“MUTUAL FUNDS AND THEIR INVESTMENT OPTIONS” RESEARCH REPORT 2005-2007

Submitted for the fulfillment of the requirement for the award

Of Master of business administration(MBA)

Submitted by JITENDRA PRATAP SINGH ROLL NO: 0509070026

UNDER THE GUIDANCE OF
INTERNAL GUIDE: Mrs. Shilpi Agrawal

IEC COLLEGE OF ENGINEERING AND TECHNOLOGY GREATER NOIDA

ACKNOWLEDGMENT
I would like to thank the people who have put in lot of their labor will certainly not be enough to express my gratitude since this dissertation would not have accomplished the way it has, without the help, coordination, guidance and support of the numerous people. Honestly admitting, I was not capable enough to handle and maintain all these data etc. had I not received help from all these quarters. My first thought goes to my project guide, Miss. Shilpi Agrawal who always remained a great source of inspiration and courage for me. I here make a special thanks to our HOD , Dr. Ramesh Agrawal who was a tremendous support and gave me an opportunity to carry out this dissertation. Irrespective of numerous efforts, there are likely to be many mistakes which might have creped in the work for which I alone should be held accountable. I also thankful to Mrs. Deepti Tripathi & MR. Mohd. Faiz Siddiqui for their kind support.

JITENDRA PRATAP SINGH

INDEX
TOPICS: Page no.

 Objective  Methodology  Introduction  History of Mutual Fund  Regulatory Framework  Classification Of Mutual Funds  Types Of Mutual Funds  Investment Plans  Distribution Channel  Mutual Fund Performance’  Life Cycle & Wealth Cycle  Graphs  Analysis  Suggestions  Limitations  Bibliography

Now people are more interested towards NFOs of the Mutual Funds. . Being a student of management I shall try to find out what could be the major factors because of which people are choosing NFOs. .Research Objective : The basic purpose is to know about the Mutual Fund Industry and to know the behaviour of the Indian Investors regarding different investment tools . recent trends shows that the retail investor are more concern about the risk factors of the Indian Economy and most importantly returns on the money invested by them. Rationale Of The project: In Indian financial market.

Internal Guide: Mrs. It will also help me to understand the behavior of Indian investor regarding different investment tools. Methodology: • Primary Data: Personal interaction with the respondents. Growth and various other aspects of Mutual Fund. Shilpi Agrawal . books. fact sheets of various fund houses etc.Information through websites.Scope : This project will provide me the better platform to understand the History. • Secondary Data: .

A mutual funds business is to invest the funds thus collected according to the wishes of the investors who created the pool. Thus a mutual fund is the most suitable . The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them.and pre states investment objectives. The pool of funds held mutually by investors is the mutual fund . The money thus collected is then invested in capital market instruments such as shares . There are no other claimants to the funds. A mutual fund is created when investors put their money together. namely the investors. A mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. and is invested according to certain investment options.INTRODUCTION A mutual fund is a pool of money. and also benefit from the pool . Usually .debentures and other securities. This product represents a share in the pool . to manage their funds. collected from investors. The same objective is achieved when professional investment managers create a product and offer it for investment to the investor. The most important characterstics of a fund is that the contributors and the beneficiaries of the fund are the same class of people. It is therefore a pool of the investor’s funds. The term mutual fund means the investors contribute to the pool . the investors appoint professional investment managers.

. Features that investors like in mutual fund If mutual funds are emerging as the favorite investment vehicle.investment for the common man as it offers an opportunity to invest in a diversified . particularly for the investor who has limited resources available in terms of capital and ability to carry out detailed research and market monitoring. The most important benefit of product choice is that it enables investors to choose options that suit their return requirements and risk appetite. Though the categories of product offered can be classified under about a dozen generic heads. professionally managed basket of securities at a relatively low cost. offering nearly 500 products. it is because of the many advantages they have over other forms and avenues of investing. Investors in the mutual fund industry today have a choice of 39 mutual funds. competition in the industry has led to innovative alterations to standard products. The following are the major advantages offered by mutual funds to all investors.

While investing in the pool of funds with other investors any loss on one or two securities is also shared with other investors. global and sophisticated markets. This risk reduction is one of the most important benefits of a collective investment vehicle like the mutual fund. This enables him to hold a diversified investment portfolio even with a small amount of investment that would otherwise require big capital. as compared to investing directly in one or two shares or debentures or other instruments. ensures a much better return than what an investor can manage on his own. ♦ Professional management. Diversification reduces the risk of loss. . no matter how small his investment. he lacks the professional attitude that is generally present in the experienced fund manager who. When an investor invests directly. all the risk of potential loss is his own. A fund investor also reduces his risk in another way. Few investors have the skills and resources of their own to succeed in today’s fast moving. ♦ Reduction/ diversification of risk: An investor in a mutual fund acquires a diversified portfolio.♦ Portfolio diversification: Mutual Funds normally invest in a well-diversified portfolio or securities. Even if an investor has a big amount of capital available to him. Each investor in a fund is a part owner of all of the fund’s assets.

♦ Reduction of transaction costs: What is true of risk is also true of the transaction costs. ♦ Liquidity: Often. on the other hand. or selling them in the market if the fund is closed-end. he has the benefit of economies of scale. ♦ Convenience and flexibility: Mutual fund management companies offer many investor services that a direct market investor cannot get. investors hold shares or bonds they cannot directly. When going through a fund. a benefit passed on to its investors. is more liquid. Investment in a mutual fund. easily and quickly sell. A direct investor bears all the costs of investing such as brokerage or custody of securities. get updated market information But roses have thorns as well… . Investors can easily transfer their holdings from one scheme to the other. An investor can liquidate the investment by selling the units to the fund if open-end. the funds pay lesser costs because of larger volumes. and collect funds at the end of a period specified by the mutual fund or the stock market.

Investing through funds means he delegates this decision to the fund managers. an investor and his advisor will do well to be aware of a few shortcomings of using the mutual funds as investment vehicles. this cost is often less than the cost of direct investing by the investors. ♦ No Control over Costs: An investor in a mutual fund has no control over the overall cost of investing. this shortcoming only means that there is a cost to obtain the benefits of mutual fund services. Fees are usually payable as a percentage of the value of his investments. bonds and other securities. However. Most mutual funds help investors overcome this constraint by offering families of schemes-a large number of different schemes – within the same fund. A mutual fund investor also pays fund distribution costs. He pays investment management fees as long as he remains with the fund. However. ♦ No Tailor-made Portfolios: Investors who invest on their own can build their own portfolios of shares. An investor can . However. albeit in return for the professional management and research. which he would not incur in direct investing. The very high-net-worth individuals or large corporate investors may find this to be a constraint in achieving their objectives.While the benefits of investing through mutual funds far outweigh the disadvantages. Whether the fund value is rising or declining.

which has not been able to penetrate deeper into the country and has been limited to few metros. ♦ Impact of Global Developments : Though the economic reforms have brought India on the global investment map. this also exposes the Indian financial market. ♦ Poor Reach: Lack of deeper distribution networks and channels is hurting the growth of the industry. ♦ Banks still Dominate: The biggest hindrance to the growth of the mutual fund industry lies in its inability to attract the savings of the public. which constitutes the major source of investment in the other developed countries. This is an area of concern for the MF industry. A large pool of money in the savings in India is still with the state –run and private banks. Fluctuations in the global markets and the financial systems will now be evident as the Indian markets get linked to the other foreign markets FREQUENTLY USED TERMS Net Asset Value (NAV) .choose from different investment plans and construct a portfolio of his choice. to the volatility in the international market. including the Indian mutual fund industry.

Schemes that do not charge a load are called No Load schemes. It is also called Offer Price. INTERNATIONAL HISTORY OF MUTUAL FUNDS . This is also known as Bid price. Sale Price It is the price you pay when you invest in a scheme.ended schemes repurchase their units and close – ended schemes redeem their units on maturity. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.Net Asset Value is the market value of the assets of the scheme minus its liabilities.ended scheme repurchases its units and it may include a back – end load. It may include a sales load. Their prices are NAV related. Repurchase Price It is the price at which a close. It is also known as Front End Load. Sales Load It is a charge collected by a scheme when it sells the units. Redemption Price It is the price at which open.

S. was created in 1893 for the faculty and staff of Harvard University. The stock market crash of 1929 slowed the growth of mutual funds. It was called Massachusett Investors Trust. The first pooled fund in the U.S. History of the Indian Mutual Fund Industry . the Massachusetts Investors Trust grew $50000 in assets in 1924 to $392. The SEC (U. On March 21st .The idea of pooling money together for investing purposes started in Europe in the mid 188s.1924 the first official mutual fund was born.000 in assets (with around 200 shareholders ). Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934. In response to the stock market crash. These laws require that a fund be registered with the SEC and provide prospective investors with a prospectus. Securities and Exchange Commission) helped create the Investment Company Act of 1940 which provides the guidelines that all funds must comply with today.When three Boston securities executives pooled their money together in 1924 to create the first mutual fund . In contrast.000 mutual funds in the U. today totaling around $7 trillion (with approximately 83 million individual investors ) according to the Investment Company Institute. After one year. they had no idea how popular mutual funds would become.S. there are over 10.

Bank Of Baroda .1964 – 1987 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. Punjab National Bank Mutual Fund ( Aug 89 ). Second Phase :. SBI Mutual funds was the first non-UTI Mutual fund established in June 1987 followed by Can bank Mutual Fund ( Dec 87 ) . public sector mutual funds set by public sector banks and life Insurance corporation of India ( LIC ) and General Insurance Corporation of India ( GIC ) .The mutual fund industry in India started in1963 with the formation of Unit Trust Of India. It was set up by the Reserve Bank of India and functioned under the regulatory and administrative control of the Reserve Bank of India . Indian Bank Mutual Fund ( Nov 89 . at the initiative of the government of India and Reserve Bank. At the end of 1988 UTI had Rs. Bank Of India ( Jun90). The first scheme launched by UTI was Unit Scheme 1964. 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. The history of mutual funds in India can be broadly divided into four distinct phases : First Phase :.6700 crores of assets under management.1987 – 1993 (Entry of Public Sector Funds ) 1987marked the entry of non-UTI.

At the end of 1993.21.805 crores. The erstwhile Kothari Pioneer (now merged with Franklin Templeton ) was the private sector mutual fund registered in July 1993. The Industry now functions under the SEBI (Mutual Fund ) Regulation 1996. Also . giving the Indian investors a wider choice of fund families . except UTI were to be registered and governed.541 crores of assets under management was way ahead of other mutual funds. there were 33 mutual funds with total assets of Rs. Third Phase – 1993-2003 ( Entry of Private Sector Funds With the entry of private sector funds in 1993. a new era started in the Indian mutual fund industry.004crores. The Unit Trust of India with Rs . The number of mutual fund houses went on increasing . The 1993 SEBI ( Mutual Fund ) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996.1993 was the year in which the first Mutual Fund Regulations came into being .1. . LIC established its Mutual Fund in June 1989 while GIC had set up its mutual fund in December 1990. under which all mutual funds .44. 47. the mutual fund industry had assets under management of Rs.with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions . As at the end of January 2003.Mutual Fund ( Oct92).

With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. and with recent mergers taking place among different private sector funds .Fourth Phase – since February 2003 In February 2003. The specified Undertaking of Unit Trust Of India. the mutual fund industry has entered its current phase of consolidation and growth . conforming to the SEBI Mutual Fund Regulations. One is the specified Undertaking of the Unit Trust of India with assets under management of Rs 29. representing broadly . functioning under an administrators and under of the Mutual Fund Regulations. which manage assets of Rs . As at the end of September . and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations .76. The second is the UTI Mutual Fund Ltd . sponsored by SBI. the assets of US 64 scheme. BOB. assured return and certain other schemes.835 crores as at the end o f January 2003. 151108 crores under 421schemes the rules framed by Government of India and does not come under the purview REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA .000 crores of assets under management and with the setting up of a UTI Mutual Fund . following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities . 2004 there were 29 funds .

The sponsor is the promoters of the mutual fund and appoint the AMC for managing the investment portfolio. These regulations make it mandatory for mutual funds to have a three-tier structure SPONSER –TRUSTEE-ASSET MANAGEMENT COMPANY ( AMC ). in which the investors are held by the trust. In this structure management of the fund in the hands of an elected board . The trust is created by the sponsors who is actually the entity interested in creating the mutual fund business. . as its manages all the affairs of the mutual fund . in which investors hold shares of the mutual fund . 1996. which in turn appoints investment managers to manage the fund . The investors’ funds are held by the trust. The company form of organization is very popular in the United States . In India mutual funds are organized as trusts .The structure of mutual fund in India is governed by the SEBI Regulations . on behalf of the investors . formed for this purpose. The trust is either managed by a Board of trustees or by a trustee company. Trust from . The mutual fund and the AMC have to be registered with SEBI. The appoints investment managers and monitors their functioning in the interest of the investors. The AMC is the business face of the mutual fund . Mutual Funds can be structured in the following ways : Company form .

and is involved in the appointment of all the other functionaries. . The sponsors. if so authorized by the trust deed appoint the AMC. float and then manage the different investment schemes as per the regulations of the SEBI and as per Investment Management Agreement it signs with the trustees. The AMC so appointed is required to be approved by the SEBI. the AMC functions under the supervision of its own directors and also under the direction of the trustees and the SEBI. in the name of the trust. ASSET MANAGEMENT COMPANY Its Appointment and Functions : The role of the AMC is to act as the Investment Manager of the Trust. the AMC is its operational face. It seeks the services of the functionaries in carrying out these functions. The AMC would. or the trustees.Though the trust is the mutual fund. The trustees are empowered to terminate the appointment of the AMC by majority and appoint a new one with the prior approval of the SEBI and the unit holders. markets them and mobilizes the funds and services the investors. Once approved. All the functionaries are required to the trustees. The AMC structures the mutual fund products. who lay down the ground rules and monitor them working. The AMC is the first functionary to be appointed .

The AMC of a mutual fund must have a net worth of at least Rs. Besides its role as advisory services and consulting . The AMC cannot act as a trustee of any other mutual fund. system.both independent and non independent should have adequate professional experience in the financial services and should be individuals of high moral standing.etc ) are properly segregated by activity. CLASSIFICATION OF MUTUAL FUND SCHEMES . eligibility criteria and the restrictions on the business activities and obligations of the AMC. The AMC must always act in the interest of the unit holders and report to the trustees with respect to its activities. 1996 describes the issues relevant to appointment.10 crores at all the time. provided these activities are run independently of one another rand the AMC’s resources(such as personnel.Chapter IV of SEBI (MF) Regulations. Directors of the AMC . a condition also applicable to other key personnel of the AMC.

e. Any portfolio scheme can be either open ended or close ended. i. To achieve these objectives mutual funds adopt different strategies and accordingly offer different schemes of investments. Portfolio classification projects the combination of investment instruments and investment avenues available to mutual funds to manage their funds. open ended and close ended which are offered by the mutual funds. It implies that the capitalization of the .Any mutual fund has an objective of earning objective income for the investors and / or getting increased value of their investments. Entry to the fund is always open to the investor who can subscribe at any time.e. not specified or pre determined. Operational Classification highlights the two main types of schemes. Operational Classification a) Open ended schemes : As the name implies the size of the scheme (fund) is open i. Such fund stands ready to buy or sell its securities at any time. On these bases the simplest way to categorize schemes would be to group these into two broad classifications:  Operational Classification  Portfolio Classification.

Crisis may be on two fronts . it will not be possible to calculate NAV. option to reinvest its dividend is also available. Open ended schemes have comparatively better liquidity despite the fact that these are not listed. He could very well have to sell his most liquid assets.one is that unexpected withdrawals require funds to maintain a high level of cash available every time implying thereby idle cash. Fund managers have to face question like “what to sell” . open –ended schemes are hardly have in their portfolio shares of comparatively new and smaller companies since these are not generally not traded. The reason is that investor can at any time approach mutual funds for sale of such units. The portfolio mix of such schemes has to be investments. Further the shares or units are normally not traded on the stock exchange but are repurchased by the fund at announced rates. funds cannot have . Second. Moreover . which are actively traded in the market.fund is constantly changing as investors sell or buy their shares . No intermediaries are required. No minute to minute fluctuations in rate haunts the investors. the realizable amount is certain since repurchase is at a price based on declared net asset value (NAV).Morever.This is the reason that generally open – ended schemes are equity based. by virtue of this situation such funds may fail to grab favorable opportunities. the management of such funds becomes more tedious as managers have to work from crisis to crisis. Since there is always a possibility of withdrawals. Further to match quick cash payments. desiring frequently traded securities. In such funds. Otherwise.

In India as per SEBI (MF) Regulations every mutual fund is free to launch any or both types of schemes. i. Their price is determined on the basis of demand and supply in the market.. b) Close ended schemes : Such schemes have a definite period after which their shares/ units are redeemed. these funds have fixed capitalization .matching realization from their portfolio due to intricacies of the stock market . conceptually close ended funds units cannot be trade at a premium or over NAV because of a package of investments. TYPES OF MUTUAL FUNDS . Close ended funds units’ trade among the investors in the secondary market since these are to be quoted on the stock exchanges. Whatever premium exists that may exist only on account of speculative activities. i. Unlike open ended . If one takes into account the issue expenses . Their price is free to deviate NAV. there is very possibility that the market price may be above or below its NAV .e. Thus. corpus normally does not change throughout its life period. i. success of the open ended schemes to a great extent depends on the efficiency of the capital market.e. cannot exceed the sum of the prices of the investments constituting the package .e.. Their liquidity depends on the efficiency and understanding of the engaged brokers.

All mutual fund would be either close ended or open ended and either load or no load. These classifications are general. For example all open – end funds operate the same way;or in case of a load a deduction is made from investor’s subscription or redemption and only the net amount used to determine his number of shares purchased or sold. Funds are generally distinguished from each other by their investment objectives and types of securities they invest in. The major types of funds available :-

 Money Market Funds
Often considered to be at the lowest ring in the order of risk level. Money Market Funds invest insecurities of short term nature which generally means securities of less than one year maturity.The typical short term interest bearing instruments these funds invest in Treasury Bills issued by governments, Certificate of Deposits issued by banks and Commercial Paper issued by companies.The major strengths of money market funds are the liquidity and safety of principal that the investors can normally expect from short term investments.

 Gilt Funds
Gilts are the governments securities with medium to long term maturities typically of over one year (under one year

instruments being money market securities ). In India, we have now seen the emergence of government securities or gilt funds that invest in government paper called dated securities. Since the issuer is the government ,these funds have little risk of default and hence offer better protection of principal. However , investors have to recognize the potential changes in values of debt securities held by the funds that are caused by changes in the market price of debt securities held by the funds that are caused by changes in the market price of debt securities quoted on the stock exchanges.

Debt Funds (Income Funds)
These funds invest in debt instruments issued not only by the governments, but also by private companies, banks and financial institutions and other entities such as infrastructure companies. By investing in debt these funds target low risk and stable income for the investor as their key objectives.

Debt funds are largely considered as income funds as they do not target capital appreciation, look for high
current income and therefore distribute a substantial part of their surplus to investors . The income funds fall largely in the category of debt funds as they invest primarily in fixed income generating debt instruments

Diversified Debt Fund

A debt fund that invests in all available types of debt

securities,

issued by entities across all industries and sectors is properly diversified debt fund. While debt fund offer high income and less risk as compared to equity funds, investors need to recognize that debt securities are subject to risk of default by the issuer on payment of interest or principal. A diversified debt fund has the benefit of risk reduction through diversification and sharing of any default related losses by a large number of investors. Hence the diversified debt fund is less risky than the sect oral funds

EQUITY FUND

50 lakhs 0.An open – ended Equity Scheme Fund features : Who should invest ? The scheme is suitable for investors seeking effective diversification by spreading the risks without compromising on the returns. 50 lakhs and above upto Rs. Rs.less than Rs. 19.90% . 5000 Existing investor : Rs.Rs. 1 crore 0.15 New investor : Rs.17 Dividend Plan : Rs. Will be dispatched within 3 business days. no Gift Tax. Indexation benefits. 65.Rs. 1 crore and above Exit load : NIL INDEX FUND . 18. no Wealth tax. Investment Objective The objective is to provide investors long Term capital appreciation. All business days.25% . 500 Entry load :1.85crore Growth Plan : Rs. Investment option Liquidity NAV calculation Redemption proceeds Tax benefits Asset Under Management NAV Minimum application amount Load Structure a) Growth b) Dividend Sale and repurchase on all business days.50% .

Indexation benefits. no Gift Tax. All business days.3476 New investor : Rs. 10 lakhs Or Less Nil for subscription of above Rs. Exit load : NIL BALANCED FUND . 13. b) Dividend Sale and repurchase on all business days. no Wealth tax. 500 Entry load : 1% for subscription of Rs. Investment Objective The objective is to invest in the securities that comprise S&P CNX Nifty in the same Proportion Investment option Liquidity NAV calculation Redemption proceeds Tax benefits Asset Under Management NAV Minimum application amount Load Structure a) Growth so as to attain results commensurate with the Nifty.An open – ended Index Scheme Fund features Who should invest ? The scheme is suitable for investors seeking Capital appreciation commensurate with that of the market. 116. 5000 Existing investor : Rs. Rs.6199 Dividend Plan : Rs. 10. Will be dispatched within 3 business days.10 lakhs.57 crore Growth Plan : Rs.

no Wealth TAX SAVINGS FUND An open – ended Equity Linked Savings Scheme .An open – ended Balanced Scheme Fund features Who should invest ? The scheme is suitable for investors who seek long term growth and wish to avoid the risk if investing solely in equities. It provides a balanced exposure to both growth and income producing assets. All business days. 5000 Existing investor : Rs. 500 Entry load : 2% Exit load : NIL Sale and repurchase on all business days. no Gift Tax.76 New investor : Rs. Investment Objective The objective is to provide periodic returns and capital appreciation through a judicious mix of equity and debt instruments. 44. 16. 10. Indexation benefits.47 Dividend Plan : Rs. while simultaneously aiming to minimize capital erosion. Asset Under Management NAV Minimum application amount Load Structure Rs. Will be dispatched within 3 business days.89 crore Growth Plan : Rs. Liquidity NAV calculation Redemption proceeds Tax benefits tax.

67 crore Rs. Tax-rebate under section 88. Investment Objective The objective of the scheme is to build a high quality growth oriented portfolio to provide long term capital gains to the investors.Fund features Who should invest ? The scheme is suitable for investors seeking income tax rebate under section 88(2) of ITA along with long term appreciation from investments in equities. All business days. 30. Will be dispatched within 3 business days. no Gift tax.indexation benefits. Liquidity NAV calculation Redemption proceeds Tax benefits Asset Under Management NAV Special feature Lock – in period Minimum application amount Load Structure Sale and repurchase on all business days. 500 Entry load : Exit load : NIL TRUST BENEFIT SCHEME . Rs. The scheme aims at providing returns through capital appreciation Over the file of the scheme. no Wealth tax. 74.14 Personal accident insurance 3 years Rs.

Will be dispatched within 3 business days.6997 Quarterly Dividend : Rs. 10.3873 Annual Dividend : Rs.3799 Yearly Dividend : Rs. no Wealth tax. no Gift Tax.7099 Minimum application amount Load Structure New investor : Rs. 20. 10000 Entry load :NIL Exit load : aggregate redemption amount less than (or equal to ) 10% of the amount invested – Nil. Indexation benefits. 50000 Existing investor : Rs. Rs. Aggregate redemption . Liquidity NAV calculation Redemption proceeds Tax benefits Asset Under Management NAV Sale and repurchase on all business days.76 crore Debt Plan Growth : Rs. 11. 10. All business days. such as charitable and religious trusts and other non profit making bodies. 11.An open – ended Income Scheme Fund features Who should invest ? The scheme has been formulated exclusively to address the investment needs of the organization. Investment Objective The investment objective of the scheme is to build a high quality income oriented portfolio and provide returns and / or capital appreciation along with regular liquidity to a distinct class of investor with special needs.

7 years the amount CASH MANAGEMENT FUND _ LIQUID OPTION . Average Maturity 4.amount greater than 10% of invested.

10. 12.5555 Daily : Growth Plan / Dividend Plan Growth Plan Dividend Plan Rs.An open – ended Liquid Scheme Fund features Who should invest ? The scheme is a suitable investment for an Investor seeking very high liquidity and negligible principal risk while aiming for a good return. Investment options Liquidity NAV calculation Redemption proceeds Asset Under Management Average Maturity a) Growth Monthly) Sale and repurchase on all business days. Investments will be made in money market and in investment grade debt instruments.21crore 128 days b) Dividend (Daily/ Weekly NAV Growth Plan / Dividend Plan Growth Plan Dividend Plan Rs. Investment Objective The objective of the scheme is to provide investors with a high level of income from short term investments.4896 Daily : . 365 days a year Will be dispatched within 1 business days. 1859. Rs. The scheme will focus on preserving the investor’s capital and liquidity.

0013 Monthly Rs.Rs. 10.10.0009 Weekly Rs. 1 lakhs Exit Load NIL CASH MANAGEMENT FUND _ MONEY AT CALL An open – ended Liquid Scheme . 10. 10000 Load Structure Entry Load NIL Application New investor Existing Investor Rs.10.0347 New investor Existing Investor Rs.10.0013 Weekly Rs.1207 Monthly Rs. 1 crore Entry Load NIL Rs.1000 Exit Load NIL Rs.0323 Minimum Amount Rs.10.

Investments will be made in money market and in investment grade debt instruments.Fund features Who should invest ? The scheme is a suitable investment for an Investor seeking very high liquidity and negligible principal risk while aiming for a good return. Investment Objective The objective of the scheme is to provide Investors with a high level of income from short term investments.000 New investor Existing Minimum Application New investor Existing . The scheme will focus on preserving the investor’s capital and liquidity. 10.2480 Daily : Rs.10. 365 days a year Will be dispatched within 1 business days. 4.10. 12.000 Growth Plan / Dividend Plan Growth Plan Dividend Plan Rs.70crore 86 days NAV Growth Plan / Dividend Plan Growth Plan Dividend Plan Rs. Rs. Investment options Liquidity NAV calculation Redemption proceeds Asset Under Management Average Maturity a) Growth b) Dividend (Daily) Sale and repurchase on all business days.0028 Daily : Rs.

1 crore Investor Rs.1 lakh Investor Rs. 10 lakhs CHILD BENEFIT FUND An open – ended Equity Scheme Fund features Who should invest ? The scheme is suitable for investors seeking . 1 lakh Rs.Amount Rs.

long term growth and accumulation of capital for the beneficiary. All business days. 26. Rs. 3. no Gift Tax. no Wealth tax.74 crore Career builder plan : Rs. 500 GROWTH FUND An open – ended Equity Scheme Fund features Who should invest ? The scheme is suitable for investors willing . Investment option Career builder plan (one time investment ) Future Liquidity NAV calculation Redemption proceeds Tax benefits Asset Under Management NAV Special Feature Minimum application amount guard plan (recurring annual investment) Sale and repurchase on all business days.87 Future guard plan : Rs. Will be dispatched within 3 business days.50 Life insurance facility (for future guard investors) New investor : Rs. 5000 Existing investor : Rs. 26. Indexation benefits. Investment Objective The objective of the scheme is to generate regular returns along with with the capital aim appreciation of giving lump sum capital growth to the beneficiary at the end of the chosen target period.

50% . a) Growth b) Dividend Sale and repurchase on all business days. no Gift Tax. 1 crore and above Exit load : NIL Role of Distribution Channels Mutual funds devise investment plans for the institutional and the individual investors . Will be dispatched within 3 business days. 84.30 crore Growth Plan : Rs. All business days. no Wealth tax. Investment Objective Investment option Liquidity NAV calculation Redemption proceeds Tax benefits The objective is to provide investors long Term capital appreciation. 5000 Existing investor : Rs. Tax free dividends in the hands of investors. Indexation benefits. Asset Under Management NAV Minimum application amount Load Structure Rs. 50 lakhs 0.Rs. 13. 500 Entry load :1. Some funds target and contact the institutional .90% .To accept the risks that come with investing in equities.Rs.95 New investor : Rs.25% . 20. 50 lakhs and above upto Rs.less than Rs.63 Dividend Plan : Rs. 1 crore 0.

working on the principle of pooling the funds of a large number of the investors . without using any external distribution channels . which are contacted directly by their own sales officers . it is important to note that mutual funds are primarily vehicles for the larger collective investments.investors directly. Other funds work through distribution for institutional clients as well as the individual clients . But. That is why a majority of schemes are targeted at the individual investors . Types of Distribution Channels Individual Agents . Retail distribution channels are therefore a critical element in the distribution of the mutual funds. A substantial portion of the investments in the mutual funds take place at the retail level . For example UTI and some private funds have some schemes targeted at provident funds.

In India. The vast sub broker network ensures a larger geographic coverage than otherwise . For example . 1. In India. This . An agent is essentially a broker between the fund and the investor . By definition. As financial markets. experience or even registration on an exchange. any person who signs an agreement with a fund on non – judicial stamp paper can act as its agent . These qualifications may be in terms of education. UTI requires its agent to pass at least the matriculation exams and also to provide two references. 2001 SEBI has made it mandatory for newly recruited distributors to pass Association Of Mutual Funds (AMFI ) certification test and has recommended the test for existing distributors. investment options and the variety of mutual funds get more sophisticated. From Nov . Distribution Companies Availing of the services of established distribution companies is a practice accepted by mutual funds internationally.Use of agents has been the most widely prevalent practice for distribution of funds over the years . an agent acts on the behalf of a principal – in this case . distributors need more and more information . the mutual fund . That is why the distributors in India will find that many mutual funds now prescribe minimum qualifications that a person must possess to be its agent. knowledge and skills. we also have unique system whereby a broker has a number of sub – brokers working under him .

banks are an important marketing vehicles for the mutual funds .we can see up the opening of this new channel in India as well . Usually . Many private funds have preferred to adopt this practice because of its sophisticated nature and because they benefit from the specialist knowledge and established client contacts of these marketing firms. Banks And NBFCs In developed countries . In India there are about 10 major distribution companies in addition to few 100 smaller ones.Several banks . a fund can interact with a distribution company which has several employees or sub -brokers under it .Some NBFCs are also providing such services . Direct Marketing Direct marketing means that the mutual funds sell their own product without the use of any intermediaries . A distribution company usually manages distribution for several funds simultaneously and receives commission for its services.practice evolved with a view to circumvent the huge administrative mechanism require to support a large agents force . given that the banks themselves have a large depositor/client base of their own .particularly the private and the foreign banks are involved in the fund distribution companies on a commission basis .Instead of having to deal with several agents . this takes the form of .

Most countries do not impose any tax on this entity. Other channels like distribution companies or banks or even stock brokers are clearly distinct and independent intermediaries TAXATION Investors often view the tax angle as an important consideration while deciding on the appropriate investments. It is this trust that earns and receives income from the investments it makes on the behalf of the investors.sales officers and employees of the AMC who approach the investor and accept their contribution directly. independent agents may really be treated as the direct marketing channel. Generally. It would amount to double taxation if the trust first pays the tax and then the investor is also required to pay the tax.the trust.knit .because this income that it earns is meant for the investors. However in India. This section examines the area of mutual fund taxation with respect to the taxation of income (dividends and capital gains) in the hands of the fund itself and the income when received in the hands when received in the hands investors. the trust is . we mean the legally constituted trust that holds the investors’ money. The trust is considered to be only a pass through entry. Taxation in the hands of the funds When we talk about a mutual fund for taxation purpose . in the sense that they do not form a well. independent and organized single entity and act more like fund employees.

a tax of 10.e. For example. the investors are totally exempted from paying any tax on the dividend income they receive from the mutual funds. 2002. if .e. and therefore the value of his investment will come down by the amount of tax paid by the fund. funds with more than 50% of their portfolio in equity) The impact on the Fund and the Investor ♦ It should be noted that although this tax is payable by the fund on its distributions and out of its income.2%. income earned by any mutual fund registered with SEBI is exempt from tax. Tax provisions ♦ Generally..Yashwant Sinha . income distributed to unit-holders by a closed-end or debt fund is liable to a dividend distribution tax of 10% plus a surcharge of 2%. After the 1999/2000 budget of finance minister Mr. ( i.i.. this tax is also applicable to distributions made by open-end equity funds on or after April 1. ♦ However. This section deals with what the fund or the trust pays by the way of tax.exempted from the tax and it the investor who pays tax on his share of income. the investors pays indirectly since the fund’s NAV. while certain types of schemes pay some taxes.

even if the investor chooses to reinvest his dividends in the concerned schemes.10. The fund ‘ current cash flow will diminish by Rs.20 tax on the announced distribution . and its impact will be reflected in the lower value of the fund’s NAV and hence investor’s investment on a compounded basis in future periods.10. For example.100. Rs. ♦ Also . the fund will have Rs.20 (10.20 less to invest.20 paid as a tax . 10. the tax bears no relationship to the investor’s tax bracket and is payable by the fund even if the investor’s income does not exceed the taxable limit prescribed by the Income Tax Act ♦ In fact. ♦ The fund cannot avoid the tax even if the investor chooses to reinvest the distribution back into he fund. since the tax is on distributions. . it makes income schemes less attractive in comparison to the growth schemes. While the investor will get Rs.a closed end fund declares a dividend distribution of Rs.20%) will be the tax in the hands of the funds.100. the fund will still pay Rs. because the objective of the income schemes is to pay regular dividends.10.

he would expect you to give him proper advice on which funds have a good performance track record. The Advisor’s Perspective If you are an intermediary recommending a mutual fund to a potential investor. and acquire the basic knowledge of the different measures of evaluating the performance of a fund. Only then would he be in a position to judge correctly whether his fund is performing well or not. then you too have to know how to measure and evaluate the performance of the different funds available to .Mutual Fund Performance The Investor Perspective The investor would actually be interested in tracking the value of his investments . whether he invests directly in the market or indirectly through the mutual funds. or if he needs to switch to the another fund. He would have to make intelligent decisions on whether he gets an acceptable return on his investments in the funds selected by him. He therefore. needs to understand the basis of appropriate performance measurement for the funds . If you want to be an effective investment advisor.

.the investor. The need to compare the performance of the different funds requires the advisor to have the knowledge of the correct and appropriate measures of evaluating the fund performance.

Therefore financial planners have segmented investors according to certain stages I their life cycle as follows : LIFE CYCLE STAGE Childhood stage Young unmarried Taken care of by Investment parents Immediate short term gifts and Limited due of Long term to Liquid short investment and Young stage married Short Housing insurance and Limited and Cash due plans and term some pension FINANCIAL NEEDS ABILITY TO CHOICE INVEST OF INVESTMENT higher spending exposure to equity products to Medium to long – investment income and intermediate term higher spending term flow Ability to take risks insurance needs requirements are Fixed Consumer finance also limited Young needs equity products married Medium to long Limited Financial Medium to long- .LIFE CYCLE AND WEALTH CYCLE STAGES Life cycle guide to financial planning Financial goals and plans depend to a large extent on the expenses and cash flow requirement of individuals . It is well known that the age of the investors is an important determinant of financial goals .

with children term Holidays Housing children’s planning needs term investments of education are highest at this Ability to take risks and stage is ideal for Portfolio spending and and long term term with of debt ant products for growth consumer finance discipline Married with Medium saving regularly term Higher saving Medium rations intermittent flows higher investment for Portfolio equity older children needs for children recommended for high liquidity needs intermittent cash products including pension plans saving Medium term Higher investment for Preference for Retirement stage Short to medium Lower term ratios requirement regular cash flows liquid and income generating products Low appetite for risky investment .

People with high income and who are young enough to take risks prefer shares and mutual funds. Surprisingly. We find out that more Business Men were inclined towards investing their in the Current A/c. only 5. Once the questionnaire were filled up. Similarly. comparatively a very less number invests into it. the next work that comes up is the analysis of the data arrived. Ladies are more inclined towards investing their funds in gold and other jewellery. people are interested in knowing what are the returns of their investments. a very small number of them . while a large number (34) of people are aware of the tax benefits. On the other hand. I have analysed my survey on the basis of these respondents feedback. Similar large number of people are equally interested in the safety of their funds.On asking how do they get knowledge of Mutual Funds. are interested in it. a large number of them attributed it to Print Media.Analysis Of The Questionnaire The questionnaires were sent to 100 people out of which only 52 responded. There are the people who want easy liquidity of money and these are basically the business people who have to deal in the ready cash all the time. Even Banks today follow the role of . Whilst a large number of people are aware of mutual funds. service class people and retired fellows prefer more either Savings and/or Fixed Deposits.

A large part of respondents said that their knowledge about MF does not allow them to invest into it while to another segment considered government bonds much better. Radios etc) as well as and should not just constrained itself to the print advertisement.s. . Cables.investment advisors. Those who do not read newspaper/magazines due to any reasons may watch or listen to the advertisements.V. Hence AMCs must increase the awareness about their product through Electronic Media (T. Very few get any information from the Electronic Media or the Relatives/Friends.

PRIORITY ON INVESTORS WHILE INVESTING 10% 19% Safety Higher return Liquidity 71% .

FREQUENCY OF INVESTMENT 15% 33% Regularly Once a while None of these 52% .

OBJECTIVE BEHIND INVESTMENT 4% 29% Income Generation Tax Saving Others 67% .

SOURCES OF AWARENESS 12% 17% 10% 48% Newspaper/Magazin e Friends/Colleagues TV Advertisements Factsheets Others 13% .

SPECIFIC APPREHENSIONS ABOUT INVESTING IN MUTUAL FUNDS 20% 50% 18% 12% Lack of awareness Lack of trust Inconvenience Others .

TIME PERIOD FOR INVESTMENT Less than 1 year 13% 19% 51% 17% 1 to 2 year 2 to 5 years More than 5 years .

PRIORITY OF INVESTORS TO INVEST IN VARIOUS FINANCIAL PRODUCTS 18% 20% 12% 50% Bank deposits Mutual fund Government Bonds Equity market .

OCCUPATION WISE DISTRIBUTION 13% 6% 35% 19% 27% Service Business Professional Retired Dependents .

AWARENESS OF MUTUAL FUNDS 29% NO YES 71% .

AWARENESS OF TAX BENEFITS 19% YES NO 81% .

REASONS FOR NOT INVESTING IN MUTUAL FUNDS 14% 12% 26% 48% Confidence Knowledge Beter bonds Others .

Once the appointment is fixed. . the branch officer also called Business Development Associate (BDA) in some funds then meets the prospect and gives him all details about the various schemes being offered by his fund.Marketing Of Mutual Funds The present marketing strategies of mutual funds can be divided into main headings :  Direct Marketing  Selling through intermediaries  Joint Calls Direct Marketing: This constitutes 20 percent of the total sales of mutual funds. The names and phone numbers of the people are picked at random from telephone directory.  Telemarketing : In this case the emphasis is to inform the people about the fund. The conversion rate in this mode of selling is in between 30% 40%. Some of the important tools used in this type of selling are :  Personal Selling :In this case the customer support officer of the fund at a particular branch takes appointment from the potential prospect. Sometimes people belonging to a particular profession are also contacted through phone and are then informed about the fund.

 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. Answers their queries and is generally successful in taking appointments with those people. It is then the job of BDA to try his best to convert that prospect into a customer. Generally such hoardings are put near UTI offices in order to tap people who are at present investing in UTI schemes. Addresses of people are picked at random from telephone directory. The purpose to keep investors aware the schemes offered by the fund and their performance in recent past. The hoarding and banner generally contains information either about one particular scheme or brief information about all scheme of fund.  Direct Mail :This is one of the most common method followed by all mutual funds.  Advertisements in newspapers and magazines : The funds regularly advertise in business newspapers and magazines besides in leading national dailies. The follow up starts after 3 – 4 days of mailing the literature. .Generally the conversion rate in this form of marketing is 15% 20%. The customer support officer (CSO) then mails the literature of the schemes offered by the fund. The CSO calls on the people to whom the literature was mailed.

They perform an important role in attracting new customers.  Regular Meetings With Distributors :Most of the funds conduct monthly/ bi monthly meetings with their distributors. what the competitors are doing and what they can do to increase the sales of the fund. Sometimes. They do a commendable job in convincing investors to invest in mutual funds. Joint Calls : This is generally done when the prospects seems to be a high net worth investor. These are the people/ distributors who are in direct touch with the investors. The objective is to hear their complaints regarding service aspects from funds side and other queries related to the market situation. Most of these intermediaries are also involved in selling shares and other investment instruments. their present performance in the market. A lot depends on the after sale services offered by the intermediary to the customer. The BDA and the agent (who is located close to the . special training programmes are also conducted for the new agents/ distributors. 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.Selling Through Intermediaries : Intermediaries contribute towards 80% of the total sales of mutual funds. Training involves giving details about the products of the fund.

he devotes at least one to two hours in meeting with the HNI’s of that particular area.HNI’s residence or area of operation) together visit the prospect and brief them about the fund.generally around 60%. Whenever a top official visits a particular branch office.  Meetings with HNI’s :This is a special feature of all the funds . This generally develops a faith among the HNI’s towards the fund. The conversion rate is very high in this situation . . Both the fund and the agent provide even after sale services in this particular case.

irrespective of the age group and financial status. . ii. Hence the essential requirement is the well informed seller and equally informed buyer. Being a prudent investors one should: i. iii. Ask one’s agent to give details of different schemes and match the appropriate ones. annual reports etc. Investors should always keep an eye on the performance of the scheme and other good schemes as well which are available in the market for the closed comparison. so proper knowledge is essential. iv.SUGGESTIONS ♦ Investors point of view The question all the customer. Who understands and help them to understand the product (here we can say the capital market and the money market instruments) is the essential pre-conditions. Since the mutual fund invests in the capital market instruments. think of is. the AMCs are bound to disclose all the relevant data that is necessary for the investment purpose by the investor. Never invest blindly in the investments before going through the fact sheets.according to the guidelines of the SEBI.Are Mutual Funds are a safe option? What makes them safe? The basis of mutual fund industry’s safety is the way the business is defined and regulations of law. Go to the company or the fund house regarding any queries if one is not satisfied by the agents. of the company since .

V. commercials. iv. Choose appropriate media . Make customer care services faster. .design separate schemes for rural/semi urban areas and lower the minimum investment amount from Rs. for marketing the product and educate the masses.newspaper/magazines. These customer care units can work out in accordance with the requirements of the customer and facilitate him to choose the scheme that suits his financial requirements. T. ii. Developed . vii.♦ Companies point of view Following measures can be taken up by the company for getting higher investments in the mutual fund schemes.500. v. Educate the agents or the salesmen properly so that they can take up the queries of the customer effectively. vi. etc. Set up separate customer care divisions where the customers can any time pose their query . iii. i.regarding the scheme or the current NAV etc. Conduct seminars or programs on about mutual funds where each and every minute information about the product is outlined including the risk factor associated with the different classes of assets. Recruit appropriate number of agents for rural/urban and semi-urban areas.

 The respondents were not disclosing their exact portfolio because they have a fear in their minds that they can come under tax slabs. .LIMITATIONS  This project is limited in scope as the survey is conducted with a shortage of time constraint and is also based on secondary data.  Due to ignorance factor some of the respondents were not able to give correct answers .  The answers given by the respondents may be biased due to several reason or could be attachment to a particular bank or brand.

000 ./Ms.000 c)30.000-50./Mrs.000 d)Above 50.000 7) Type of investment a)Current b)Savings c)Fixed Deposits d)Shares e)Bonds/Debentures f)Mutual Funds g)Gold/Real Estate b)10. 2) Address /Contact 3) Bank you are dealing with 4) What occupation you are in? 5) What is the age group you fall in? a)20-30 b)30-40 c)40-50 d)50-60 e)above 60 6) What is the per month income of your family? a)Less than 10.000-30.QUESTIONNAIRE 1) Name of the customer Mr.

8) Preference a)Liquidity b)Return c)Tax benefit d)Safety 9) Are you aware of the Mutual Funds? Yes/No If yes.11 i) Which scheme did you last invest in? ii)What returns did you get out of that scheme? iii)Since how long you are in that scheme? iv) Would you like to switch to current NPO ? YES/NO v)Do you have any knowledge of the tax benefits? vi)From where do you get information about Mutual .12 10) Have you ever invested in Mutual Funds? If yes .please attempt next five questions else go to question no. then please attempt next question else go to question no.

Funds? a) Print Media b) Electronic Media c) Fiends/Relativesd) Broker/Investment e) Bank i) If you’ve never invested in the Mutual funds then attempt the next question i) What has been the reason of your not investing into the mutual funds? a) lack of confidence b)imperfect knowledge c)finds government securities/bonds better d)other reasons ii)Are you aware of the SEBI/RBI guidelines? 11) If you are not aware of the Mutual Funds then . attempt the next Are you not interested in generating higher returns? Signature of the customer .

MFEA.BIBLIOGRAPHY  ANALYST MAGAZINE  BUSINESS STANDARD  SMART INVESTORS  WWW.COM  WWW.INVESTMENTS.PH .COM.

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