A PROJECT REPORT ON “MERITS AND DEMERITS OF MUTUAL FUND” TRAINING UNDERTAKEN AT
SUBMITTED FOR THE PARTIAL FULFILLMENT OF TWO YEARS FULL TIME COURSE MASTERS IN BUSINESS ADMINISTRATION Batch(2010-2012)
Submitted To: FMS MAIET ,Jaipur.
Submitted By: Aman Gupta MBA SEM-III(2010-2012) Faculty of Management Studies
Maharishi Arvind Institute of Engineering & Technology, Jaipur [Affiliated to Rajasthan Technical University]
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DECLERATION
I hereby declare that this Project Report entitled “Mutual Funds: “MERITS AND DEMERITS OF MUTUAL FUND” submitted in the partial fulfillment of the requirement of Master of Business Administration (M.B.A) of MAIET, Jaipur . It is based on primary & secondary data found by me in various institutes, books, magazines and websites & collected by me in under guidance of PRAVEEN SIR .
DATE: 15.07.2011 Aman Gupta M.B.A
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ACKNOWLEDGMENT
The project would not be complete without a mention of those, who have spared their valuable time and shared their rich experience, in making this project happen.
I owe indebtedness to Mr. Sameer saxena, Branch Manager, Jaipur for sbi mutual fund AMC, for granting me an opportunity to work with the esteemed organization. He has been benevolent enough to lend his help and spare his valuable time throughout the project. I am thankful for his continuous motivation and encouragement.
I extend my heartfelt thanks to Mr.Praveen saini, & Mrs.Alka jain for their incessant guidance and support all through the project. I also feel privileged to place on record the excellent financial and marketing tactics, which I had learnt from them during the project.
I express my deep gratitude to all the staff members at SBI MUTUAL FUND AMC, JAIPUR; who gave me a full-fledged support to complete my project on time.
(Aman Gupta)
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PREFACE
A professional course like business management demands in depth theoretical knowledge and practical exposure to its realistic application. For the same purpose, the course designs one and a half month summer training. The course aims to groom the students professionally and offer him/her a chance to work in corporate world, so as to have an opportunity to gain experience on practical aspects and supplement his/her theoretical knowledge.
Mutual Funds being the ideal investments vehicle in today‟s complex and modern financial scenario. Mutual Funds are emerging as the most attractive investment avenue as the investments across is globally facing a southern trend and volatility prevails in all the global markets. I was fortunate enough to closely watch and learn the working of a mutual fund, during my Project Training at one of the Indian pioneers in Mutual Funds- “SBI MUTUAL FUND” The project assigned was “MERITS AND DEMERITS OF MUTUAL FUND ”
The relevance of mutual funds increases as the international financial situations going in tailspins day by day and India now is by real means being attached to global swings of Fed rate cuts, Sub Prime crises, crude oil prices etc.
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EXECUTIVE SUMMARY
Today‟s mutual fund industry is characterized by cut throat competition, so it is very important for a company, which offers a basket of offerings, to design clear cut strategies. The project that I had worked upon in my training provided a lot of scope to learn, right from the basics, about the investment opportunities available in mutual funds in India, various factors involved in selecting an investment option. It further included a market research where I interacted with different people, to gain more knowledge about the different investment opportunities in India. The research work contains a comprehensive study of the Mutual Funds in India and how it emerged as one of the most rapidly growing investment avenue. The project also involves some practical learning of working in the bank as well. It involves interaction with the customers that walk in to the bank to understand their needs to invest in which fund and market, and to draw out the information which is necessary. I tried to introduce different marketing strategies and put up new ideas to attract more customers that helped SBI MUTUAL FUND the sales process and to generate leads. Finally, it included a market research using questionnaires to find out awareness of mutual funds among people as compared to other investment avenues. I also need to find out the various investment avenues of people.
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CONTENTS
Sr. no.
Chepter
Page.No.
1.
Introduction to the industry
7-9
2.
History of Indian mutual fund
10-11
3.
Introduction to the Organization
12-26
4.
Concept of mutual fund
27-43
5.
Various investment options available for investors
43-46
6.
Factors to be considered before selecting mutual fund
47-51
7.
Merits and demerits of mutual funds Merits of mutual funds
52-55
Demerits of mutual funds
56
Systematic Investment Plan(SIP)
57-60
8.
Research Methodology
61-65
9.
Data Analysis and Interpretation
66-79
10.
Facts and Findings
80-81
11.
SWOT Analysis
82-83
12.
Conclusion
84
13.
Recommendations and Suggestions
85-86
14.
Bibliography
87
15.
Appendix- Questionnaire
88-90
1. INTRODUCTION TO THE INDUSTRY
A mutual fund is a professionally-managed form of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market -6-
instruments, and/or other securities. In a mutual fund, the fund manager, who is also known as the portfolio manager, trades the fund's underlying securities, realizing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV) is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding. Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. This pool of money is invested in accordance with a stated objective. The joint ownership of the fund is thus “Mutual”, i.e. the fund belongs to all investors. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. A Mutual Fund is an investment tool that allows small investors access to a welldiversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The funds Net Asset value (NAV) is determined each day. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders. When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder.Any change in the value of the investments made into capital market instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors. -7-
GROWTH OF MUTUAL FUNDS IN INDIA
The Indian Mutual Fund has passed through three phases. The first phase was between 1964 and 1987 and the only player was the Unit Trust of India, which had a total asset of Rs. 6,700 crores at the end of 1988. The second phase is between 1987 and 1993 during which period 8 Funds were established (6 by banks and one each by LIC and GIC). The total assets under management had grown to 61,028 crores at the end of 1994 and the number of schemes was 167. The third phase began with the entry of private and foreign sectors in the Mutual Fund industry in 1993. Kothari Pioneer Mutual Fund was the first Fund to be established by the private sector in association with a foreign Fund. As at the end of financial year 2000(31st march) 32 Funds were functioning with Rs. 1, 13,005 crores as total assets under management. As on august end 2000, there were 33 Funds with 391 schemes and assets under management with Rs 1, 02,849 crores. The securities and Exchange Board of India (SEBI) came out with comprehensive regulation in 1993 which defined the structure of Mutual Fund and Asset Management Companies for the first time. Several private sectors Mutual Funds were launched in 1993 and 1994. The share of the private players has risen rapidly since then. Currently there are 34 Mutual Fund organizations in India managing 1,02,000 crores.
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VALUATION OF MUTUAL FUND
The net asset value of the Fund is the cumulative market value of the assets Fund net of its liabilities. In other words, if the Fund is dissolved or liquidated, by selling off all the assets in the Fund, this is the amount that the shareholders would collectively own. This gives rise to the concept of net asset value per unit, which is the value, represented by the ownership of one unit in the Fund. It is calculated simply by dividing the net asset value of the Fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the “per unit”. We also abide by the same convention.
Calculation of NAV The most important part of the calculation is the valuation of the assets owned by the Fund. Once it is calculated, the NAV is simply the net value of assets divided by the number of units outstanding. The detailed methodology for the calculation of the net asset value is given below.The net asset value is the actual value of a unit on any business day. NAV is the barometer of the performance of the scheme. The net asset value is the market value of the assets of the scheme minus its liabilities and expenses. The per unit NAV is the net asset value of the scheme divided by the number of the units outstanding on the valuation date.
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HISTORY OF MUTUAL FUND INDUSTRY IN INDIA The origin of Mutual Fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry. In the past decade, Indian Mutual Fund industry had seen dramatic improvements, both quality wise as well as quantity wise. Before, the Monopoly of the Market had seen an ending phase; the Assets Under Management (AUM) was Rs. 67bn. The private sector entry to the fund family raised the AUM to Rs. 470 bn in March 1993 and till April 2004; it reached the height of 1,540 bn. Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry. The main reason of its poor growth is that the Mutual Fund industry in India is new in the country. Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime responsibility of all mutual fund companies, to market the product correctly abreast of selling. The Mutual Fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under.
First Phase - 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. 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 first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management.
Second Phase - 1987-1993 (Entry of Public Sector Funds)
Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47, 004 as assets under management. - 10 -
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, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, 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, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds.
Fourth Phase - since February 2003
This phase brought bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29, 835 crores (as on January 2003). The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of AUM and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 scheme
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3. INTRODUCTION TO THE ORGANIZATION
SBI Mutual Fund SBI Mutual Fund (SBI MF) is one of the largest mutual funds in the country with an investor base of over 4.6 million. With over 20 years of rich experience in fund management, SBI MF brings forward its expertise in consistently delivering valu e to its investors. Proven Skills in wealth generation: SBI Mutual Fund is India‟s largest bank sponsored mutual fund and has an enviable track record in judicious investments and consistent wealth creation. The fund traces its lineage to SBI - India‟s largest banking enterprise. The institution has grown immensely since its inception and today it is India's largest bank, patronized by over 80% of the top corporate houses of the country. SBI Mutual Fund is a joint venture between the State Bank of India an d Société General Asset Management, one of the world‟s leading fund management companies that manages over US$ 500 Billion worldwide. History of SBIMF
SBI mutual fund was setup on June 29th, 1987 and incorporated on February 7th, 1992. It is a result of joint venture between State Bank of India and Societe Generale Asset Management of France. This is a bank sponsored mutual fund and has a base of 3.5 million investors (approx). Over the years it has carved a niche for itself through prudent investment decisions and consistent wealth creation for its customers. They offer Mutual Fund products in Equity Funds, Index Funds, Balanced Funds, Debt Funds, etc.
The assets under management are Rs 33,727.90 crores as of June, 30, 2010. InvestmentYogi analyses the best performing SBI mutual fund in the Balanced Fund, Equity Fund and Equity Linked Savings Scheme (ELSS) categories.
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SBI Mutual Fund operates under State Bank of India and Société Générale Asset Management of France and has asset management experience of more than 25 years. SBI Mutual Fund offers different kinds of products like growth based products, income based products and balanced funds. The SBI Mutual Fund operates under State Bank of India and Société Générale Asset Management of France. With over twenty years of experience in asset management, the company has grown immensely since its establishment. SBI Mutual Funds offer innovative mutual fund products to its wide pool of customers and its products are available across India. It has a wide portfolio of products that meet the requirements of different types of investors. The SBI Mutual Fund is headed by Mr Syed Shahabuddin, Managing Director of the company. Contact details of SBI Mutual Fund are as follows: Corporate Office : 191, Maker Tower 'E', Cuffe Parade, Mumbai - 400 005. Email :
[email protected]
SBI Mutual Funds Investor's Service Center are located at Ahmedabad, Bangalore, Bhillai, Bhubaneshwar, Bhopal, Chandigarh, Chennai, Coimbatore, Cochin, Goa, Guwahati, Hyderabad, Indore, Jaipur, Kanpur, Kolkata, Lucknow, Ludhiana, Mumbai, New Delhih, Patna, Pune, Ranchi, Siliguri, Vadodara, and Vijaywada. SBI Mutual Fund
Mutual Fund
SBI Mutual Fund
Setup Date
Jun-29-1987
Incorporation Date
Feb-07-1992
Sponsor
State Bank of India
Trustee
SBI Mutual Fund Trustee Company Private Limited
Chairman
Mr. Pratip Chaudhri
CEO / MD
Mr. Deepak Kumar Chatterjee
CIO
Mr. Navneet Munot - 13 -
Compliance Officer
Ms. Vinaya Datar
Investor Service Officer
Mr. C A Santosh
Assets Managed
Rs. 47874.46 crore (Jun-30-2011)
Other Details Auditors
Haribhakti & Co / M/S. Chandabhoy & Jassoobhoy Bank of Nova Scotia / Citi Bank / HDFC Bank / Stock Holding
Custodians
Corporation of India Computer Age Management Services Pvt. Ltd, Computronics
Registrars
Financial Services (I) Ltd, Datamatics Financial Software Services Ltd
Address
191 Maker Tower E, Cuffe Parade, Mumbai - 400005.
Telephone Nos.
022 - 22180221-27
Fax Nos.
022 – 22189663
E-mail
[email protected]
ORGANISATIONAL STRUCTURE OF SBI MUTUAL FUND
FUND MANAGERS
CEO
NATIONAL SALES HEAD
VICE PRESIDENT
CIO
BRANCH MANAGERS
SOUTH
WEST
NORTH
DELHI
EAST
U.P.
PUNJAB
RAJASTHAN
JAIPUR
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EQUITY
DEBT
AWARDS AND ACHIEVEMENTS SBI Mutual Fund (SBIMF) has been the proud recipient of the ICRA Online Award - 8 times, CNBC TV - 18 Crisil Award 2006 - 4 Awards, The Lipper Award (Year 2005-2006) and most recently with the CNBC TV - 18 Crisil Mutual Fund of the Year Award 2007 and 5 Awards for our schemes.
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SBI- MUTUAL FUND PRODUCTS: EQUITY SCHEMES: The investments of these schemes will predominantly be in the stock markets and endeavor will be to provide investors the opportunity to benefit from the higher returns which stock markets can provide. However they ar e also exposed to the volatility and attendant risks of stock markets and hence should be chosen only by such investors who have high risk taking capacities and are willing to think long term. Equity Funds include diversified Equity Funds, Sectoral Funds and Index Funds. Diversified Equity Funds invest in various stocks across different sectors while Sectoral funds which are specialized Equity Funds restrict their investments only to shares of a particular sector and hence, are riskier than Diversified Equi ty Funds. Index Funds invest passively only in the stocks of a particular index and the performance of such funds move with the movements of the index. Magnum COMMA Fund Magnum Equity Fund Magnum Global Fund Magnum Index Fund Magnum MidCap Fund Magnum Multicap Fund Magnum Multiplier Plus 1993 Magnum Sector Funds Umbrella MSFU - FMCG Fund MSFU - Emerging Businesses Fund MSFU - IT Fund MSFU - Pharma Fund MSFU - Contra Fund SBI Arbitrage Opportunities Fund SBI Blue chip Fund SBI Infrastructure Fund - Series I SBI Magnum Taxgain Scheme 1993 SBI ONE India Fund - 17 -
SBI TAX ADVANTAGE FUND - SERIES I DEBT SCHEMES: Debt Funds invest only in debt instruments such as Corporate Bonds, Government Securities and Money Market instruments either completely avoiding any investments in the stock markets as in Income Funds or Gilt Funds or having a small exposure to equities as in Monthly Income Plans or Children's Plan. Hence they are safer than equity funds. At the same time the expected returns from debt funds would be lower. Such investments are advisable for the risk-averse investor and as a part of the investment portfolio for other investors. Magnum Children‟s Benefit Plan Magnum Gilt Fund Magnum Gilt Fund (Long Term) Magnum Gilt Fund (Short Term) Magnum Income Fund Magnum Income Plus Fund Magnum Income plus Fund (Saving Plan) Magnum Income plus Fund (Investment Plan) Magnum Insta Cash Fund Magnum InstaCash Fund -Liquid Floater Plan Magnum Institutional Income Fund Magnum Monthly Income Plan Magnum Monthly Income Plan Floater Magnum NRI Investment Fund SBI Capital Protection Oriented Fund - Series I SBI Debt Fund Series SDFS 15 Months Fund SDFS 90 Days Fund SDFS 13 Months Fund SDFS 18 Months Fund SDFS 24 Months Fund SDFS 30 DAYS - 18 -
SDFS 30 DAYS SDFS 60 Days Fund SDFS 180 Days Fund SDFS 30 DAYS SBI Premier Liquid Fund SBI Short Horizon Fund SBI Short Horizon Fund - Liquid Plus Fund SBI Short Horizon Fund - Short Term Fund BALANCED SCHEMES:
Magnum Balanced Fund invests in a mix of equity and debt investments. Hence they are less risky than equity funds, but at the same time provide commensurately lower returns. They provide a good investment opportunity to investors who do not wish to be completely exposed to equity markets, but is looking for higher returns than those provided by debt funds. Magnum Balanced Fund Magnum NRI Investment Fund - Flexi Asset Plan
Magnum Multiplier Plus 1993 Investment Objective: Magnum Multiplier Plus is an open-ended diversified equity fund and the investment objective of the scheme is to provide investors long term capital appreciation along with the liquidity of an open-ended scheme. The scheme will invest in a diversified portfolio of equities of high growth companies. Asset Allocation Instrument
% of Portfolio of Plan A
Risk Profile
&B Equity and related
Not less than 70 %
Medium to High
Not more than 30%
Low to Medium
instruments Debt instruments
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(including Securitized debt) and Govt. Securities Money Market
Balance
Low
instruments Scheme Highlights: 1. An open-ended equity scheme aiming for aggressive growth from investments in equities. 2. Scheme opens for Resident Indians, Trusts, and Indian Corporates and on a fully repatriable basis for NRIs, FIIs & Overseas Corporate Bodies. 3. Facility to reinvest dividend proceeds into the scheme at NAV. 4. Easy entry and exit on the basis of sales and repurchase prices
determined daily.
NAV will be declared on every business day. 5. Nomination facility available for individuals applying on their behalf either singly or jointly upto three. Launch Date
Minimum Application
February 28, 1993
Rs. 1000
Entry Load
Exit Load
Investments below Rs. 5 crore - 2.25%
Investments below Rs 5 crores <= 6 months
Investments of Rs 5 crores and above-
- 1.00% and NIL thereafter. Investments of
Nil
Rs 5 crores and above - NIL
SIP
SWP
Rs 500/month - 12 months, Rs
A minimum of Rs 500 can be withdrawn
1000/month - 6 months, Rs 1500/quarter
every month or quarter by issuing advance
- 12 months
instructions to the Registrars at any time.
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MSFU - Emerging Businesses Fund Investment Objective To provide the investors maximum growth opportunity through equity investments in stocks of growth oriented sectors of the economy. There are five sub -funds dedicated to specific investment themes viz. Information Technology, Pharmaceuticals, FMCG, Contrarian (investment in stocks currently out of favour) and Emerging Businesses. The investment objective of the Emerging Business Fund would be to participate in the growth potential presented by various companies that are considered emergent and have export orientation/outsourcing opportunities or are globally competitive by investing in the stocks representing such companies. The fund may also evaluate emerging businesses with growth potential and domestic focus.
Asset Allocation Instrument
% of Portfolio of Plan A & B
Risk Profile
Equities or equity related instruments including derivatives across diversified
At least 90%
Medium to High
0%-10%
Low
sectors * Money market instruments
Scheme Highlights 1. An open-ended scheme in which there are five sub-funds, viz. Information Technology (IT), Pharmaceuticals, Fast Moving Consumer Goods (FMCG) and a Contra sub fund - investing in stocks currently out of favour and Emerging Businesses Fund to participate in the growth potential presented by various companies that are considered emergent and have export orientation / outsourcing opportunities or are globally competitive by investing in the stocks representing such companies. The fund may also evaluate emerging businesses with growth potential and domestic focus. Accordingly, investors can chose to invest in one or more of the five sub funds. The - 21 -
fund allows free switchover from one sector to another. The merits of each of the five sectors are detailed in the following pages. 2. Growth and Dividend Option available under Contra, Pharmaceuticals and Emerging Businesses Fund. 3. Switch-over facility at NAV related price to other open-ended schemes of SBI Mutual Fund, is available. This facility is not available to NRIs. Launch Date
Minimum Application
11/10/2004
Rs. 2000/- and multiples of Rs. 500/-
Entry Load
Exit Load
Investments below Rs 5 crores - 2.25%
Investments below Rs 5 crores <= 6 months
Investments of Rs 5 crores and above -
- 1.00% and NIL thereafter. Investments of
NIL
Rs 5 crores and above - NIL
SIP
SWP
Rs 500/month - 12 months, Rs
A minimum of Rs 500 can be withdrawn
1000/month - 6 months, Rs 1500/quarter
every month or quarter by issuing advance
- 12 months
instructions to the Registrars at any time.
SBI Magnum Taxgain Scheme 1993 Investment Objective The prime objective of scheme is to deliver the benefit of investment in a portfolio of equity shares, while offering tax rebate on such investments made in the scheme under section 80 C of the Income-tax Act, 1961. It also seeks to distribute income periodically depending on distributable surplus.
Asset Allocation Instrument
% of Portfolio of - 22 -
Risk Profile
Plan A & B Equity,PCD‟s and FCD‟s and bonds
80-100%
Medium to High
Money market instruments
0 – 20%
Low
Scheme Highlights 1. There is a statutory lock-in period of three years for investments in a Tax Saving Scheme (irrespective of the fact whether the investors claim the rebate u/s 80C or any other section or not). 2. Dividends may be declared depending on distributable profits of the scheme. Facility to reinvest dividend proceeds into the scheme at NAV. 3. Switchover facility to any other open-ended schemes of SBI Mutual Fund at NAV related prices available after the statutory lock-in period. Launch Date
Minimum Application
March 31, 1993
Rs. 500 and Multiples of Rs 500
Entry Load
Exit Load
Investments below Rs. 5 crores - 2.25%
Nil
Investments of Rs.5 crores and above NIL SIP
SWP
Rs.500/month - 12 months
A minimum of Rs. 500 can be withdrawn
Rs.1000/month - 6months
every month or quarter by issuing advance
Rs.1500/quarter - 12 months
instructions to the Registrars at any time. This facility is available only after the lock-in period of three years.
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SBI Magnum Equity Fund Objective : To provide the investor Long-term capital appreciation by investing in high growth companies along with the liquidity of an open-ended scheme through investments primarily in equities and the balance in debt and money market instruments. Structure : Open-ended Diversified Equity Fund Inception Date : January 02, 1991 Plans and Options under the Plan : Growth & Dividend Option Face Value (Rs/Unit): Rs. 10 Minimum Investment : Rs.1000 Entry Load : For investments below Rs. 5 crores, Entry load is 2.25%. For Investments of Rs. 5 crores and above, Entry Load is Nil. Exit Load : If redeemed before 6 Months; and Amount less than 5 crores, Exit load is 1%. For Amount greater than 5 crores, Exit load is Nil.
SBI Magnum Global Fund Objective : To provide the investors maximum growth opportunity through well researched investments in Indian equities, PCDs and FCDs from selected industries with high growth potential and Bonds. Structure : Open-ended Equity Scheme Inception Date : September 30, 1994 Plans and Options under the Plan : Growth & Dividend Option Face Value (Rs/Unit): Rs. 10 Minimum Investment : Rs.2000 Entry Load : For investments below Rs. 5 crores, Entry load is 2.25%. For Investments of Rs. 5 crores and above, Entry Load is Nil. Exit Load : If redeemed before 6 Months; and Amount less than 5 crores, Exit load is 1%. For Amount greater than 5 crores, Exit load is 0%.
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SBI Magnum Emerging Businesses Fund Objective : To participate in the growth potential presented by various companies that are considered emergent and have export orientation/outsourcing opportunities or are globally competitive by investing in the stocks representing such companies. The fund may also evaluate emerging businesses with growth potential and domestic focus. Structure : Open-ended Equity Scheme Inception Date : October 11, 2004 Plans and Options under the Plan : Growth & Dividend Option Face Value (Rs/Unit): Rs. 10 Minimum Investment : Rs. 2000/- and multiples of Rs. 500/Entry Load : For investments below Rs. 5 crores, Entry load is 2.25%. For Investments of Rs. 5 crores and above, Entry Load is Nil. Exit Load : If redeemed before 6 Months; and Amount less than 5 crores, Exit load is 1%. For Amount greater than 5 crores, Exit load is 0%.
Best performing “Equity Funds” are:
SBI Magnum Global Fund 94: The objective of the scheme is to provide growth opportunities through investment in equities. This scheme was launched on September, 30th 1994. The benchmark index is BSE 100. The top sector allocations are Engineering, Information Technology and Automobiles. This fund has given 14.50% returns from its inception date. The fund manager is Mr. R. Srinivasan.
SBI Magnum Contra Fund: The objective of the scheme is to invest in under value stocks which are currently out of favor but have potential to grow in the long term. This scheme was launched on July, 5th 1999. The benchmark index is BSE 100. The top sector allocations are BFSI, Energy. This fund has given 14.48% returns from its inception date. The fund manager is Mr. Pankaj Gupta.
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The annualized return for SBI Magnum Global Fund 94 is volatile. During the recession (in last 3 years) returns of this fund dropped drastically to 5.21%. Now, when the markets have been recovering the fund has managed to recover quickly and it‟s giving 40.96% returns.
On the other hand, the SBI Mangum Contra Fund had delivered 9.78% during recession which is 4.57% higher returns while comparing with SBI Magnum Global Fund 94. But, when the markets were recovering there was only nominal increase in returns of SBI Mangum Contra Fund by comparing to other fund. In the long term, the annualized 5 year return is 2.61% higher for SBI Magnum Contra fund while comparing with SBI Magnum Global Fund 94.
Best performing “Tax Saving Schemes” are:
SBI MAGNUM TAXGAIN SCHEME: The objective of the scheme is to invest in a portfolio of equities and offering tax benefits to investors. This scheme was launched on March, 31st 1993. The benchmark index is BSE 100. The top sector allocations are Engineering, BFSI, Oil and Gas. This fund has given 19.40% returns from its inception date. This is an open ended scheme. The fund manager is Mr. Jayesh Shroff.
SBI Tax Advantage Fund - Series 1: The objective of the scheme is to generate capital appreciation in the long term by investing in large cap, mid cap and small cap companies. Also, offering income tax benefit to its investors. This scheme was launched on March, 3rd 2008. The benchmark index is BSE 100. The top sector allocations are Engineering, BFSI, Information Technology. This fund has given 8.95% returns from its inception date. This is a close ended scheme. The fund manager is Mr. Dharmendra Grover
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CONCEPT OF MUTUAL FUND
When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder. Any change in the value of the investments made into capital market instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors.
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A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.
MUTUAL FUND
There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund:
THREE-TIER STRUCTURE OF MUTUAL FUNDS The structure of Mutual Funds in India is governed by the SEBI (Mutual Fund) Regulations, 1996 (hereinafter referred to as SEBI Regulations). These regulations make it mandatory for Mutual Funds to have a Three-tier Structure of Sponsor Trustee- Asset Management Company (AMC). Sponsor
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The sponsor is the promoter of the mutual fund. The sponsor establishes the mutual fund and registers same with SEBI. It appoints the trustees, Custodians and the AMC with prior approval of SEBI, and in accordance with SEBI Regulations. Sponsor is required to contribute at least 40% of the capital of the AMC. Trustees The Mutual Fund, which is a trust, is managed by a Trust Company or a Board of Trustees. Board of trustees and trust companies are governed by the provisions of the Indian Trust Act. The appointment of all the trustees has to be done with the prior approval of SEBI. There must be at least 4 members in the board of Trustees and at least 213 of the members of the board of trustees must be independent. One of the major tasks of the Trustees is to appoint AMC, in consultation with the Sponsor and SEBI regulations. Asset Management Company (AMC) Asset Management Company, registered with SEBI, can be appointed as investment managers of mutual funds. AMC must have a minimum net worth of 10 crore at all times. An AMC cannot be an AMC or Trustee of another Mutual Fund. AMC appoints the Fund Managers in consultation with trustees.
CATEGORIES OF MUTUAL FUND:
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Mutual funds can be classified as follow : Based on their structure:
Open-ended funds: Investors can buy and sell the units from the fund, at any point of time.
Close-ended funds: These funds raise money from investors only once. Therefore, after the offer period, fresh investments can not be made into the fund. If the fund is listed on a stocks exchange the units can be traded like stocks (E.g., Morgan Stanley Growth Fund). Recently, most of the New Fund Offers of close-ended funds provided liquidity window on a periodic basis such as monthly or weekly. Redemption of units can be made during specified intervals. Therefore, such funds have relatively low liquidity.
Based on their investment objective: Equity funds: These funds invest in equities and equity related instruments. With fluctuating share prices, such funds show volatile performance, even losses. However, short term fluctuations in the market, generally smoothens out in the long term, thereby offering higher returns at relatively lower volatility. At the same time, such funds can yield great capital appreciation as, historically, equities have outperformed all asset classes in the long term. Hence, investment in equity funds should be considered for a period of at least 3-5 years. It can be further classified as: i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty is tracked. Their
portfolio mirrors the benchmark index both in terms
of composition and individual stock weightages. ii) Equity diversified funds- 100% of the capital is invested in equities spreading across different sectors and stocks. iii|) Dividend yield funds- it is similar to the equity diversified funds except that they invest in companies offering high dividend yields.
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iv) Thematic funds- Invest 100% of the assets in sectors which are related through some theme. e.g. -An infrastructure fund invests in power, construction, cements sectors etc. v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector fund will invest in banking stocks. vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors. Balanced fund: Their investment portfolio includes both debt and equity. As a result, on the risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual funds vehicle for investors who prefer spreading their risk across various instruments. Following are balanced funds classes: i) Debt-oriented funds -Investment below 65% in equities. ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt. Debt fund: They invest only in debt instruments, and are a good option for investors averse to idea of taking risk associated with equities. Therefore, they invest exclusively in fixed-income instruments like bonds, debentures, Government of India securities; and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. Put your money into any of these debt funds depending on your investment horizon and needs. i) Liquid funds- These funds invest 100% in money market instruments, a large portion being invested in call money market. ii) Gilt funds ST- They invest 100% of their portfolio in government securities of and T-bills. iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in debt instruments which have variable coupon rate.
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iv) Arbitrage fund- They generate income through arbitrage opportunities due to mis-pricing between cash market and derivatives market. Funds are allocated to equities, derivatives and money markets. Higher proportion (around 75%) is put in money markets, in the absence of arbitrage opportunities. v) Gilt funds LT- They invest 100% of their portfolio in long-term government securities vi) Income funds LT- Typically, such funds invest a major portion of the portfolio in long-term debt papers. vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure of 10%-30% to equities. viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in line with that of the fund. INVESTMENT STRATEGIES 1. Systematic Investment Plan: under this a fixed sum is invested each month on a fixed date of a month. Payment is made through post dated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA) 2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund. 3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he can withdraw a fixed amount each month.
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TYPES OF MUTUAL FUND SCHEMES Wide varieties of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. Since the needs and aspirations of different individuals vary from person to person, there are absolutely different kinds of mutual funds for investment. There could be various categories of mutual funds in India. The governing body for these funds being the Securities Exchange Board of India (SEBI). All varieties of mutual funds are governed by it in an all-pervasive manner.
Schemes can be differentiated by two broad parameters: (a) Their constitution or structure. (b) Their stated investment objective. Differentiation on the basis of structure of schemes Schemes are classified as Close-ended or Open-ended depending upon whether they give the investor the option to redeem at any time (open-ended) or whether the investor has to wait till maturity of the scheme. Open-Ended-Schemes The units offered by these schemes are available for sale and repurchase on any business day at NAV based prices. Hence, the unit capital of the schemes keeps changing each day. Such schemes thus offer very high liquidity to investors and are becoming increasingly popular in India. Please note that an open-ended fund is not obliged to keep selling/issuing new units at all times, and may stop issuing further subscription to new investors. On the other hand, an open-ended fund rarely denies to its investor the facility to redeem existing units. Close-Ended-Schemes The unit capital of a close-ended product is fixed as it makes a one-time sale of fixed number of units. These schemes are launched with an initial public offer (IPO) with a stated maturity period after which the units are fully redeemed at NAV linked prices. In the interim, investors can buy or sell units on the stock exchanges where they are generally listed. Unlike openended schemes, the unit capital in Close-ended schemes usually remains unchanged. After an - 33 -
initial closed period, the scheme may offer direct compared to open-ended schemes and hence trade at a discount to the NAV. This discount tends towards the NAV closer to the maturity date of the scheme. Interval-Schemes These schemes combine the features of Open-ended and Close-ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV based prices.
Differentiation on the basis of investment objectives Schemes can be classified by way of their stated investment objective such as Growth Fund, Balanced Fund, Income Fund etc. Equity/Growth Schemes These schemes, also commonly called Growth Schemes, seek to invest a majority of their funds in equities and a small portion in money market instruments. Such schemes have the potential to deliver superior returns over the long term. However, because they invest in equities, these schemes are exposed to fluctuations in value especially in the short term. Equity schemes are hence not suitable for investors seeking regular income or needing to use their investments in the short-term. They are ideal for investors who have a long-term investment horizon. The NAV prices of equity fund fluctuates with market value of the underlying stock which are influenced by external factors such as social, political as well as economic. HDFC Equity Fund and HDFC Top200 Fund are examples of equity schemes.
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Income/Debt-Schemes These schemes invest in money markets, bonds and debentures of corporate companies with medium and long-term maturities. These schemes primarily target current income instead of capital appreciation. Hence, a substantial part of the distributable surplus is given back to the investor by way of dividend distribution. These schemes usually declare quarterly dividends and are suitable for conservative investors who have medium to long term investment horizon and are looking for regular income through dividend or steady capital appreciation.
These schemes, also commonly known as Income Schemes, invest in debt securities such as corporate bonds, debentures and government securities. The prices of these schemes tend to be more stable compared with equity schemes and most of the returns to the investors are generated through dividends or steady capital appreciation. These schemes are ideal for conservative investors or those who are not in a position to take higher equity risks. However, as compared to the money market schemes they do have a higher price fluctuation risk and compared to a Gilt fund they have a higher credit risk. HDFC Income Fund is an example of bond schemes.
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Money-Market-Schemes These schemes invest in short term instruments such as commercial paper ("CP"), certificates of deposit ("CD"), treasury bills ("T-Bill") and overnight money ("Call"). The schemes are the least volatile of all the types of schemes because of their investments in money market instrument with short-term maturities. These schemes have become popular with institutional investors and high net-worth individuals having short-term surplus funds. Hybrid/Balanced Schemes These schemes are also commonly called balanced schemes. These invest in both equities as well as debt. By investing in a mix of this nature, balanced schemes seek to attain the objective of income and moderate capital appreciation. Such schemes are ideal for investors with a conservative, long-term orientation. HDFC Prudence Fund and HDFC Balance Fund are perfect examples of such hybrid schemes.
Other Schemes: Tax-Saving-Schemes Investors (individuals and Hindu Undivided Families ("HUFs")) are being encouraged to invest in equity markets through Equity Linked Savings Scheme ("ELSS") by offering them a tax rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched out until completion of 3 years from the date of allotment of the respective Units. The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations, - 36 -
1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs), Government of India regarding ELSS. Subject to such conditions and limitations, as prescribed under Section 88 of the Income-tax Act, 1961, subscriptions to the Units not exceeding Rs.10, 000 would be eligible to a deduction, from income tax, of an amount equal to 20% of the amount subscribed. Special Schemes: Sector-Specific-Equity-Schemes These schemes restrict their investing to one or more pre-defined sectors, e.g. technology sector. They depend upon the performance of these select sectors only and are hence inherently more risky than general purpose equity schemes. These schemes are ideally suited for informed investors who wish to take a risk on the concerned sector. Index-Schemes An Index is too used as a measure of the performance of the market as a whole, or a specific sector of the market. It also serves as a relevant benchmark to evaluate the performance of mutual funds. Some investors are interested in investing in the market in general rather than investing in any specific fund. Such investors are happy to receive the returns posted by the markets. As it is not practical to invest in each and every stock in the market in proportion to its size, these investors are comfortable investing in a fund that they believe is a good representative of the entire market. Index Funds are launched and managed for such investors. RISK V/S. RETURN:
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RISK RETURN ANALYSIS OF THE SCHEMES A rational investor before investing his or her money in any stock analyses the risk associated with the particular stock. The actual return he receives from a stock may vary from the expected one and thus a investor is always cautious about the rate of risk associated with the particular stock. Hence it becomes very essential on the part of investors to know the risk as the hard earned money is being invested with the view to earn good return on the investment. Risk mainly consists of two components Systematic risk Unsystematic risk
Systematic risk The systematic risk affects the entire market. The economic conditional, political situations, sociological changes affect the entire market in turn affecting the company and even the stock market. These situations are uncontrolla ble by the corporate and investor. Unsystematic risk The unsystematic risk is unique to industries. It differs from industry to industry. Unsystematic risk stems from managerial inefficiency, technological change in the production process, availability of raw materials, changes in the consumer preference, and labour problems. The nature and magnitude of above mentioned factors differ from industry to industry and company to company. In a general view, the risk for any investor would be the probable loss for investing money in any mutual fund. But when we look at the technical side of it , we can‟t just say that these schemes/fund carry risk without any proof. They are certain set of formulas to say the percentage of risk associated with it.
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There are certain tools or formulas used to calculate the risk associated with the schemes. These tools help us to understand the risk associated with the schemes. These schemes
are
compared
with
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the
benchmark
BSE
100.
THE TOOLS USED FOR CALCULATION Standard Deviation Beta Alpha Sharp ratio. Arithmetic mean ∑ Y/N Where Y- return of Nav values N- Number of observation average return that can be expected from investment. The arithmetic average return is appropriate as a measure of the central tendency of a number of returns calculated for a particular time i.e. for five years. It shows the Standard deviation S.D= √(y-Y)² N The standard deviation is a measure of the variables around its mean or it is the square root of the sum of the squared deviations from the mean divided by the number of observations. S.D is used to measure the variability of return i.e. the variation between the actual and expected return. BETA Beta describes the relationship between the stock’s return and index returns. There can be direct or indirect relation between stock’s return and index return. Indirect relations are vary rare. 1)
Beta =+1.0 - 40 -
It indicates that one percent change in market index return causes exactly one percent change in the stock return. It indicates that stock moves along with the market. 2) Beta= + 0.5 One percent changes in the market index return causes 0.5 percent change in the stock return. It indicates that it is less volatile compared to market. 3) Beta=2.0 One percent change in the market index return causes 2 percent change in the stock return. The stock return is more volatile. The stocks with more than 1 beta value are considered to be very risky. 4) Negative beta value indicates that the stocks return move in opposite direction to the market return. Beta=
N*∑XY- (∑X) (∑Y/ N(X*X) * (∑x)
Where N- No of observation X- Total of market index value Y- Total of return to Nav ALPHA Alpha = Y- beta(X) Where Y- avrage return to nav return X- average return to market index . Alpha indicates that the stock return is independent of the market return. A positive value of alpha is a healthy sign. Positive alpha values would yield profitable return. - 41 -
SHARPE RATIO St=
Rp --Rf S.D
WHERE Rp – Avereage return to portfolio Rf—Risk free rate of interest S.D- Standard Deviation Sharpe’s performce index gives a single value to be used for the performance ranking of various funds or portfolios. Sharpe index measures the risk premium of the portfolio relative to the total amount of risk in the portfolio. The risk premium is the difference
between the portfolio’s average rate of
return and the risk less rate of return. The standard deviation of the portfolio indicates the risk. Higher the value of sharpe ratio better the fund has performed. Sharpe ratio can be used to rank the desirability of funds or portfolios. The fund that has performed well comapred to other will be ranked first then the others.
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COMPETITORS OF SBI MUTUAL FUND Some of the main competitors of SBI Mutual Fund in Jaipur are as Follows: i. ICICI Mutual Fund
ii. Reliance Mutual Fund
iii. UTI Mutual Fund
iv. Kotak Mutual Fund
v. HDFC Mutual Fund
vi. LIC Mutual Fund
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VARIOUS INVESTMENT OPTIONS AVAILABLE TO THE INVESTORS AND THEIR RESPECTIVE DISADVANTAGES
Savings form an important part of the economy of any nation. With the savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents a plethora of avenues to the investors. Though certainly not the best or deepest of markets in the world, it has reasonable options for an ordinary man to invest his savings. The possible avenues for investment can be divided into following categories:
EQUITIES: Options available are secondary market (buying or selling shares in the stock exchanges) or the primary market (IPOs). These are generally classified as high risk high return asset.
FIXED INCOME INSTRUMENTS: This product class includes options such as Fixed Deposits, Debentures, Bonds, Preference shares etc. These investments are relatively safer but limited upside on returns.
FOREIGN CURRENCY INVESTMENTS: Wherever allowed by the govt. regulations, investors particularly in developing countries will prefer to keep their assets in foreign currency. Hard currencies like US Dollars or pound or Euro are relatively stable. The risk of currency depreciation in case of economic /political turmoil is high.
COMMODITIES: Investing in commodities on a large scale is typically done traders or speculators who generally are skilled. Normally in commodities high risk investors would invest for high returns in a short period. A proxy for this is the way retail households stock up commodities in anticipation of price increase, such as stocking sugar or wheat requirements for the full year.
ART/ANTIQUES: Art has proved to be an important investment avenue, particularly for the rich and wealthy. However, one has to be an expert in evaluating the value of art. Investment in paintings is illiquid and has a long gestation period, entails high risk but high rewards too. - 44 -
PROPERTY: This offers a limited option to investors as in India most people buy a house to live in. only the very rich buy property as an investment. Real estate is very illiquid investment option.
BULLION MARKET (GOLD): This is one avenue which has been a major area for investing in the Indian society. The importance of gold and silver has been prevalent through historic time. The importance of this market is due to the liquidity it provides.
BANKS: Considered as the safest of all options, banks have been the roots of the financial systems in India. Promoted as the means to social development, banks in India have indeed played an important role in the rural upliftment. For an ordinary person though, they have acted as the safest investment avenue wherein a person deposits money and earns interest on it. The two main modes of investment in banks, Savings accounts and fixed deposits have been effectively used by one and all. However, today the interest rate structure in the country is headed southwards, keeping in line with global trends. With the banks offering 9 percent in their fixed deposits for one year, the yields have come down substantially in recent times. Add to this, the inflationary pressures in economy and people have a position where the savings are not earning. The inflation is creeping up, to almost 8 percent at times, and this means that the value of money saved goes down instead of going up. This effectively mars any chance of gaining from the investments in banks.
POST OFFICE SCHEMES: Just like banks, post offices in India have a wide network. Spread across the nation, they offer financial assistance as well as serving the basic requirements of communication. Among all saving options, Post office schemes have been offering the highest rates. Added to it is the fact that the investments are safe with the department being a Government of India entity. So the two basic features, those of return safety and quantum of returns were being handsomely taken care of. Though certainly not the most efficient systems in terms of service standards and liquidity, these have still managed to attract the attention of small, retail investors. However, with the government announcing its intention of reducing the interest rates in small savings options, this avenue is expected to lose some of the investors.
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PUBLIC PROVIDENT FUNDS: Public Provident Funds act as options to save for the post retirement period for most people and have been considered good option largely due to the fact that returns were higher than most other options and also helped people gain from tax benefits under various sections. This option too is likely to lose some of its sheen on account of reduction in the rates offered. The options discussed above are essentially for the risk-averse, people who think of safety and then quantum of return, in that order. For the brave, it is dabbling in the stock market. Stock markets provide an option to invest in a high risk, high return game. While the potential return is much more than 10-11 percent any of the options discussed above can generally generate, the risk is undoubtedly of the highest order. But then, the general principle of encountering greater risks and uncertainty when one seeks higher returns holds true. However, as enticing as it might appear, people generally are clueless as to how the stock market functions and in the process can endanger the hard-earned money. For those who are not adept at understanding the stock market, the task of generating superior returns at similar levels of risk is arduous to say the least. This is where Mutual Funds come into picture. Mutual Funds are essentially investment vehicles where people with similar investment objective come together to pool their money.
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FACTORS TO BE CONSIDERED BEFORE SELECTING A MUTUAL FUND
1.
Making Risk- adjusted returns comparison. By doing this the investor will know whether the returns generated by the scheme have been adequately compensated for the extra risk undertaken by the scheme.
2.
The investor depending upon his risk appetite and preferences should sub-classify the schemes on the basis of the characteristics of the schemes, which may be defensive or aggressive in nature.
3.
Portfolio concentration is also an important factor to be considered. It is always advisable to choose a scheme, which has a well-diversified portfolio rather than a concentrated portfolio, as it carries lesser risk.
4.
Liquidity of the portfolio is also one of the critical parameters.
5.
The corpus size of the scheme is also of importance. A large corpus size firstly denotes investor‟s confidence in the scheme and its fund manger abilities over the years and, secondly it allows the fund manager to diversify the portfolio, which reduces the overall market risk.
6.
Other factors like turnover rates, low expense ratio, load structure etc of the schemes etc should also be considered before finally zeroing down on a scheme of your choice.
7.
The rankings undertaken by ICRA are an initiative to inform the investors- who does not have the time or the expertise to undertake the analysis on their own- about the relative performance of the schemes. It considers all important parameters to arrive at a comprehensive rank with a view to help investors decide the scheme which may suit their investment profile.
8.
Although much neglected, the due diligence in selection of the right mutual fund scheme is of utmost importance as an investor cannot move in and out of a particular scheme on a regular basis, because of the high costs involved, and investments made into a particular scheme should be looked on a long-term basis as a wealth creation tool. - 47 -
5 EASY STEPS TO INVEST IN MUTUAL FUNDS
Where to look for if you want to begin savings in Mutual Funds
Mutual funds are much like any other product, in that there are manufacturers who provide the product and there are dealers who sell them. Large banks to organized brokerage houses to Individual Financial agents get empanelled with Mutual Funds to provide advice and assistance to customers who want to buy units. Mutual funds units can now also be bought over the Internet. Contacting an Investment advisor in a bank or a brokerage house or an Independent Financial Advisor is the first step to gathering information.
1.
Evaluation: choosing the right mutual fund for you Each Mutual fund offers a variety of schemes to suit differing needs of investors. The Bank/ Brokerage house/ Individual Financial Advisor help you make the choice based on your needs. As an investor one may: a) For the short term or long term want to invest. b) Want regular income or growth. c) Want to target lower risk or higher returns. d) Be convinced of a particular sector and want to invest in it. Remember, just like a salesman in a gift shop, your investment advisor can help you the most if he knows what you are looking for. - 48 -
2.
Purchase After you have decided to save, you may have to decide among the various investment and withdrawal options that any fund offers to its investors. Most of these schemes also offer various options to customize your operation of the fund to your needs:
Systematic Investment Plan (SIP): Allows you to save a part of your income regularly. It is also used to reduce risk when investing in schemes targeting aggressive growth. Systematic Withdrawal Plan (SWP): Allows you to withdraw a part of your investment regularly. Used when you want to withdraw your investment for a specific regular payment, like insurance premium payments of monthly/quarterly frequency. Automatic debit: Saves the hassle of writing a cheque when making an investment. Your account is debited automatically for the amount invested. Automatic credit: The reverse of Automatic Debit. It saves the hassle of enchasing a cheque when withdrawing an investment. Your account is credited automatically with the amount withdrawn. Dividend plan: Allows you to get Tax-free dividends from your investment. (As per current Tax laws). Growth plan: Allows the income generated from investment to be ploughed back into the scheme. Used by investor targeting growth in their investment. Some funds carry an entry load, which is a percentage fee deducted from the amount invested before investment. Thus a 2.5% entry load will mean that if you invest Rs. 1 lakh in a Rs. 10 per unit IPO, instead of getting 10,000 units, you will be allotted 9,750 units. Check for presence of such loads and other conditions before investing. After deciding the choice of mutual fund, investment and withdrawal, you are ready to begin your savings. You need to now fill up an application form and attach a cheque of the value of your investment or mention your account number to have it automatically debited from your account. 3.
Post Purchase Monitoring Once you have invested in an ongoing fund, expect a period of two to three days before you receive an account statement on the address mentioned by you in your application form.
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Your account statement indicates your current holding in the scheme that you have invested. Please ensure that all your details have been correctly captured in account statement. Please point out any discrepancies to your nearest CAMS investor Service Centre or the Mutual Fund office. You can request an account statement any time by calling up your nearest CAMS/ Mutual fund offices usually mentioned on the back of the account statement. The transaction slip at the end of the account statement can be used for additional purchases, redemptions or to intimate the mutual fund on any change in bank mandates/address. The NAVs of all the open-ended schemes are published at the fund's website, financial newspapers and AMFI (Association of Mutual Funds) web-site www.amfiindia.com.
4.
Exit While you should periodically monitor the performance of your investments, we recommend you do not get swayed by short term considerations in deciding your exit. If you have invested in a long term fund, you can spare yourself undue worries by not monitoring the NAV every day or week. Checking the performance once in a while along with your advisor should be fine. Most mutual funds will provide you with a toll free number that works from 9 am to 5 am and a website. For specific assistance you can also use your financial advisors help.
5.
Redemption/ Withdrawal Just submit your completed transaction within the transacted time for the scheme that you are invested in and deposit the same at the nearest CAMS Investor Service Centre or the office of the fund. You can either get a direct credit to your bank account or you can generally collect the cheque at the CAMS Investor Service Centre/ AMC offices. If you fail to do so then the cheque is couriered to the address mentioned in your account statement. Most funds take 1-3 days to credit your account with your redemption proceeds. In case an exit load is applicable to your withdrawal and you have redeemed a fixed amount, an additional number of units equivalent to the exit load amount will be liquidated from your investment. You can check this amount with the mentioned exit load when you get the account statement using a simple calculator.
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Merits and Demerits of mutual funds Merits of Mutual Funds 1. Professional Investment Management. By pooling the funds of thousands of investors, mutual funds provide full-time, high-level professional management that few individual investors can afford to obtain independently. Such management is vital to achieving results in today's complex markets. Your fund managers' interests are tied to yours, because their compensation is based not on sales commissions, but on how well the fund performs. These managers have instantaneous access to crucial market information and are able to execute trades on the largest and most costeffective scale. In short, managing investments is a full-time job for professionals.
2. Diversification. Mutual funds invest in a broad range of securities. This limits investment risk by reducing the effect of a possible decline in the value of any one security. Mutual fund shareowners can benefit from diversification techniques usually available only to investors wealthy enough to buy significant positions in a wide variety of securities.
3. Low Cost. If you tried to create your own diversified portfolio of 50 stocks, you'd need at least $100,000 and you'd pay thousands of dollars in commissions to assemble your portfolio. A mutual fund lets you participate in a diversified portfolio for as little as $1,000, and sometimes less. And if you buy a no-load fund, you pay no sales charges to own them.
4. Convenience and Flexibility. You own just one security rather than many, yet enjoy the benefits of a diversified portfolio and a wide range of services. Fund managers decide what securities to trade, clip the bond coupons, collect the interest payments and see that your dividends on portfolio securities are received and your rights exercised. It's easy to purchase and redeem mutual fund shares, - 51 -
either directly online or with a phone call.
5. Quick, Personalized Service. Most funds now offer extensive websites with a host of shareholder services for immediate access to information about your fund account. Or a phone call puts you in touch with a trained investment specialist at a mutual fund company who can provide information you can use to make your own investment choices, assist you with buying and selling your fund shares, and answer questions about your account status.
6. Ease of Investing You may open or add to your account and conduct transactions or business with the fund by mail, telephone or bank wire. You can even arrange for automatic monthly investments by authorizing electronic fund transfers from your checking account in any amount and on a date you choose. Also, many of the companies featured at this site allow account transactions online.
7. Total Liquidity, Easy Withdrawal You can easily redeem your shares anytime you need cash by letter, telephone, bank wire or check, depending on the fund. Your proceeds are usually available within a day or two.
8. Life Cycle Planning With no-load mutual funds, you can link your investment plans to future individual and family needs -- and make changes as your life cycles change. You can invest in growth funds for future college tuition needs, then move to income funds for retirement, and adjust your investments as your needs change throughout your life. With no-load funds, there are no commissions to pay when you change your investments.
9. Market Cycle Planning For investors who understand how to actively manage their portfolio, mutual fund investments can be moved as market conditions change. You can place your funds in equities when the market is on the upswing and move into money market funds on the downswing or take any number of steps to ensure that your investments are meeting your needs in changing market climates. A word of caution: since it is impossible to predict what the market will do at any point in time, staying on course with a long-term, diversified investment view is recommended for most investors.
10. Investor Information - 52 -
Shareholders receive regular reports from the funds, including details of transactions on a year-to-date basis. The current net asset value of your shares (the price at which you may purchase or redeem them) appears in the mutual fund price listings of daily newspapers. You can also obtain pricing and performance results for the all mutual funds at this site, or it can be obtained by phone from the fund.
11. Periodic Withdrawals If you want steady monthly income, many funds allow you to arrange for monthly fixed checks to be sent to you, first by distributing some or all of the income and then, if necessary, by dipping into your principal.
12. Dividend Options You can receive all dividend payments in cash. Or you can have them reinvested in the fund free of charge, in which case the dividends are automatically compounded. This can make a significant contribution to your long-term investment results. With some funds you can elect to have your dividends from income paid in cash and your capital gains distributions reinvested.
13. Automatic Direct Deposit You can usually arrange to have regular, third-party payments -- such as Social Security or pension checks -- deposited directly into your fund account. This puts your money to work immediately, without waiting to clear your checking account, and it saves you from worrying about checks being lost in the mail.
14. Recordkeeping Service With your own portfolio of stocks and bonds, you would have to do your own recordkeeping of purchases, sales, dividends, interest, short-term and long-term gains and losses. Mutual funds provide confirmation of your transactions and necessary tax forms to help you keep track of your investments and tax reporting.
15. Safekeeping When you own shares in a mutual fund, you own securities in many companies without having to worry about keeping stock certificates in safe deposit boxes or sending them by registered mail. You don't even have to worry about handling the mutual fund stock certificates; the fund maintains your account on its books and sends you periodic statements keeping track of all your transactions.
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16Retirement and College Plans Mutual funds are well suited to Individual Retirement Accounts and most funds offer IRAapproved prototype and master plans for individual retirement accounts (IRAs) and Keogh, 403(b), SEP-IRA and 401(k) retirement plans. Funds also make it easy to invest -- for college, children or other long-term goals. Many offer special investment products or programs tailored specifically for investments for children and college.
17. Online Services The internet provides a fast, convenient way for investors to access financial information. A host of services are available to the online investor including direct access to no-load companies.
18. Sweep Accounts With many funds, if you choose not to reinvest your stock or bond fund dividends, you can arrange to have them swept into your money market fund automatically. You get all the advantages of both accounts with no extra effort.
19. Asset Management Accounts These master accounts, available from many of the larger fund groups, enable you to manage all your financial service needs under a single umbrella from unlimited check writing and automatic bill paying to discount brokerage and credit card accounts.
20. Margin Some mutual fund shares are marginable. You may buy them on margin or use them as collateral to borrow money from your bank or broker. Call your fund company for details.
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Demerits of Mutual Funds: 1.
Professional Management.
Did you notice how we qualified the advantage of professional management with the word "theoretically"? Many investors debate whether or not the so-called professionals are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still takes his/her cut. We'll talk about this in detail in a later section.
2. Costs. Mutual funds don't exist solely to make your life easier - all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial we have devoted an entire section to the subject.
3. Dilution. It's possible to have too much diversification. Because funds have small holdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.
4. Taxes. When making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gains tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.
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Systematic Investment Plan What is an SIP? SIP, also known as Regular Savings Plan (RSP) in some countries, allows you to invest a fixed amount at pre defined frequencies in mutual funds. A bank / post office recurring deposit is the only other investment option that is similar to SIP. There are basically two options that an investor could take when they are making investments, one would be to invest lump sum into mutual funds and the other would be to invest using an SIP. The following are some of the benefits associated with investing in an SIP: SIP is actually a Systematic Investment Plan of investing in Mutual Fund. It is specially designed for those who aim to build wealth over a long period and want a better future for him and their dependants. The investment in a Mutual fund can be done in two ways. First way is one time payment i.e. making payment to a fund at once and gets the units of the fund as per the Net Asset Value (NAV) of the fund on that day. A person wishes to invest in a fund Rs. 24,000/- . On the day of Investment, the NAV of the fund was Rs. 10/-. He gets 2400 units @ Rs. 10/- per unit. The other way of investment is making payment to the fund periodically, which is termed as Mutual Fund SIP. When you commit to invest a fixed amount monthly in a fund, it is called as Systematic Investment. It is actually beneficial for those investors who wish to invest a large amount in a fund and wishes to create a large chunk of wealth for long term but due to financial constraints are able to do so. The SIP provides them a way to invest in the fund of their choice in installments. Eg. A person wishes to invest Rs. 24000/- in a fund but due to other obligations, it is not possible for him to invest such an amount in a fund. He takes the SIP route and contributes to the fund Rs. 2000/- monthly for a year. At the end of the year, he‟ll have invested Rs. 24,000/- in the fund. When the NAV is high, he will get the fewer units and when the NAV is low, he‟ll get the more units. So, he‟ll get the benefit of averaging through the SIP route. The NAV in the first month was Rs. 10/-, he‟ll get 200 units in the first month The NAV in the second month was Rs. 9.50/-, he‟ll get 210.52 units in second month The NAV for the following month was Rs. 10, he‟ll get 200 units in the next month So, at the end of the year he may get more units as compared to the units he‟ll get through single investment. - 56 -
Systematic investment plans are a systematic and disciplined approach to investment and wealth creation. Instead of making a large investment at one time, in SIP you can invest small sums at regular intervals thus creating a habit of regular savings. If you are a big spender and find your expenditures are more than your earnings then go for SIP mutual funds. This will force you to spend at least some part of your earnings every month. Mutual funds are a very safe way of investing money and SIP mutual funds are even better. These are perfect solutions to most of us who cannot afford to make a large investment at one go. This is a good way to save for your child's education, marriage or comfortable retirement for you and your spouse. The lowest start up investment amount is 500 rupees per month which is affordable by most people.
State Bank of India is one of the most trusted public sector banks in India. If you are a beginner in investment then SBI SIP plans may be good option for you. Here are some SBI SIP mutual funds available. Magnum Equity Fund - Minimum application of thousand rupees is needed and SIP is Rs. 500/month for 12 months. Magnum Tax Gain - Minimum application amount is Rs 500 and minimum SIP amount is Rs.500/month for12 months Magnum Index Fund - Minimum SIP amount is Rs.500/month for12 months Magnum Sector Funds Umbrella - Minimum investment amount is Rs. 2000 per sector and minimum SIP amount is Rs.500/month for12 months Magnum Global Fund - Minimum SIP amount is Rs.500/month for12 months Magnum Midcap Fund - Minimum SIP amount is Rs.500/month for12 months Magnum Mutlicap Fund - Minimum SIP amount is Rs.500/month for12 months Blue Chip Fund - Minimum investment - Rs. 5000 and in multiples of Rs. 1000 SBI mutual funds, has launched equity-based Micro Systematic Investment Plan (Micro SIP) aimed at getting in low income households in rural and semi-urban areas to benefit from the long-term investment in „Equity‟ as an asset class. This plan will be called SBI Chota SIP. For monthly investment as low as Rs. 100, investors from low-income group as well as investors who intend to invest small portion of their savings would now be able to participate in capital markets and be a part of India growth story.
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Micro SIP facility will be available in respect of four equity diversified schemes of SBI Mutual fund with effect from April 15, 2009. They are Magnum Balanced Fund, Magnum Multiplier Plus Scheme 93, Magnum Sector Funds Umbrella-Contra fund, and SBI Blue Chip fund. The minimum investment amount will be Rs.100 and multiples of Rs.50/- thereof. The minimum redemption amount will be Rs.500/-. Minimum tenure of SIP will be 5 years. Systematic Investment Plan is the best option for retail investors to invest in Mutual Funds. SBI Mutual Fund is one of the best performing mutual fund company in India. The investors feel more comfortable in SBI SIP plan. You can make a SIP plans comparison and find the best SBI SIP fund. There are many reasons for the investors feeling that SBI SIP fund is the best systematic investment plan in india. Most of the schemes under SBI Systematic investment plan has been generating returns more consistently. If you check the returns for most of the SIP plans, they are generating consistent returns for the past 6 months, 1 year and 3 years. This would prove that the SBI schemes are performing well than the funds launched by the other companies. Some of the best performing SBI SIP schemes are:
SBI Magnum Sector Funds Umbrella - Contra Fund
SBI Magnum Sector Funds Umbrella - Emerging Fund
SBI Magnum Sector Funds Umbrella - IT Fund
SBI Magnum Midcap Fund
SBI Magnum Taxgain Scheme 93
The minimum amount that has to be paid every month is Rs 500. Recently SBI has launched another fund "SBI Chotta SIP Scheme" in which the minimum investment amount is Rs 100. This scheme was introduced to encourage more retail participation. The low income people will be more benefited from this scheme as this type of investment is similar to investing in a recurring deposit and they can get the benefits of the stock markets.
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SBI Chota SIP: Recently SBI has launched micro systematic investment plan called "SBI Chota SIP", where you can make a minimum payment of Rs 100 every month. This helps the low income people in the rural areas to invest their money in the equity. There is also SIP auto debit facility for this plan. If you have opted for this option, then your monthly installment will be withdrawn automatically from your bank savings account each month. You can get the sip application form from the various SBI Mutual fund offices available all over India or in the designated state bank of india branches. You have to fill the form and submit a PAN Card copy along with the application form. If you apply for a sip auto debit facility, you should also fill a authorization form for the banks. Once the application form is processed, you will get a statement indicating the number of units allotted for you and also the price at which it is allotted. This statement you will get every month when the monthly payments are sent from the bank and credited to the fund account. The price at which the new units are allotted will change depending on the latest NAV.
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RESEARCH METHODOLOGY
A Market Research was performed to find out the actuality from the investors about what they think about the various Investment Options. It was done to find out the investment patterns and behavior of the people i.e. how much they invest, what are the reasons behind their investments, and where they invest. Thus a questionnaire was devised to fetch the above mentioned information from the investors. Most of the questions in the questionnaires were objective in nature which helped the people to fill it with utmost ease. The sample size for the research was 100, which included all the classes of people aged 18 and above. The questionnaire devised for the market research is attached to the report as Annexure I. Each question of the questionnaire is discussed on a separate page and the results are explained with the help of graphs.
Costs associated: Expenses: AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries, advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges Rs1.50 for every Rs100 in assets under management. A fund's expense ratio is typically to the size of the funds under management and not to the returns earned. Normally, the costs of running a fund grow slower than the growth in the fund size - so, the more assets in the fund, the lower should be its expense ratio
Loads: Entry Load/Front-End Load (0-2.25%)- its the commission charged at the time of buying the fund to cover the cost of selling, processing etc. Exit Load/Back- End Load (0.25-2.25%)- it is the commission or charged paid when an investor exits from a mutual fund, it is imposed to discourage withdrawals. It may reduce to zero with increase in holding period. Measuring and evaluating mutual funds performance: Every investor investing in the mutual funds is driven by the motto of either wealth creation or wealth increment or both. Therefore it‟s very necessary to continuously evaluate the funds‟ performance with the help of factsheets and newsletters, websites, newspapers and - 60 -
professional advisors like SBI mutual fund services. If the investors ignore the evaluation of funds‟ performance then he can loose hold of it any time. In this ever-changing industry, he can face any of the following problems: 1. Variation in the funds‟ performance due to change in its management/ objective. 2. The funds‟ performance can slip in comparison to similar funds. 3. There may be an increase in the various costs associated with the fund. 4 .Beta, a technical measure of the risk associated may also surge. 5. The funds‟ ratings may go down in the various lists published by independent rating agencies. 6 .It can merge into another fund or could be acquired by another fund house.
Performance measures: Equity funds: the performance of equity funds can be measured on the basis of: NAV Growth, Total Return; Total Return with Reinvestment at NAV, Annualized Returns and Distributions, Computing Total Return (Per Share Income and Expenses, Per Share Capital Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio Turnover Rate, Fund Size, Transaction Costs, Cash Flow, Leverage.
Debt fund: likewise the performance of debt funds can be measured on the basis of: Peer Group Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs, besides NAV Growth, Total Return and Expense Ratio.
Liquid funds: the performance of the highly volatile liquid funds can be measured on the basis of: Fund Yield, besides NAV Growth, Total Return and Expense Ratio.
Concept of benchmarking for performance evaluation:
Every fund sets its benchmark according to its investment objective. The funds performance is measured in comparison with the benchmark. If the fund generates a greater return than the benchmark then it is said that the fund has outperformed benchmark , if it is equal to benchmark then the correlation between them is exactly 1. And if in case the return is lower than the benchmark then the fund is said to be underperformed.
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Some of the benchmarks are : 1. Equity funds: market indices such as S&P CNX nifty, BSE100, BSE200, BSE-PSU, BSE 500 index, BSE bankex, and other sectoral indices. 2. Debt funds: Interest Rates on Alternative Investments as Benchmarks, I-Bex Total Return Index, JPM T-Bill Index Post-Tax Returns on Bank Deposits versus Debt Funds. 3. Liquid funds: Short Term Government Instruments‟ Interest Rates as Benchmarks, JPM TBill Index To measure the fund‟s performance, the comparisons are usually done with: I)with a market index. ii) Funds from the same peer group. iii) Other similar products in which investors invest their funds.
Financial planning for investors( ref. to mutual funds): Investors are required to go for financial planning before making investments in any mutual fund. The objective of financial planning is to ensure that the right amount of money is available at the right time to the investor to be able to meet his financial goals. It is more than mere tax planning. Steps in financial planning are: Asset allocation. Selection of fund. Studying the features of a scheme. In case of mutual funds, financial planning is concerned only with broad asset allocation, leaving the actual allocation of securities and their management to fund managers. A fund manager has to closely follow the objectives stated in the offer document, because financial plans of users are chosen using these objectives.
Why has it become one of the largest financial instruments? If we take a look at the recent scenario in the Indian financial market then we can find the market flooded with a variety of investment options which includes mutual funds, equities, fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life insurance, gold, real estate etc. all these investment options could be judged on the basis of various parameters such as- return, safety convenience, volatility and liquidity. measuring
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these
investment options on the basis of the mentioned parameters,
we get this in a tabular form: Return
Safety
Volatility
Liquidity
Convenienc e
Equity
High
Low
High
High
Moderate
Bonds
Moderate
High
Moderate
Moderate
High
Co.Debenture
Moderate
Moderate
Moderate
Low
Low
Co. FDs
Moderate
Low
Low
Low
Moderate
BankDeposits
Low
High
Low
High
High
PPF
Moderate
High
Low
Moderate
High
LifeInsurance
Low
High
Low
Low
Moderate
Gold
Moderate
High
Moderate
Moderate
Gold
Real Estate
High
Moderate
High
Low
Low
Mutual Funds
High
High
Moderate
High
High
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RESEARCH METHODOLOGY table Universe
JAIPUR SOUTH Area,JAIPUR (JAIPUR SOUTH BRANCH,HAWA SADAK BRANCH,INCOME TAX BRANCH WITH A.G.OFFICE)
Sample size
100 customer
Sample unit
Customers visiting at SBI bank
Sampling technique
Convenience sampling
technique Research design
Descriptive
Collection of data:
Primary data through Questionnaires and interaction with customers
Secondary data
Internet.
Duration
45 Days
Research report Objective of research; The main objective of this project is concerned with getting the opinion of people regarding mutual funds and what they feel about availing the services of financial advisors. I have tried to explore the general opinion about mutual funds. It also covers why/ why not investors are availing the services of financial advisors. Along with it a brief introduction to India‟s largest financial intermediary, SBI has been given and it is shown that how they operate in mutual fund dept. - 64 -
Scope of the study: The research was carried on in Jaipur. It is restricted to southern Jaipur. I have visited various branches of SBI bank in the southern region. Data sources: Research is totally based on primary data. Secondary data can be used only for the reference. Research has been done by primary data collection, and primary data has been collected by interacting with various people. The secondary data has been collected through various journals and websites and some special publications of SBI .
Sampling: Sampling procedure: The sample is selected in a random way, irrespective of them being investor or not or availing the services or not. It was collected through mails and personal visits to the known persons, by formal and informal talks and through filling up the questionnaire prepared. The data has been analyzed by using the measures of central tendencies like mean, median, mode. The group has been selected and the analysis has been done on the basis statistical tools available. Sample size: The sample size of my project is limited to 100 only. Out of which only 75 people attempted all the questions. Other 25 not investing in MFs attempted only 2 questions. Sample design: Data has been presented with the help of bar graph, pie charts, line graphs etc. Limitation of the study: Time limitation. Research has been done only at southern Jaipur. Some of the persons were not so responsive.
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Possibility of error in data collection. Possibility of error in analysis of data due to small sample size.
ANALYSIS & INTERPRETATION OF THE DATA 1. (a) Age distribution of the Investors of Jaipur south
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Investors invested in Mutual Fund
25
20 20
15 15
13
12 10
12
8
5
0
<=30
31-35 36-40 41-45 46-50
Age group of the Investors b). Occupation of the investors of Jaipur south
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>50
No. of Investors
35 30 30
24 25
20
20 15 10 2
5
2
0 Govt. Service
Pvt. Service
Business Agriculture
Occupation of the customers
(c). Monthly Family Income of the
- 68 -
Others
Investors of Jaipur south
45 41
No. of Investors
40 35 34 30 28
25 20 15 10 7 5
3
0
<=15
15-20
20-30
30-40
>40
Income Group of the Investorsn (Rs. in Th.)
- 69 -
(2) Investors invested in different kind of investments.
- 70 -
Chart Title
32
Real Estate
15
Gold/Silver
25
Shares/Deb entures
37
Post Office(NSC)
mutual funds
70
Insurance
76
Fixed Deposits
74
Saving A/c
97
Linear (Real Estate)
0
50 100 No. of respondent
3. Preference of factors while investing
- 71 -
150
18
trust
32
high return
30
low risk
liquidity
20
0
10
- 72 -
20
30
40
4. Awareness about Mutual Fund and its Operations
25% 75%
Yes
No
- 73 -
5. Source of information for customers about Mutual Fund
- 74 -
40 34
No. of Respondents
35 30 25 20
17
14 15 10 10 5 0 Advertisement Peer Group
Bank
Source of Information
6. Investors invested in Mutual Fund
- 75 -
Financial Advisors
No 30%
Yes 70%
7. Reason for not invested in Mutual Fund
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30
NO. OF RESPONDENT
25
24
20
15
10
5
4 2
0 Not Aware
Higher Risk
Not Any
REASONS
8. Preference of Investors for future investment in Mutual Fund
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Others
18
Kotak
30
Name of AMC
ICICI Prudential
40
Reliance
41
HDFC
17
UTI
22
SBIMF
38 0
10
20
30
No. of Investors
9.
Reason for invested in SBIMF
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40
50
40 36 35
NO. OF RESPONDENT
30
25
20 16 15
13
10
5
0 Associated with SBI
Better Return Agents Advice
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10. Channel Preferred by the Investors for Mutual Fund Investment
45 42
NO. OF RESPONDENT
40
35
30
25
20 17 15 11 10
5
0 Financial Advisor
Bank
AMC CHANNELS
- 80 -
11. Mode of Investment Preferred by the Investors
26 44
One time Investment SIP
- 81 -
12. Preferred Portfolios by the Investors
- 82 -
35
30
NO. OF RESPONDENT
25
20
15
10
5
0
Equity
Debt
Findings - 83 -
Balance
• In jaipur south, investors in the Age Group of 36-40 years were more in numbers. The second most Investors were in the age group of 41-45 years and the least were in the age group of below 30 years.
• In Occupation group most of the Investors were Govt. employees, the second most Investors were Private employees and the least were associated with industry.
• In family Income group, between Rs. 20,000- 30,000 were more in numbers, the second most were in the Income group of more than Rs.30,000 and the least were in the group of below Rs. 10,000.
• About all the Respondents had a Saving A/c in Bank, 76% Invested in Fixed Deposits, Only 70% Respondents invested in Mutual fund.
• Mostly Respondents preferred High Return while investment, the second most preferred Low Risk then liquidity and the least preferred Trust.
• Only 75% Respondents were aware about Mutual fund and its operations
For Future investment the maximum Respondents preferred Reliance Mutual Fund, the second most preferred ICICI Prudential, SBIMF has been preferred after them. •
Among 100 Respondents only 70% had invested in Mutual Fund.
- 84 -
• Out of 70 investors of SBIMF 36% have invested due to its association with the Brand SBI,13% Invested because of Advisor‟s Advice and 16% due to better return. • 42% Investors preferred to Invest through Financial Advisors, 17% through AMC (means Direct Investment) and 11% through Bank. •
44% preferred One Time Investment and 26% preferred SIP out of both
type of Mode of Investment. •
The most preferred Portfolio was Equity, the second most was Balance
(mixture of both equity and debt), and the least preferred Portfolio was Debt portfolio.Recommendations. • The most vital problem spotted is of ignorance. Investors should be made aware of the benefits. Nobody will invest until and unless he is fully convinced. • Mutual Fund Company needs to give the training of the Individual Financial Advisors about the Fund/Scheme and its objective, because they are the main source to influence the investors. • Younger people aged under 35 will be a key new customer group into the future, so making greater efforts with younger customers who show some interest in investing should pay off. • Systematic Investment Plan (SIP) is one the innovative products launched by Assets Management companies very recently in the industry. SIP is easy for monthly salaried person as it provides the facility of do the investment interest in investing should pay off.
SWOT ANALYSIS - 85 -
STRENGTHS:1.) Brand Name:
The biggest strength is the tag of SBI is going to be the largest banking group of finance industries.
1. Compatible Price: Prices of different schemes of SBI Mutual Funds are much more compatible than others.
2. Diversified Schemes: We have diversified schemes which are an exception case of SBI Mutual Fund.
3. Less Risk: Our debt schemes are 100% free form market risk. Even as our portfolio is that diversified so equities are also less risky than others.
1. Easy procedures of redemption & registration too: We have open ended schemes so Mutual funds are easily redeemable. WEAKNESS:1. Prone to Market Risk: Mutual Funds depend on overall macro economic condition and market scenario.
2. Tough Competitions: There is a very tough competition because of large number of Asset Management Companies.
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OPPORTUNITIES:1. Hoarding: Most of the Indians have black money that too in huge amount i.e. the do not have money in banks, so approaching them is beneficial.
2. Indian Capital Market is Growing: So more & more new investors are interested in investments.
3. Tailor Made Products: We have tailor made products like sector specified schemes & even diversified schemes.
4. Branch Expansion: Large no. of branches are opening day by day and even we are traping the countries having almost same type of socio-economic condition & even same culture etc.
THREATS:-
1. Tough Competition:-As there are so many mutual fund companies having almost same kind of schemes, so it‟s tough to compete with. 3. Unawareness: Major % of population is not aware of mutual funds, so it‟s hard 4. to convince people.
5. Changing Scenario: Our market scenario is changing day by day i.e. our market is fluctuating, so this makes investor hard to invest
- 87 -
CONCLUSION
The project that I undertook in my MUTUAL FUND provided me a good experience of Investment Avenues like Mutual Funds, Insurance, Fixed Deposits and related activities. It was a good experience for me as it helped me enhance my knowledge as well as gave a good industry exposure for the period which would definitely prove to be very useful at the time of placements. The complete project helped me gain knowledge and at the same time it was very beneficial for the company.
The study performed using the historical data will help the company in two ways. Firstly, it would let the company know which of the funds under the given category works well and which does not. It can design certain strategies for the funds which are still underperforming and are in their nascent stages. Secondly, it would help the organization, the financial consultants and the marketing team to provide a strategy for the investors who can now easily decide where to invest and where not to.
The Market Research performed gave an insight of the actual investors, their investment behavior and their investment trends which would again help the company to make correct strategies to attract more customers and provide them with what they are comfortable with.
Summing up, I am thankful to the Company and the Project that gave me an opportunity where I could learn new things, enhance my knowledge, gain some industry exposure and at the same time, do something that could be beneficial for the company and the investors.
RECOMMENDATIONS AND SUGGESTIONS - 88 -
Suggestions included:
To regulate entry and exit loads effectively as it creates a lot of confusion during actual settlement of costs and bills.
To better operations management so as to reduce the time lag and improve customer feedback.
To improve market penetration by targeting not only metros but mini-metros and smaller towns more effectively.
To come up with more innovative schemes and products so as to expand over the largest customer base as possible.
The most vital problem spotted is of ignorance. Investors should be made aware of the benefits. Nobody will invest until and unless he is fully convinced. Investors should be made to realize that ignorance is no longer bliss and what they are losing by not investing.
Mutual funds offer a lot of benefit which no other single option could offer. But most of the people are not even aware of what actually a mutual fund is? They only see it as just another investment option. So the advisors should try to change their mindsets. The advisors should target for more and more young investors. Young investors as well as persons at the height of their career would like to go for advisors due to lack of expertise and time.
Mutual Fund Company needs to give the training of the Individual Financial Advisors about the Fund/Scheme and its objective, because they are the main source to influence the investors. - 89 -
Before making any investment Financial Advisors should first enquire about the risk tolerance of the investors/customers, their need and time (how long they want to invest). By considering these three things they can take the customers into consideration.
Younger people aged under 35 will be a key new customer group into the future, so making greater efforts with younger customers who show some interest in investing should pay off.
Customers with graduate level education are easier to sell to and there is a large untapped market there. To succeed however, advisors must provide sound advice and high quality.
Systematic Investment Plan (SIP) is one the innovative products launched by Assets Management companies very recently in the industry. SIP is easy for monthly salaried person as it provides the facility of do the investment in EMI. Though most of the prospects and potential investors are not aware about the SIP. There is a large scope for the companies to tap the salaried persons.
BIBLIOGRAPHY
- 90 -
Consulting various reference points on the aforementioned topics became pertinent. A list of such references is provided as follows:
References:
direct interaction with bank customers brochures of product offerings of SBI MUTUL FUND. factsheets of SBIMF and other AMC‟s company database for the list of investors various investment journals C.R.Kothari; Research Methodology www.SBIMF.com www.amfiindia.com www.mutualfundsindia.com www.valueresearchonline.com www.amfiindia.com www.bseindia.com www.nseindia.com www.investopedia.com www.researchonline.com
QUESTIONNAIRE A study of preferences of the investors for investment in mutual funds.
- 91 -
1. Personal Details: (a). Name:(b). Add: -
Phone:-
(c). Age:-
(d). Qualification:Graduation/PG
Under Graduate
Others
(e). Occupation. Pl tick (√) Govt. Ser
Pvt. Ser
Business
Agriculture
Others
(g). What is your monthly family income approximately? Pl tick (√). Up to Rs.15,000
Rs. 15,001 to 10000
Rs. 20,001 to 30,000
Rs.30,001 to 40,000
Rs. 40,001 and above
2. What kind of investments you have made so far? Pl tick (√). All applicable. a. Saving account e. Post Office-NSC, etc
b. Fixed deposits f. Shares/Debentures
c. Insurance g. Gold/ Silver
d. Mutual Fund h. Real Estate
3. While investing your money, which factor will you prefer? . (a) Liquidity
(b) Low Risk
(c) High Return
(d) Trust
4. Are you aware about Mutual Funds and their operations? Pl tick (√).
5. If yes, how did you know about Mutual Fund?
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Yes
No
a. Advertisement
b. Peer Group
c. Banks
d. Financial Advisors
6. Have you ever invested in Mutual Fund? Pl tick (√).
Yes
No
7. If not invested in Mutual Fund then why? (a) Not aware of MF (b) Higher risk (c) Not any specific reason
8. If yes, in which Mutual Fund you have invested? Pl. tick (√). All applicable. a. SBIMF
b. UTI
c. HDFC
d. Reliance
e. Kotak
f. Other. specify
9. If invested in SBIMF, you do so because (Pl. tick (√), all applicable). a. SBIMF is associated with State Bank of India. b. They have a record of giving good returns year after year. c. Agent‟ Advice
10. If NOT invested in SBIMF, you do so because (Pl. tick (√) all applicable). a. You are not aware of SBIMF. b. SBIMF gives less return compared to the others. c. Agent‟ Advice
11. When you plan to invest your money in asset management co. which AMC will you prefer?
Assets Management Co. a. SBIMF b. UTI c. Reliance d. HDFC e. Kotak f. ICICI - 93 -
12. Which Channel will you prefer while investing in Mutual Fund? (a) Financial Advisor
(b) Bank
(c) AMC
13. When you invest in Mutual Funds which mode of investment will you prefer? Pl. tick (√). a. One Time Investment
b. Systematic Investment Plan (SIP)
14. When you want to invest which type of funds would you choose? a. Having only debt portfolio
b. Having debt & equity portfolio.
c. Only equity portfolio.
15. How would you like to receive the returns every year? Pl. tick (√). a. Dividend payout
b. Dividend reinvestment
c. Growth in NAV
16. Instead of general Mutual Funds, would you like to invest in sectorial funds? Please tick (√). Yes No
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