test market and have pilot projects before launch. it is not only an application. and differential preference for various investment attributes of financial product. but it also contains vital information. on the basis of which they take investment decisions. Most of this information if tabulated and analysed. if satisfied. Page75  Tax treatment. Very little research on investor preference is available. deeper loyalty and reduced costs. different investment attributes an investor expects in a financial product are:  Liquidity. Knowing the customer thoroughly is of utmost importance. Market Segmentation Different segments of the market have different risk-return criteria. The same investor.Mutual fund managers must give due attention and evaluate their performance on each front. When the investor sends his application.  Safety of principal. It is in this context that direct marketing will assume increased importance. will come to the fund again and again. in a particular segment also there could be different sub-segments asking for yet different risk-return attributes.  Dividend or interest income. would provide important insights into investor needs. but the industry can collectively have a data bank. can help reduce issue expenses and ultimately translate into higher returns for the investor. MARKET RESEARCH Investment in mutual fund is not a one-time activity. to achieve better penetration. They may also consider an option of conducting a service audit for controlling and improving the quality of service.  Capital appreciation. Not only that. Unlike the consumer goods industry. It is a continuous activity. At the same time. focusing and concentrating on a particular geographic area where the fund has a strong presence and proven marketing network. and share the information for appropriate use. preferences and behaviour and enables us to target customers need more accurately. can help reduce network. Mutual funds and its performance in India .

It consists of individuals. social environment. Each class of participants. 2) Institutional Segment This segment characterises less number of participants. HUF’s for long term investment purpose. Businessmen and firms having occasional surpluses. Hindu Undivided Families. The tax features and regulatory restrictions are the vital Mutual funds and its performance in India . It may be further sub-divided into: i. Broadly. These may be further classified on the basis of their income levels. On the basis of these attributes the mutual fund market may be broadly segmented into five main segments as under. public sector units.  Time period for investment. financial institutions. iii. and firms. foreign institutional investors. Salaried class people. ii. This class normally looks for more specialised professional investment skills of the fund managers and expects a structured considerations in their investment decisions. insurance corporations. Page75 product than a ready-made product. this class requires security of the principal. and nature of work. etc. liquidity. value and ethics. and regular income more than capital appreciation. It consists of banks. iv. media habits. and large individual volumes. such as banks. Similarly. It has been observed that prospects in different classes of income levels have different patterns of preferences of investment. 1) Retail Segment This segment characterizes large number of participants but low individual volumes. The marketing strategy involving indirect selling through agency network and creating awareness through appropriate media would be more effective in this segment. 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. Retired people. Regulatory restrictions. It lacks specialised investment skills in financial markets and highly susceptible to mob behaviour. provident and pension funds.

Its basic investment need would be safety of the principal. we are looking at a representative office and a distribution network in Dubai. at times referred as ‘fair weather friends. etc. educational trust.The MF industry is also looking to tap the vast NRI funds of about $5 billion that were transferred to the local banks as FCNR and NRE deposits on the redemption of the Resurgent India Bonds in October. To begin with.NRI’s are used to seeing low South Indian population in the Middle East will surely connect with the Sundaram brand. It consists of various types of trusts. Sundaram and HDFC MF are currently in the process of strengthening distribution net-works overseas. The range of suitable products are required to design to divert the funds flowing into bank accounts. Sanjay Santhanam. “ We are intensifying our efforts at tapping NRI money .” Page75 interest rates so their return expectations are different from domestic investors.The scheme had collected Rs. The latest flavour in the mutual fund industry is exclusive schemes for non-resident Indians (NRI’s).provides a niche to the fund managers in this segment.’ They need the highest cover against political and exchange risk. This class offers vast potential to the fund managers. religious trust. regular income and hedge against inflation rather than liquidity and capital appreciation.2003.The large Mutual funds and its performance in India . each with different objectives. social trust. They also hold a strategic importance as they bring in crucial foreign exchange – a crucial input for developing country like ours. They normally prefer easy exit with repatriation of income and principal.SBI MF has already launched an exclusive scheme for NRI’s. ICICI Prudential and JM Mutual are in process of finalizing details and some more funds have also confirmed that they are planning such schemes. high volumes segment. 3) Trusts This is a highly regulated. HDFC was one of the first to launch a fixed maturity plan to NRI’s after the RIB redemption . Marketing to this segment requires special kind of products for groups of foreign countries depending upon the provisions of tax treaties. 4) Non-Resident Indians This segment consists of very risk sensitive participants. if the regulators relax guidelines and allow the trusts to invest freely in mutual funds. Vice President Marketing &Sales of Sundaram MF says. It requires more of a personalised and direct marketing to sustain and increase volumes. namely.16-17 crore. charitable trusts.especially in the Middle East.Then we will work out specialised products and asset allocation models. family trust.

private sector ones in particular. the products are also required to be marketed through appropriately different marketing strategies. Clearly advertising types have something to cheer about. This can be attributed to private sector funds (given the data available with the Association of Mutual Funds of India) seeing an increase share of net inflows relative to the bank-sponsored counterparts in the public sector. Alternatively. Page75 According to the mutual fund marketers. Mutual funds. AD’S THE WAY Increasing sales have given mutual fund promoters the budget to spend more on advertising.. some form of ongoing support to keep sales booming has been deemed necessary by the funds. Mutual funds managers have to analyse in detail the intrinsic needs of the prospects and design a variety of suitable products for them. which typically become due for the payment within a year or quarter or even a month. when investors are most receptive to mutual funds.What’s interesting is that in this period the share of the private sector mutual funds in the category’s total media spending has surged from 20 percent to 52 percent. They need short term parking place for their fund. which has further boosted sales The Atheists are turning believers. Thus.5) Corporates Generally. each segment and sub-segment have their own risk return preferences forming niches in the market. advertising helps bring recall when consumers are Mutual funds and its performance in India . Not only that. Given the relaxation in the regulatory guidelines. they also get surplus fund due to the seasonality of the business. looking at investment opportunities. funds are being pushed into advertising more by intermediaries like banks who are reluctant to sell a product whose name is unfamiliar to investor. who had written off advertising as the “ultimate waste of money” have nearly tripled their press media spend . “ The industry has discovered that advertising in the changed climate today. But what’s caused this sudden attitudinal shift towards advertising? According to experts. 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. Besides. fund managers are expected design products to this segment. This segment offers a vast potential to specialised money market managers. MF’s has rationale for stepping up marketing spends because the brand is an important part of the consumer’s decision to invest in a category that is not yet clearly understood by people. since more open-ended schemes are now available. can perk up sales by anywhere between 20-40 percent.

Advertising serves as a reminder complementing a sales push by the distributor.” Mutual Fund marketers feel that since the category is ‘information – centric’. advertising then. They need Mutual funds and its performance in India Page75 . press is the best medium to get across one’s message. Attractive point of purchase (POP) material can also help. Brand building. Funds need to focus on sustainable communication. Within the print media. is a long-term exercise. Educational seminars are the final leg in the marketing and communication process. Besides the low costs of advertising in these newsletters. In these. with relevant thematic appeal and editorial content are the perfect mix. investors conditioned by advertising and hooked by an interesting mailer can have lingering doubts clarified.Advertising backed by an integrated marketing and communication campaign designed to attract investors with long term prospective has helped the fund post a redemption-to-sales ratio of just about five percent as compared to 20-30 percent for the industry on an average. Just like mutual funds advocate that investors take a long-term approach to investing. which some funds have successfully used. caution against the danger of selling the product for the wrong reasons.”. didn’t work. “Since the distributor wasn’t ready in earlier years. Fund marketers and industry observers however. But why is advertising suddenly working for mutual funds when it doesn’t seem to have made a difference earlier? A sustained marketing strategy instead of a few. most marketers feel that a combination of leading mainline and financial newspapers complemented by finance/ business magazines. Direct mail is another medium. But what mode of advertising do these funds choose? “To sell the category.” answer is “mass media is more effective because one needs to target a large segment of the population. Another very successful media niche. similarly funds need to take a long-term approach to brand building. which has been exploited to the hilt by funds. scrappy ads is now seen to be the key to investor demand. to selling specific schemes that meet defined objectives/ goals. there is a need for appropriate targeting. But rather than sending out mailers to all and sundry. these publications circulate to those who are looking for investment opportunities and thus represent an extremely lucrative target segment. Advertising content by most of the funds too has undergone a marked change from conceptselling ads dispelling myths. is intermediary magazines and newsletters.

“Performance. “Performance. pharmaceuticals and consumer goods stocks . new opportunities are opening up in areas like retail. they said . “ Mutual Funds have to agree to present performances in an annualised fashion. will drive the industry growth. an important contributor to many mutual fund schemes. service and trust for meeting long term needs or goals. The winning formula as industry watchers put it is the troika of performance. after sales customer service and genuine retail investor interest are opposed to hot corporate money.” Mutual funds and its performance in India Page75 . when small savings account s too began moving into mutual funds. would lead to more investors putting their money into mutual funds. The industry as a whole should standardise its performance. 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 that. transparency. 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. thanks to technology and increased awareness. healthcare and even in internet business. Fund chiefs predicted that ease of transactions.to build brands that strike a chord with investors by relating to their concerns rather than selling flavour-of-the-month style. All the fund chiefs were unanimous that performance. an important contributor to many mutual fund schemes. On the state of market in general. Innovative distribution. will drive the industry growth. Significantly. fund chiefs attempted to allay fears that an overvalued market may pose hurdles to stock picking. According to them. service and support were all imperative for growth. The day was not far .or the BSE Sensex for that matter – might have peaked. fund chiefs were unanimous that the credibility gap which the industry suffered for the past few years did not exist any more. marketing and aggressive concept selling will drive savings into the lap of the Indian Mutual Fund industry in the next millennium. while investors may feel that information technology. over a longer period. transparency and after sales service and genuine retail investor interest as opposed to hot corporate money.

Personal interviews may be conducted on a door-to-door basis or in public places such as shopping centres. The usual approach for the interviewer is to identify himself to a potential respondent and attempt to secure the respondent's co-operation in answering a list of predetermined questions. observations. METHOD USED IN COLLECTION OF DATA 1.METHODOLOGY: LIST OF INFORMATION REQUIRED Primary Data : Primary data are generated when a particular problem and hand is investigated by the researcher employing mail questionnaire. telephone survey. Personal Interview: In personal interview. answers may be tape-recorded or written down by the interviewer. These Advantages Mutual funds and its performance in India Page75 . and experiments. personal interviews. the investigator questions the respondents in a face-to-face meeting.

prospective respondents are telephoned. b. b. The information on each aspect can be obtained to a limited extent. usually at homes. c. It requires relatively shorter period of time to complete. It can be conducted at a lower cost as compared with personal interviews. b. TELEPHONE SURVEY In telephone survey. b. c. and asked to answer a series of questions over the telephone.a. The amount of information procured on each aspects is larger. 2. This form of the survey technique has become more popular in recent years in advanced countries more people are having telephones at their houses. Page75 Mutual funds and its performance in India . Disadvantages a. Researcher can procure many different types of information. The results can be projected to the relevant universe with a greater degree of accuracy. The cost per completed interview is relatively higher as compared to other methods. Disadvantages a. The investigators themselves may involve in cheating which is very difficult to detect. d. The interviews can be completed very quickly. The investigator may have to face relatively more difficulties in administering the interview schedule. Visual aids cannot be used. Advantages a. Thus. speed is the most significant advantage.

TYPE OF SAMPLING USED We used non-probability type of sampling. Convenience Sampling As the name implies. But this does not mean that the findings obtained from nonprobability sampling are of questionable value. a. It is difficult to keep respondents on the phone for any length of time if the survey is not of keen interest to them. While few analysts would find credibility in conclusions from such extreme cases.g. an estimate of the sampling error cannot be made. items are selected because they are easy or cheap to find and measure. In practice. it is often found that the response given by "convenient" items in a universe differ significantly from the responses given by universe items that are less accessible. a convenience sample is one chosen purely for expedience (e. Mutual funds and its performance in India Page75 . unless one is dealing with a known highly homogeneous universe (virtually all items responding alike). In non-probability sampling. Sample Size The sample size taken in the project work is 50. If properly conducted their findings can be as accurate as those obtained from probability sampling.c. As a result. Since randomness is not involved in the selection process. the chance of any particular unit in the population being selected is unknown. the inappropriateness of using convenience sampling to estimate universe values is not widely recognized. The area selected is Delhi & NCR area. The major problem with this (and other non-probability method) is that one is unable to draw objective inference about a rigorously defined universe .. Convenience sampling method was used in this study because of the constraints like cost and time. convenience sampling should not be used to estimate universe values.

Mutual funds and its performance in India INVESTORS Page75 . TYPE INVEST.40 % respondents generally invest in Mutual Fund schemes.000/ are more likely to invest in mutual funds.ANALYSIS ANALYSIS OF INVESTORS QUESTIONNAIRE QUESTIONS ANALYSIS OF QUESTIONNAIRE (INVESTOR) INVESTOR’S POINT OF VIEW GROSS MONTHLY The people who have their monthly income more than INCOME 30. INSTRUMENTS INVESTORS INVEST. OF The 50% have responded that they keep their money in banks and banking instruments. MF People invest in Balanced and Equity funds People who invest believe that it is safer to invest in mutual fund rather than investing in the stock market directly. Also it gives higher return as compared to Fixed Deposit. as they are ready to take risks.

Moreover they also gets tax benefits. WHICH MUTUAL OF THE Most of the investors have invested in more than one FUND Mutual funds. Many of them have invested in Reliance them have investment as below in order of ranking:UTI-MF Reliance MF HDFC-MF ICICI-PRU-MF PREFERENCE FOR The respondents have shown their preference for mutual VARIOUS MUTUAL FUNDS. funds as below:The first preference is given to the ICICI-PRU-MF. 40% respondents have shown their choice for ICICI-PRU-MF for their future mutual fund investments. The second preference is divided among the UTI-MF, Reliance MF and HDFC-MF 30-25% respondents have shown their preference for these mutual funds for their future investments. Therefore, the ICICI-PRU-MF is taking the best preferred MF and the there is tough competition among the three MF’s to take the second best preferred MF.

COMPANIES THEY MF, UTI MF, HDFC MF and ICICI-MF . Majority of HAVE INVESTED.

CHOICE OF MUTUAL FUNDS BY THE DISTRIBUTORS. The following large and Institutional distributors of Delhi were contacted during the study period and observed their preference for selling MF products: BAJAJ CAPITAL
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 RR FINANCIAL SERVICIES  SECURITES INVESTENTS
Mutual funds and its performance in India

 SANGAM INVESTMENTS  INVESTCARE  CAPITAL INVESTMENTS  ELITE INVESTMENTS  CREDENT INVESTMENTS  INTEGRATED INVESTMENTS All the above distributors were selling the products of the various funds of various mutual funds. However 90% of their preference were similar. Their choice of fund and fund houses can be categorised as below:RETURNS:- All the distributors were unanimous for the performance of the schemes. The performance of the fund is very important for the selection for selling. Low performing schemes are seldomly pushed by the distributors. They recommend for the high performing funds only. SERVICE: - Sales and after sales service for the investors are very important criteria for selling by the distributors. The service standard for sales and after sales ,redemption cheques are very important factor. The distributors give very high degree of importance for the level of service by the mutual funds. They are recommending even a high performing schemes if the level of service is poor. INCENTIVES:- All the mutual funds are using various sales promotion tools for promoting their schemes. They are also using trade promotion and using various types of trade promotion i.e., Coupons, Financial incentives based on no. of applications, based of volume of sales mobilized. Besides financial incentives various non-financial incentives are also used. All the distributors give importance for various incentives as a selection for choosing the Mutual fund foe selling. LIMITATIONS 1. Non availability of past data, Balance Sheet etc.
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Mutual funds and its performance in India

2.

Non-availability of Fund Manager to discuss on fund strategies and growth projections due to geographical location.

3.

General bias in the mind of investor about Mutual Fund. Now I will analyze the some schemes and will show how they are performing in recent past. I have taken three categories: a. Equity – Diversified b. Equity – Tax planning c. Debt Floating long Term Here I have shown top 10 mutual funds under each scheme. And analyzed top 5 mutual funds from every statistical point of view. I have also shown how each category performing in Indian emerging mutual fund industry.

Type: Equity-Diversified
Scheme Name Tata Infrastructure Launch Dec 22, 200 4 Aug 25, 200 4 May 25, 200 4 Apr 07, 200 4 Jul 03, 1999 Return 3 Year 44.21 Rank 3 Year 1/98

Kotak Opportunities

43.98

2/98

DSPML T.I.G.E.R. Reg

43.61

3/98

UTI Infrastructure

42.14

4/98

Magnum Contra

41.34

5/98

Magnum Multiplier Plus

Feb 20, 199 3 Oct 07, 199

40.96

6/98

Reliance Growth

40.67

7/98

Mutual funds and its performance in India

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5 Sundaram BNP Paribas Select Midcap Sundaram BNP Paribas Select Focus ICICI Prudential Emerging STAR Jul 19, 2002 38.84 8/98

Jul 19, 2002

38.44

9/98

Oct 05, 200 4

38.35

10/98

Category: Equity diversified average 30.49
Tata Infrastructure Kotak Opportunity DSPML TIGER Reg UTI Infrastructure Magnum Contra

NAV Net Assets (Cr) R-Squared Alpha Beta Stand.dev. Sharpe ratio

32.4172 2,716.65 0.79 11.74 1.00 27.93 1.45

39.452 754.78 0.72 14.09 0.89 26.20 1.52

43.067 4,402.94 0.83 11.63 0.99 26.86 1.49

36.46 1,687.14 0.78 9.68 1.04 29.05 1.36

47.15 2,494.90 0.80 12.05 0.90 24.91 1.52

Mutual funds and its performance in India

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Asset Allocation As on 29/02/08 Equity Debt Others % Net Assets 86. For instance.32 per cent through 2006 to emerge as the third best performing diversified equity fund.92 Mutual funds and its performance in India Page75 DSPML T. But the strategy has its share of pitfalls too.23 12. for the fund lost 8. To some extent one can attribute this stellar performance to the sector exposure that most infrastructure funds maintain. with some help from the mid caps. Reg-G .G.93 per cent.85 0. The fund also shows a tendency to slip faster in a falling market. These two significant calls have translated into a 23. The move was profitable. In a nutshell. the fund manager had cut back his exposure to financial services. timing the entry rather well. the fund is definitely not for nervy investors. By February 2007 the fund manager re-entered the sector. March 2007 quarter was disastrous. because the sector was amongst the biggest losers in the bear phase that ensued.E.26 per cent compared to the category's loss of 5.R. before the markets tanked in May 2006. But the real clincher had been the fund manager's ability to spot sector trends which has truly augmented the fund's returns. the fund's timing in the metal sector was flawless.3 per cent return in the June 2007 quarter compared to the category's 16.Tata Infrastructure-G: Its a fire cracker from the infrastructure theme. because through the June 2007 quarter (April-June) this sector delivered phenomenal returns.I. Tata Infrastructure returned an awesome 60. The fund achieved this essentially on the back of a large-cap growth-oriented focus. In fact the March 2007 quarter was dismal for all infrastructure funds that were overweight on the construction sector. Similarly. The main reason for this slip up was the 24 per cent exposure to the construction sector.88 per cent return.

In fact. Nevertheless. The aggressive ones will like the returns it offers while the conservative ones will find peace in its diversification. the fund is on a roll with the future Mutual funds and its performance in India .E. It remains among the top quartile across the six-month. At 72. Larsen & Toubro and BHEL have been long-time favourites. the fund manager follows a top-down approach (for sector selection) before resorting to bottom-up stock picking. making it the 12th largest diversified equity fund.I. A runaway hit in 2005 and an exemplary success in 2006 & 2007. UTI Infrastructure has been going great guns. FMCG. infrastructure-led portfolio is what T. The name might appeal to aggressive investors. growth-oriented. Asset Allocation As on 29/02/08 Equity Debt Others % Net Assets 95. Stocks like Reliance Industries.G. An acronym for The Infrastructure Growth and Economic Reforms. it is probably too high for a fund with a relatively focused investment objective. Great returns on a predominantly large-cap. that has not diluted the return generating capabilities of the fund. its broader mandate has enabled it to tap into sectors that core infrastructure funds do not .R is all about.600 crore. the number of stocks in its portfolio is far more than any other fund focused on infrastructure/core sectors. textiles. Find out more about DSPML TIGER. considerable churning takes place amongst the rest. With this as a starting point. Unlike other infrastructure offerings. large-cap tilt and intense diversification should alleviate all their fears. one-year and three-year horizon. The broad investment mandate.11 4.healthcare. when in actuality the conservative ones will feel right at home here.02 UTI Infrastructure-G Page75 The category pioneer. the fund focuses on sectors that are likely to prosper from growth related to economic reforms and infrastructure development.Here's a fund suitable for all types of investors. consumer non-durables. is evident. assets have grown by 130 per cent over the last one year to Rs 2.87 0. Owing to its superb run. A high degree of diversification. While there is a reasonable amount of continuity in its top holdings. typical of equity funds in the DSPML family.

In 2006. Read on to find out why this fund is a hot pick. In its short existence. Though spread across stocks of different market caps. it has a reasonably diversified portfolio of 40-45 stocks. it leapt to the topmost slot with returns of 61. despite a few bumps in the road in the first quarter. of late it has developed a bias for large-cap stocks. UTI Infrastructure has more than proven the merit of its theme. Magnum Contra has consistently managed to stay ahead of the the second and third best fund in 2004 and 2005 and was pretty impressive last year too. but this infrastructure fund also has a significant exposure to metals and technology. The fund outperformed the category in every quarter since 2003.53 per cent. construction and energy dominate the portfolio.400 crore at present. As a result. This year. the fund is going great guns.40 per cent.00 10. i. sharply ahead of the category average of 33. Despite being a thematic fund. Its year-to-date returns (as on October 11. It emerged as . when real estate and cement corrected sharply. for every unit of Mutual funds and its performance in India Page75 curve. you can't help but attract attention.39 Magnum Contra-G When the goings great.e. According to the September 2007 portfolio. It has the third highest risk adjusted return in its category.61 0. large caps cornered 61 per cent of the assets. The first infrastructure fund to be launched. generating 57 per cent returns and outdoing the average peer by a margin of more than 10 per cent.48 per cent. Magnum Contra still manages to save face. 2007) were 49. the fund performs exceptionally and even when the goings not so smooth. Asset Allocation As on 29/02/08 Equity Debt Others % Net Assets 89. When you are catapulted to the No. Naturally. This one makes for a worthy and diversified selection if you want to bet on the capital expenditure wave sweeping across the country. capital goods.looks just as promising. 1 slot with such superior performance. its assets under management rose from under Rs 60 crore (April 2004) to over Rs 1. it was a classic example of the early bird getting the worm. It found a spot in the top quartile of the category in 2005.

Kudos to the fund manager for maintaining status quo on its auto holdings (Tata Motors and Maruti Udyog) when the tide turned against the sector after the first interest rate hike in December 2006. its stock picks and sector moves made it an awfully bold choice. 19 96 Dec 11.89 Type: Equity.risk undertaken. it tends to fall much less than the category average as well.36 4/29 Mutual funds and its performance in India Page75 .35 5.88 1/29 Lotus India Tax Plan 47. the contrarian instinct does surface now and then.While still holding on to its multi-cap orientation. When the market slips. for instance. Asset Allocation As on 29/02/08 Equity Debt Others % Net Assets 93. However.Tax Planning Scheme Name Taurus Libra Taxshield Launch Mar 31.24 2/29 Principal Personal Tax Saver DSPML Tax Saver 46. The end product is a blended portfolio of growth and value stocks. The fund has struck a fine balance between riding on consensus sectors and taking contrarian bets. we don't see it as a sign that it has run out of gas. But somewhere down the road it shed its contrarian image. 2 006 Return 1 Rank 1 Year Year 72. 2 006 Mar 31. The fund's moderate stance in technology and financial services. he continues to hold them and does not resort to aggressive churning. Or it's significant holding of metal stocks. the portfolio has expanded from 31 odd scrips to 57. 19 96 Dec 26.08 3/29 45. the fund gives you more bang for your buck. As long as the fund manager finds value in the stocks.76 0. When it was true to its calling. But don't get misled by the name. In all fairness.

12 5/29 Sahara Tax Gain 41.647 63.DWS Tax Saving Feb 22.56 -3.57 7/29 37. 20 06 Mar 31.75 1.60 8.74 0.23 Page75 .72 26.dev.19 6/29 Sundaram BNP Paribas Taxsaver Escorts Tax Plan 38.01 0. 19 93 44.43 13.22 9/29 Canara Robeco Equity Tax Saver 34.199 417.99 12.91 0.90 0.7 432. 20 00 Mar 31.01 10/29 Category (Equity: Tax Planning) Average: 31.83 13.5 8/29 Principal Tax Savings 37. Sharpe ratio 25. 19 96 Mar 31. 19 97 Nov 17.76 Lotus India Tax Plan Principal Personal Tax Saver 132. 1 999 Mar 31.70 Taurus Libra Taxshield NAV Net Assets (Cr) R-Squared Alpha Beta Stand.74 Mutual funds and its performance in India 0.25 32.81 75.73 DSPML Tax Saver DWS Tax Saving 13.

The scheme would take around 80-85 per cent exposure to equity. Asset Allocation As on 29/02/08 Equity Debt Others % Net Assets 72.65 0.00 6. Asset Allocation As on 31/01/08 Equity Debt Others % Net Assets 97.50 stocks. The scheme seeks capital appreciation with at least 80 per cent exposure to equities.69 0.61 0.39 Lotus India Tax Plan-G: The scheme aims to generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities. Asset Allocation As on 31/01/08 Equity Debt Others Mutual funds and its performance in India Page75 % Net Assets 93. It will aim to have concentrated well researched portfolio. while exposure to bonds and money market instruments would be up to 20 per cent of the corpus. preference shares and bonds of companies.31 Principal Personal Tax Saver: The scheme is due for redemption in 2006. The scheme offers liquidity through repurchase at NAV. It intends to invest across market capand sectors utilizing bottom up approach.00 27. The scheme can make investments in money market instruments up to 20 per cent. which would be around 20 .Taurus Libra Taxshield: The scheme seeks long term capital appreciation. FCDs. The scheme was made open-ended in February 2001.35 .00 2.

19 1/12 4 Sep 08. 200 4 7. 200 3 Nov 08.01 0.18 2/12 Principal Floating Rate Flexible Maturity Birla Floating Rate LT 6.94 0. Asset Allocation As on 29/02/08 Equity Debt Others % Net Assets 83.27 3.DSPML Tax Saver.G: The scheme seeks to generate medium to long-term capital appreciation from a diversified portfolio that is substantially constituted of equity and equity related securities. 200 7.00 16.72 Type: Debt floating long term Scheme Name Kotak Floater LT Launch Return 3 Rank 3 Year Year Aug 06.06 DWS Tax Saving-G: The scheme aims to generate long term capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments. Asset Allocation As on 29/02/08 Equity Debt Others % Net Assets 96. 200 4 Jun 04.9 3/12 Mutual funds and its performance in India Page75 HSBC Floating Rate LT Regular 6.87 4/12 .

04 0.06 3.6825 81.40 0. 200 3 Sep 04.54 0.07 2.4252 5.42 9. 200 4 Jul 30.91 Page75 0.11 12.18 2.6268 4.dev.45 21.77 0.56 0.64 9.3374 110. 2004 6.11 13.72 6/12 6.4223 107.03 .57 4. 2004 6.53 8/12 6.004.38 12.68 1. Sharpe ratio 12.16 0.01 0.28 Mutual funds and its performance in India 0.28 0.93 0.13 0.12 12.29 2.26 10.28 10/12 Kotak Floater LT Principal Floating Rate Flexible Maturity Birla Floating Rate LT HSBC Floating Rate LT Regular ING Floatin g Rate NAV Net Assets (Cr) R-Squared Alpha Beta Stand.ING Floating Rate Oct 07.74 5/12 Templeton Floating Rate LT Retail HDFC Floating Rate Income LT ICICI Prudential LT Floating Rate A Grindlays Floating Rate LT A 6.32 9/12 Magnum Floating Rate LT Retail Jul 14.35 0. 200 2 Jan 08. 200 4 Feb 02.93 0.68 7/12 6.11 -0.

07 . it may also invest a portion of its net assets in fixed rate debt securities and money market instruments.00 96. Asset Allocation As on 31/01/08 Equity Debt Mutual funds and its performance in India Page75 % Net Assets 0.23 Principal FR Flexible Maturity-G: The scheme aims to provide income consistent with the prudent risk from a portfolio comprising substantially of floating rate debt instruments.54 Birla Floating Rate LT-G: The scheme aims to generate regular income through investment in a portfolio comprising substantially of floating rate debt / money market instruments.46 3.77 16. money-market instruments and appropriate derivatives.55 Kotak Floater LT-G: The scheme aims to reduce interest rate risk associated with investments in fixed rate instruments by investing predominantly in floating rate securities. Asset Allocation As on 31/01/08 Equity Debt Others % Net Assets 0. money market instruments and fixed rate debt swapped for floating rate return.Category Debt floating long term average: 6. There would be no restrictions in terms of maturity profile of fixed rate. floating rate and swapped assets.00 83.00 96. Asset Allocation As on 29/02/08 Equity Debt Others % Net Assets 0.

42 49.92 Performance of mutual funds in India: Category Equity-Derivative Equity-Diversified Equity-ELSS Equity-Index FOF Sectoral-Auto Sectoral-Bank Annual Return % 9.77 The scheme aims to provide income consistent with the prudent risk from a portfolio comprising substantially of floating rate instruments.46 26. Asset Allocation As on 29/02/08 Equity Debt Others % Net Assets 0.23 4. Asset Allocation As on 29/02/08 Equity Debt Others ING Floating Rate-G: % Net Assets 0. short term bonds and money market instruments.93 HSBC Floating Rate LT Reg-G: The scheme seeks to generate reasonable return with commensurate risk from a portfolio comprised of floating rate debt.33 22.00 95.48 .Others 3. and also fixed rate instruments. fixed rate debt swapped for floating rate returns and fixed rate money market and debt instruments. fixed rate instruments swapped for floating rate returns. This plan would invest atleast 65 per cent in floating rate instruments with shorter residual maturities and upto 35 per cent in fixed rate debt instruments.08 25.52 Mutual funds and its performance in India Page75 -3.84 26.22 23.00 74.

networking and greater use of IT.25 Analysis of discussion on mutual funds: Most of the interviewee said most fund houses have their sales office location in the top 10 cities. And according to Invest India Economic Foundation survey.29 89.02 19. Page75 Mutual funds and its performance in India .74 3. This financial inclusion of investors from other areas can be achieved through investor education. Stressing the need for expansion of the mutual fund industry. the expansion of the mutual fund industry is critical on account of the major role the government is expecting it to play in garnering the huge resources. awareness building. Thus there is great scope for both widening and deepening the spread of mutual fund industry in India. with a token presence in the remaining cities. required for developing India's infrastructure. which Rangarajan pointed out.84 7.78 5.Sectoral-Basic Sectoral-FMCG Sectoral-Healthcare Sectoral-Infrastructure Sectoral-Media and Entertainment Sectoral-Pharma Sectoral-Power Sectoral-Services Sectoral-TMT Gilt Income Liquid MIP Balanced 12.46 10.12 18. there are around 34 million people with the potential and capacity to invest in mutual funds out of that over 57 percent of such people live in rural areas. 'is currently the single biggest long-term constraint on sustaining high growth rates of 9-10 percent'.01 8.17 8.19 44.67 29. they said that the funds also have a critical role to play in increasingly ageing societies.13 25. Moreover.66 -10.

management and disposal of securities. JP Morgan. but pension systems world over. including India.holding. Jardine Fleming. they came down sharply on certain practices prevailing in the industry. they said that the future looks bright for this sector. “with a view to encouraging savings and investment and participation in the income. And in this process of reform systems. CONCLUSION The end of millennium marks 44 years of existence of mutual funds in this country.The impetus for establishing a formal institution came from the desire to increase the propensity of the middle and lower groups to save and to invest. The opening up of the asset management business to private sector in 1993 saw international players like Morgan Stanley. are being overhauled by moving from fiscally damaging tax payer funded pay as you go systems to defined contribution pension systems where both employer and employer contribution systems are invested. mutual funds can play a pivotal role. George Soros and Capital the period of 1994-96 was one of the worst in the history of Indian Mutual Funds. UTI commenced its operations from July 1964. But for the equity funds. But from Page75 International along with the host of domestic players join the party.People are living longer after retirement.Investors opinion is still divided . Take for example the advertisements that carry statutory warnings regarding risks.while some are for the mutual funds others are against it. Mutual funds and its performance in India . profits and gains accruing to the Corporation from the acquisition . The rapidfire manner in which it is read out only shows that the warning is suppressed. However.” The period 1986-993 can be termed as the period of public sector mutual funds. The ride through these 44 years is not been smooth . Lauding the growth of the mutual funds industry.

The experience of some of the AMCs floated by private sector Indian companies was also very similar. Some of the older public and private sector players will either close shop or be taken over. The industry has started moving from infancy to adolescence . But this does not mean there is no room for other players. The tax benefits on mutual funds made a turning point. The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and small private sector players. There will be a large number of offers from various asset management companies in time to come.1999 onward the industry saw immense developments. The market will witness a flurry of new players entering the arena. opportunities and compulsions. Few hired specialized staff and generally chose to transfer staff from the parent organizations. some have merged with others and there is general restructuring going on. PRINCIPAL have already Page75 stared their Indian operation. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. The performance of most of the schemes floated by these funds was not good. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity.which makes money in the long term and requires deeppocketed support in the intermediate years. Some have sold out to foreign owned companies. they have serious plans of continuing the activity in a major way. Most of these AMCs have not been able to retain staff. and it is doubtful whether. Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. The service levels were also very bad. FUTURE SCENARIO:The asset base will continue to grow at an annual rate of about 30 to 35% over the next few years as investor’s shift their assets from banks and other traditional avenues. Some big names like FIDELITY. They quickly realized that the AMC business .the industry is maturing and the investors and funds are frankly and openly discussing difficulties. All the participants are involved in the revival and regaining the investors confidence. Mutual funds and its performance in India . barring a few exceptions. float new schemes etc.

Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The basic fact lies that banks cannot be ignored and they will not close down completely. Following a positive monsoon the outlook for the agrarian economy has improved considerably. In India . Page75 against a corpus of $200 million in India. Foreign institutional investors continued to pour money into the Indian equity market. India is at the first stage of a revolution that has already peaked in the U. The power shift towards mutual funds has become obvious. The U. The fund mobilization trend by mutual fund in the current year indicates that money is going to mutual funds in a big way. One of the key reasons supporting FII enthusiasm has been a marked improvement in the macro-economic environment. As a result the Indian economy is projected to be among the fastest growing economies in the world with GDP growth expected at 9 % in FY2008.S. It is just that Mutual Funds are going to change the way banks do business in future. boasts of an asset base that is much higher than its bank deposits. Mutual funds and its performance in India . At the same time industrial output and services growth continues to maintain a healthy growth trajectory. The coming few years will show that the traditional saving avenues are losing out in the current scenario. While the increase in FII ownership is a positive indication of India’s relative attractiveness in relation to regional and international markets it correspondingly increases our dependence on external capital and exposes us to the risk of a slowdown in these inflows.48 trillion in the U. but this trend is beginning to change.Mutual funds are now also competing with commercial banks in the race for retail investor’s savings and corporate float money. Their role as intermediaries cannot be ignored.S. All the above facts and feel good factors are good for the mutual fund industry during the future days.S.mutual fund assets are not even 10% of the bank deposits. FII net inflows remained strong this quarter at US$3.6bn compared to US $ 1. GLOBAL SCENARIO: The money market mutual fund segment has a total corpus of $ 1.8bn in the previous quarter and US $64 mn in the corresponding period last year.

S. mutual funds cannot be left far behind. the total number of schemes is higher than that of the listed companies while in India we have just 300 schemes.25% and equity funds can charge 2. Only Fidelity and Capital are non-bank mutual funds in this group. Page75 Mutual funds and its performance in India .  Here are some of the basic changes that have taken place since the advent of Net.7 million households are managing their assets on-line but such a facility is not yet available in India. Out of the top 10 mutual funds wordwide. eight are bank –sponsored. on-line investing continues its meteoric rise. They have realized the potential of internet and are equipping themselves to perform better.  72% of the core customer base of mutual funds in top 50-broking firms in the U.S. the benefits are passed down and hence mutual funds are able to attract more investors and increase their asset base.75% if trading is done on-line.5% as administrative fees.75% of the total assets. LOWER COSTS: Distribution of funds will fall in the online trading regime. As per SEBI regulations. Mutual funds could bring their administrative costs to 0.S. while in India the Net is used as a source of information.  In the U. Many have debated about the success of e-commerce and its breakthroughs. mutual funds buy-sell transactions have already begun on the Net. bond funds can charge a maximum of 2. about 9. is trading on line.S. Therefore. However. lower intermediation costs and better services for all.  On –line trading is a great idea to reduce management expenses from current 2% of total assets to about 0.  In the U. if the administrative costs are low.  In fact in advanced countries like the U.A. but it is true that this aspect of technology could and will change the way financial sectors function.  Such changes could facilitate easy access.  Internationally.

A. most mutual funds concentrate only on financial funds like equity and debt. but in India only the tip of the iceberg has been explored. In the U. NET BASED ADVERTISEMENT: There will be more sites involved in ads and promotion of mutual funds. apart from bullion funds there are copper funds. Page75 Mutual funds and its performance in India . Direct dealing with the fund could help the investor with their financial planning.S.A.S. brokers could get more Net savvy investors and could help. MORE PRODUCTS:In the U. In developed countries like the U. The investors with the knowledge through from Net.BETTER SERVICE: Mutual funds could provide better advice to their investors through the Net rather than through the traditional investment routes where there is an additional channel to deal with the Brokers.S. The latter type of funds is preferred by corporates who want to hedge their exposure to the commodities they deal. In India such funds are still awaited. precious metal funds and real estate funds. In U. India has around 1. With smaller administrative costs more funds would be mobilized. there are funds to satisfy everybody’s requirement.S. The internet users are going to increase dramatically and mutual funds are going to be the best beneficiary. A fund manager must be ready to tackle the volatility and will have to maintain sufficient amount of investments which are high liquidity and low yielding investments to honor redemption. In the near future too India will concentrate on financial as well as physical funds. In India. Some like real estate funds and commodity funds also take an exposure to physical assets.6 million net users who are prime target for these funds and this could just be the beginning. These sites can be further used for advertisements and communications. sites like AOL offer detailed research and financial details about the functioning of different funds and their performance statistics .

Therefore. The second position is shared by UTI-MF. HDFC-MF and Reliance MF.RECOMMENDATIONS 1. The respondents preference as per the sample collected by this study is as below:1. If they have to increase their market size they have to open more distribution centers at the various urban and semi-urban markets. 2. the change of strategy and tactics is required to maintain their market position. Most of the Mutual Funds are operating in the metros and big cities as per their present branch office locations. To provide some kind of curriculum at the school/college level to create awareness regarding Mutual Fund.Semi Urban Market as there is a lot of opportunity. Tapping the up coming market . those who are holding today and those who want to hold in future. Various respondents were not aware of the mutual fund products and the type of mutual fund schemes and the risk associated with mutual fund products. To create the awareness about the different products of Mutual Fund and not about the generic product. This shift of preference may change the market leadership in terms of AUM in years to come. ICICI-PRU-MF 2. GLOSSARY Mutual funds and its performance in India Page75 . 3. 3.

etc) and stock (equity and preference shares). The bid or redemption price means the current net asset value per share less any redemption fee or back-end load. if any. generally 60% bonds or preferred stocks and 40% common stocks. and other entities like corporations. BID/SELL PRICE: The price at which a Mutual Funds shares are redeemed (bought back) by the fund. the asked price is the same as the NAV. These charges are usually assessed on a sliding scale. CONTINGENT DEFERRED SALES CHARGE (CDSC): A fee (or back-end load) imposed by certain funds on shares redeemed within a specific period following their purchase. municipal authorities and companies wholly Page75 owned by the government for the purpose of raising funds from the public. The asked or the offering price means the current net asset value (NAV) per share plus sales charge. state government.ASK/OFFER PRICE: The price at which a Mutual Funds shares can be purchased. with the fee reduced each year the units are held. GOVERNMENT SECURITIES: It encompasses all bonds and treasury bills issued by the central government. CAPITAL MARKET: It deals with transactions related to long-tern instruments (with a period of maturity of above one year like corporate debentures. government bonds. such as four percent to one percent of the amounts redeemed. BALANCED FUND: A Mutual Fund that maintains a balanced portfolio. GROWTH FUND: Mutual funds and its performance in India . BOND PRICE: It is the present value of its future cash-flows. If a no load fund.

5%. The commission is generally stated as a portion of the fund’s offering price. Money market funds make these high interest securities available to the average seeking immediate and high investment safety. or “open-end” investment companies. It provides greater professional management and diversification of investment than most investors can obtain independently. usually on a sliding from one to 8. MONEY MARKET: It deals with all transactions is short-term instruments 9with a period of maturity of one year or less like treasury bills. INCOME FUND: A mutual fund that primarily seeks current income rather than growth of capital. commercial paper. LOAD: A Sales charge or commission assessed by certain mutual funds (“load funds”) to cover their selling costs. Mutual funds. INVESTMENT COMPANY: A corporation. NET ASSET VALUE: Page75 Mutual funds and its performance in India . most often the S&P CNX Nifty index. government securities and repurchase agreements. bills of exchange etc). MONEY MARKET MUTUAL FUND: A Mutual Fund that aims to pay money market interest rates. It will tend to invest in stocks and bonds that normally pay high dividends and interest. including bank certificates of deposit. highly liquid securities. partnership or trust that invest the pooled monies of many investors.A mutual fund whose primary investment objective is long-term growth of capital. are the most popular form of Investment Company. This is accomplished by investing in sage. INDEX FUND: A mutual fund that seeks to mirror general stock-market performance by matching its portfolio t a broad-based index. It invests principally in common stocks with significant growth potential.

It is an indicator of the capital appreciation of the funds under the scheme as on the date of the NAV NAV = (M+O)-L V M= market value of securities or investment made O= other assets L= total liabilities V= number of units outstanding PORTFOLIO: It refers to the group of assets that is owned by the investor. usually the fund’s local region. REDEMPTION FEE: A mutual fund that concentrates its investments within a specific geographic area. Page75 REINVESTMENT DATE (PAYABLE DATE) Mutual funds and its performance in India .The current market worth of a mutual fund share. and dividing the remainder by the number of shares outstanding. It contains information required by the Securities and exchange commission. PROSPECTUS: An official document that each investment company must publish. Calculated daily taking the funds total assets securities. cash and any accrued earnings deducting liabilities. Frequently the business immediately prior to the Ex-Dividend date. describing the mutual fund and offering its shares for sale. RECORD DATE: The date the fund determines who its shareholders are. The objective is to take advantage growth potential before the national investment community does. “shareholders of record” who will receive the fund’s income divided and/or net capital gain distribution.

YIELD TO MAUTRITY: It is the interest rate that makes the present value of the future coupon payments equal to the current bond price. SPREAD: It is equal to Offer Price-Bid Price. for a known price Mutual funds and its performance in India Page75 . YEILD: It is the amount of interest paid on a bond dividend by the price. a measure of income generated by the bond. i. and from principal only necessary. For bonds it typically compares the 2 or 5 year treasury with the 30 year. These payments are usually drawn from fund’s dividend income gain distributions.e.The date on which a share’s dividend and/ or capital gains will reinvested (if requested) in additional fund shares SHORT SELLING: The sale of a security. if any. and must eventually purchase the security for return to the lender. YIELD CURVE: It is a graphic line chart that shows interest rates at a specific point for all securities having equal risk but different maturity dates. which is not owned by the seller. The “short seller” borrows stock delivery to the buyer. SYSTEMATIC WITHDRAWAL PALN: Many mutual funds offer withdrawal programs whereby shareholders receive payments from their investments.

How Mutual Funds Work by Albert J. 4.mutualfundindia. Economic Times www.com www.BIBLIOGRAPHY 1.com 6. 5. Mutual funds and its performance in India Page75 .amfiindia. AMFI –Mutual Fund Testing Programme for Distributors & Employees of Mutual Funds in India. 3. 2. Fredman & Russ Wiles. Fact Sheets of various Mutual Funds April 2005.

IN WHICH OF THE FOLLOWING INSTRUMENT DO YOU INVEST ? a) bank deposits c) P.30000 e) don’t invest f) other(specify) _______ Mutual funds and its performance in India Page75 . SEX: Male 4. PROFESSION : a) professional c) retired e) service b) business d) Housewife f) Student g) Others(specify) _____________ 6. CITY: _________________________________________ 5.30000& above 7. GROSS MONTHLY INCOME: a) Less than Rs. AGE: Less than 20 yrs 20yrs-30yrs 40yrs& above Female 30yrs-40yrs 3.20000-Rs.O deposits b) mutual fund d) shares b) Rs5000-Rs10000 d) Rs. NAME: ____________________________________ 2.20000 e) Rs.QUESTIONNAIRE FOR THE INVESTOR 1.5000 c) Rs10000-Rs.

5000-RS. WHICH SEGMENT OF MUTUAL FUND DO YOU INVEST? a) balance fund b) debt fund c) equity fund 10.1000 b) Rs. WHAT TYPE OF MUTUAL FUND DO YOU INVEST? a) open end fund b) closed end fund c) don’t know 9. THEN 8. HOW MUCH DO YOU INVEST ON MONTHLY BASIS? a) Less then Rs.10000& above THE 12.IF OPTION IS 7(B). HOW DO YOU RATE THE FOLLOWING INSTRUMENT ON LIQUID) PARAMETER OF LIQUIDITY ( 5 FOR THE MOST LIQUID & 1 FOR THE LEAST c) Gold d) Mutual Fund Mutual funds and its performance in India Page75 a) Shares b) PO savings .5000 c) Rs. IN WHICH OF THE MUTUAL FUND COMPANIES YOU HAVE INVESTED? a) UTI-MF c) HDFC-MF e) TEMPLETON-MF g) BIRLA-SUNLIFE -MF b) SBI -MF d) PRU-ICICI-MF f) Stan Chart-MF h)Reliance MF 11.1000-Rs.10000 d) Rs.

RANK YOUR PREFERENCE ON THE SCALE OF 1 TO 5 FOR THE FOLLOWING MUTUAL FUNDS? a) UTI-MF c) HDFC-MF e)Stan Chart-MF b) PRU-ICICI-MF d) TEMPLETON-MF e) ANY OTHER------ Mutual funds and its performance in India Page75 . HOW DO YOU RATE THE FOLLOWING INSTRUMENT ON PARAMETER OF RETURN ( RATE FROM 1 TO 5 ) a) Shares c) Property e) Mutual Fund g) Bank FD 14 HOW DO YOU RATE THE FOLLOWING INSTRUMENT ON b) PO savings d) Gold f) Bonds/debentures THE PARAMETER OF SAFETY ( 5 FOR THE MOST SAFE & 1 FOR THE LEAST SAFE) a) Shares c) Property e) Mutual Fund b) PO savings d) Bank Fd f) Bonds/debentures 15.e) Bonds/debentures f) Bank FD THE 13.

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