S.No.
I
TABLE OF CONTENT
CHAPTER-1 INTRODUCTION OBJECTIVES RESEARCH METHODOLOGY LIMITATIONS
II
31-38 39-46
CHAPTER-4 DATA ANALYSIS & INTERPRETATION FINDINGS
V
72-74 75-76
CHAPTER- 6 BIBLIOGRAPHY
VI
47-70 71
CHAPTER-5 SUMMARY& CONCLUSIONS SUGGESTIONS
VI
12-30
CHAPTER-3 INDUSTRY PROFILE COMPANY PROFILE
IV
5-8 9 10 11
CHAPTER-2 REVIEW OF LITERATURE
III
PAGE NO.
77-78
CHAPTER- 7 ANNEXURE
79-82
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INTRODUCTION Investment can be defined as an item of value purchased for income or capital appreciation. Investments are made to achieve a specific objective and savings are made to meet an unforeseen event. There are various avenues of investments in accordance with individual preferences. Investments are made in different asset classes depending on an individual’s risk and return characteristics Investment choices are physical assets and financial assets. Gold and Real estates are examples of physical assets, which have a physical form to them. There is a strong preference for these assets, as these assets can be purchased with cash and held for a long term. The obvious disadvantages with physical assets are the risks of loss and theft, lower levels of return; illiquid secondary markets; and adhoc valuations and transactions. Financial assets are securities, which are certificates embodying a financial contract between parties. Bonds, Equity shares, Deposits and Insurance policies are some of the examples of financial assets. In financial assets investors only hold the proof of their investments in the form of a certificate or account. These products are usually liquid, transferable and in most cases, stored electronically with high degree of safety. But a minimum amount of cash is always kept in hand for transactions and contingencies. To face the contingencies and unexpected events the insurance came into existence. Another avenue of investment is mutual funds. It is created when investors put their money together. It is therefore a pool of the investor’s funds. The most important characteristics of a mutual fund is that the contributors and the beneficiaries of the fund are the same class of people, namely the investors. The term mutual means that investors contribute to the pool, and also benefit from the pool. There are no other claimants to the funds. The pool of funds held mutually by investors is the mutual fund. 3
A mutual fund pools the money of people with similar investment goals. The money in turn is invested in various securities depending on the objectives of the mutual fund scheme, and the profits (or loss) are shared among investors in proportion to their investments. Mutual fund schemes are usually open-ended (perpetually open for investments and redemptions) or closed end (with a fixed term). A mutual fund scheme issues units that are normally priced at Rs.10 during the initial offer. Thus, the number of units you own as against the total number of units issued by the mutual fund scheme determines your share in the profits or loss of a scheme. In the case of open-end schemes, units can be purchased from or sold back to the fund at a Net Asset Value (NAV) based price on all business days. The NAV is the actual value of a unit of the fund on a given day. Thus, when you invest in a mutual fund scheme, you normally get an account statement mentioning the number of units that have been allotted to you and the NAV based price at which the units have been allotted. The account statement is similar to your bank statement. Mutual funds invest basically in three types of asset classes: Stocks: Stocks represent ownership or equity in a company, popularly known as shares. Bonds: These represent debt from companies, financial institutions or Government agencies.
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Money market instruments: These include short-term debt instruments such as treasury bills, certificate of deposits and inter-bank call money. A mutual fund’s business is to invest the funds thus collected, according to the wishes of the investors who created the pool. In many markets these wishes are articulated as investment mandates. Analysis of The perception towards these mutual funds is done here in this project. Even what factors the investors look before investing can also be observed.
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OBJECTIVES
• To study the level of awareness of mutual funds • To analyse the perception of investors towards mutual funds. • To study the factors considered by the investors and those which ultimately influence him while investing. • To determine the type of mutual fund investor prefers the most.
RESEARCH METHODOLOGY
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Primary data is data that is tailored to a company’s needs, by customizing true approach focus groups, survey, field-tests, interviews or observation. Primary data delivers more specific results than secondary research, which is an especially important consideration when one launching a new product or service. In addition, primary research is usually based on statistical methodologies. The tiny sample can give an accurate representation of a particular market. Secondary data is based on information gleaned from studies previously performed by government agencies, chambers of commerce, trade associations and other organizations. This includes census bureau information. Much kind of this information can be found in libraries or on the web, but looks and business publications, as well as magazines and newspapers. Analysis of individual investment patterns can be done by this primary data analysis. In this project I have done a survey with a questionnaire with a sample size of 100 individuals who are employees and tax payees. The questionnaire includes the economic status of the individuals, age group, marital status, investments made etc. As Karvy securities ltd. distributes several investment products like mutual funds, insurance, shares, debentures etc. This survey will help them in developing marketing strategies for their investment products.
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LIMITATIONS
Geographic Scope: The sample used for the study has been taken from the investors of the twin cities Hyderabad and Secunderabad. Frame work: Sampling frame (i.e the list of population members) from which the sample units are selected was incomplete as it takes into consideration only those (target investors) who have made their investments during March and April 2006. Although adequate care was taken to elicit the accurate information from the respondents, some of them have felt difficulty in crystallizing their feelings into words. Apart from the problem faced in articulating, it is the validity of the feedback can be speculated. Despite the above limitations the study is useful in that it does point out the trends and helps to identify the dimensions for improving the scope of mutual funds.
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MUTUAL FUNDS 9
THEORITICAL BACKGROUND
Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. A mutual fund is an investment vehicle for investors who pool their savings for investing in diversified portfolio of securities with the aim of attractive yields and appreciation in their value. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced .Mutual funds issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit-holders. The profit or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives, which are launched from time to time. A mutual fund is required to be registered with securities and exchange board of India. A mutual fund is setup in the form of a trust, which has 1. Sponsor 2. Trustees 3. Asset Management Company and 4. Custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of mutual fund hold its property for the benefit of the unit-holders. Asset management company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Respective asset management companies (AMC) management mutual fund schemes. Different business groups have sponsored these AMC s. some international funds are also operation independently in India like Aliens and Template.
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A BRIEF HISTORY OF MUTUAL FUND The concept of” mutual fund” is a new feather in Indian capital market but not to international capital markets. The formal origin of mutual funds can be traced to Belgium where society generated Belgium was established in 1822 as an investment company to finance investments in National Industries with high associated risk. The concept of mutual funds spread to USA in the beginning of 20th century and three investment companies were started in 1924 since then the concept of mutual funds has been growing all around the world In India, first mutual fund was started in 1964 when unit trust of India (UTI) was established in the similar line of operation of the UK. The term ‘Mutual fund’ has not been explained in British literature but it is considered as synonym of investment trust of
DEFINITIONS The concept of mutual fund has been defined in various ways. “The mutual fund as an important vehicle for bringing wealth holders and deficit units together indirectly” ...Mr. James pierce “Mutual fund as financial intermediaries which being a wide variety of securities with in the reach of the most modest of investors”. …Frank Relicy According to SEBI mutual fund regulations 1993, “Mutual fund means a fund established in the form of trust by sponsor to raise moneys by the trustees through the sale of units to the public under one or more schemes for investing in securities in accordance with these regulations.
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CONCEPT OF MUTUAL FUNDS 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 appreciation 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.
The flow chart below describes broadly the working of a mutual fund:
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VALUE CHAIN OF MUTUAL FUND
SPONSOR: Any person who, acting alone or in combination with another body corporate, establishes a mutual fund. Asset Management Company A firm that invests the pooled funds of retail investors in securities in line with the stated investment objectives. For a fee, the investment company provides more than diversification, liquidity, and professional management service than is normally available to individual investors. Trustee The Board of Trustees or the Trustee company who hold the property of the Mutual Fund in trust for the benefit of the unit holders. Mutual Fund A fund established in the form of a trust to raise money through the sale of units to the public or a section of the public under one or more schemes for investing in securities, including money market instruments. Transfer Agent
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A transfer agent is employed by a mutual fund to maintain records of shareholder accounts calculate and disburse dividends and prepare and mail shareholder account statements, federal income tax information and other shareholder notices. Custodian Mutual funds are required by law to protect their portfolio securities by placing them with a custodian. Nearly all mutual funds use qualified bank custodians. Unit Holder A person who is holding units in a scheme of a mutual fund. CLASSIFICATION OF SCHEMES • By Structure Open-ended A scheme where investors can buy and redeem their units on any business day. Its units are not listed on any stock exchange but are bought from and sold to the mutual fund. Close-ended A mutual fund scheme that offers a limited number of units, which have a lockin period, usually of three to five years. The units of closed-end funds are often listed on one of the major stock exchanges and traded like securities at prices, which may be higher or lower than its NAV.In India 90% of the schemes is open-ended fund and the rest 10% is close-ended funds. There are 1062 openended funds and 119 close-ended funds.
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By Objective A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows: Growth / Equity Oriented Scheme The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.
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Income / Debt Oriented Scheme The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long-term investors may not bother about these fluctuations. Balanced Fund The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds. Money Market or Liquid Fund These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.
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Gilt Fund These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as, is the case with income or debt oriented schemes. Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds that are traded on the stock exchanges. AVENUES OF INVESTMENTS 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. Banks: Considered as the safest of all options, banks have been the roots of the financial system in India. For an ordinary person though, they have acted as the safest investment avenue wherein a person deposits money and earns interest on it. One and all have effectively used the two main modes of investment in banks, savings accounts and fixed deposits. However, today the interest rate structure in the
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country is headed southwards, keeping in line with global trends. With the banks offering little above 7% 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 you have a position where the savings are not earning. The inflation is creeping up, to almost 8% at times, and this means that the value of money saved goes down instead of going up. This effectively mars any change f gaining from the investments in banks. Post office Schemes Among all saving options, post office schemes have been offering the highest rates. Added to it is that the investments are safe with the department being a government of India entity. So the two basic and most sought for features, those of return safety and quantum of returns were being handsomely taken care of 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. The following are the post office savings schemes available for the investors: Monthly Income scheme: This scheme offers an interest of 8%p.a, payable monthly and a bonus of 10% payable at maturity after 6 years. There is no tax deductible at source (TDS) applicable on investments made in this scheme. National Savings Scheme: This scheme offers an interest of 8% p.a; compounded half yearly and payable at maturity in 6 years.
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Post Office Time Deposits: There are 4 options available to investors depending on the term of investment desired by the investor. They are: 1 year) this gives an interest of 6.25% p.a 2 year) This gives an interest of 6.5% p.a 3 year) This gives an interest of 7.25% p.a 4 year) This gives an interest of 7.5% p.a Kisan Vikas Patra: An important feature of this scheme is that it assures that the money invested doubles in 8 years and 7 months. Public Provident Fund: This scheme gives a return of 8% per annum, compounded annually for maturity of 15 years. Government of India Bonds: The GOI Bonds have the following investment options: 6.5% Tax free bonds There is no ceiling on the amount of investment in these bonds. The effective yields of these bonds are 9.28% p.a for the period of 5 years and premature encashment option available to investors only after the completion of 3 years.
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8% Taxable Bonds: These bonds do not have any TDS charged on them. There is no maximum limit of investment in these bonds but there should be a minimum investment of Rs.1, 000. The maturity period is 6 years. The investor has the option of interest payable half yearly or cumulative. The investors can also avail tax benefit under section 80L of income Tax Act, up to Rs. 15,000. Company Fixed Deposits: Companies have used fixed deposit schemes as a means of mobilizing funds for their operations and have paid interest on them. The safer a company is rated, the lesser the return offered has been the thumb rule. However, there are several potential roadblocks in these. The danger of financial position of the company not being understood by the investor lurks. 1. Liquidity is a major problem with the amount being received monthly after the due dates. 2. The safety of principal amount has been found lacking. Stock markets: Stock markets provide an option to invest in a high risk, high return game. While the potential return is much more than 10-11% any of the options discussed above can generally generate, the risk is undoubtedly of the highest order. However, 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.
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COMPARISION OF OTHER AVENUES WITH MUTUAL FUNDS The mutual fund sector operates under stricter regulations as compared to most other investment avenues. Apart from offering investors tax efficiency and legal comfort, how do mutual funds compare with other products? Company Fixed Deposits versus Mutual Funds Fixed deposits are unsecured borrowings by the company accepting the deposit. Credit rating of the fixed deposit program is an indication of the inherent default risk in t he investment. The money of investors in a mutual fund scheme are invested by the AMC in specified investments under that scheme. These investments are held and managed in-trust for the benefit of the scheme’s investors. On the other hand, there is no such direct correlation between a company’s fixed deposit mobilization, and the avenues where it deploys these resources. There can be no certainty of yield, unless a named guarantor assures a return or to a lesser extent, if the investment is in a serial gilt scheme. O the other hand, the return under a fixed deposit is certain, subject only to the default risk of the borrower. The basic value at which fixed deposits are encashable is not subject to market risk. However, the value at which units of a scheme are redeemed entirely depends on the market. If securities have gained value during the period, then the investor can even earn that is higher than what she anticipated when she invested. Conversely, she could also end up with a loss. Early encashment of fixed deposits is always subject to a penalty charged by the company that accepted the fixed deposit. Mutual fund schemes also have the option of charging a penalty on ”early” redemption of units (by way of an “exit load”).
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Bank Fixed Deposits versus Mutual Funds Bank fixed deposits are similar to company fixed deposits. The major difference is that banks are more stringently regulated than are companies. They even operate under stricter requirements regarding Statutory Liquidity ratio(SLR) and Cash Reserve Ratio (CRR) mandated by RBI. While the above are for comfort, bank deposits too are subject to default risk. However, given the political and economic impact of bank defaults, the government as well as Reserve Bank of India (RBI) tries to ensure that banks do not fail. Further, the Deposit Insurance and Credit Guarantee Corporation (DICGC) protect bank deposits up to Rs. 100,000. The monetary ceiling of Rs.100,000 is for all the deposits in all the branches of a bank, held by the depositor in the same capacity and right. Bonds and Debentures versus Mutual funds As in the case of fixed deposits, credit rating of a bond or debenture is an indication of the inherent default risk in the investment. However, unlike fixed deposits, bonds and debentures are transferable securities. While an investor may have an early encashment option from the issuer ( for instance through a “put” option), liquidity is generally through a listing in the market, implications of this are: The value that the investor would realize in an early exit is subject to market risk. The investor could have a capital gain or a loss. This aspect is similar to a mutual fund scheme. A hypothecation or mortgage of identified fixed and / or current assets could back debt securities, e.g secured bonds or debentures. In such a case, if
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there is a default, the identified assets become available for meeting redemption requirements. An unsecured bond or debenture is for all practical purposes like a fixed deposit, as far as access to assets is concerned. A custodian for the benefit of investors in the scheme holds the investment of a mutual fund scheme. Equity versus Mutual fund Investment in both equity and mutual funds are subject to market risk. Investment in an open-end mutual fund eliminates this direct risk of not being able to dell the investment in the market. An indirect risk remains, because the scheme has to realize its investments to pay investors. The AMC is however in a better position to handle the situation. Further, on account of various SEBI regulations, such as illiquid securities are likely to be only a part of the scheme’s portfolio. Another benefit of equity mutual fund scheme is that they give investors the benefit of portfolio diversification through a small investment.
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RISK AND RETURN GRID: An investor has mainly three investment objectives. 1. Safety of Principal 2. Return 3. Liquidity BANKS Returns
Low
Administrativ e expenses Risk
High
Investment options Network
Less
BONDS AND DEBENTURE S Low to Low to Moderate moderate Moderate Moderate to to High high Low to Low to Moderate moderate Few Few
High penetratio n At a cost
Low penetratio n Low
Liquidity
Low
FIXED DEPOSIT
Quality of Not Not Assets transparent transparent Guarantee Maximum Rs 1 lakh
Low penetration
EQUITY MARKET
MUTUAL FUND
Low but Low but improving fast improving
Moderate to high Better Low Moderate High Many
Low to Moderate moderate High Not transparent Transparent
to Low Moderate More
to Better Transparent None
Pricing The net asset value of the fund is the cumulative market value of the asset 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 the 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.
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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 asset value is given below. Asset value = (Value of investments+ receivables+ accrued income+ other current assets- liabilities- accrued expenses) /Number of units outstanding. ADVANTAGES OF INVESTING IN MUTUAL FUND: Number of options available Mutual funds invest according to the underlying investment objective as specified at the time of launching a scheme. Mutual fund have equity funds, debt funds, gilt funds and many others that cater to the different needs of the investor. While equity funds can be as risky as the stock markets themselves, debt funds offer the kind of security that is aimed for at the time making investments. The only pertinent factor here is that the fund has to be selected keeping the risk profile of the investor in mind because the products listed above have different risks associated with them. Diversification Diversification reduces the risk because all stocks don’t move in the same direction at the same time. One can achieve this diversification through a Mutual Fund with far less money that one can on his own.
Professional Management
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Mutual Funds employ the services of the skilled professionals who have years of experience to back them up. They use intensive research techniques to analyze each investment option for the potential of returns along with their risk levels to come up with the figures for the performance that determine the suitability of any potential investment. Potential of returns Returns in the mutual are generally better than any option in any other avenue over a reasonable period of time. People can pick their investment horizon and stay put in the chosen fund for the duration. Liquidity The investors can withdraw or redeem money at the Net Asset Value related prices in the open-end schemes. In the Closed-end Schemes, the units can be transacted at the prevailing market price on a stock exchange. Mutual Funds also provide the facility of direct repurchase at NAV related prices. Well Regulated The Mutual Fund industry is very well regulated. All investment has to be accounted for, decisions judiciously taken. SEBI acts as a true watch dog in this case and can impose penalties on the AMC’s at fault. The regulations designed to protect the investors interests are implemented effectively. Transparency Being under a regulatory frame work, Mutual Funds have to disclose their holdings, investment pattern and all the information that can be considered as material, before all investors. This means that investment strategy, outlooks of the markets and scheme related details are disclosed with reasonable frequency to ensure that transparency exists in the system.
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Flexible, Affordable and Low cost Mutual Funds offer a relatively less expensive way to invest when compared to other avenues such as capital market operations. The fee in terms of brokerages, custodial fees and other management fees are substantially lower than other options and are directly linked to the performance of the scheme. Investment in Mutual Funds also offer a lot of flexibility with features such as regular investment plans, regular withdrawal plans and dividend investment plans enabling systematic investment or withdrawal of funds. Convenient Administration Investment in the mutual fund reduces paper work and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. TAXATION ON MUTUAL FUNDS An Indian mutual fund registered with the SEBI, or schemes sponsored by specified public sector banks/financial institutions and approved by the central government or authorized by the RBI are tax exempt as per the provisions of section 10(23D) of the income tax act. The mutual fund will receive all income without any deduction of tax at source under the provisions of section 196(iv), of the income tax act.
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MUTUAL FUND INDUSTRY INDUSTRY OVERVIEW The financial markets in India are in the process of maturing. The markets witnessed many structural changes in the years gone by primarily due to the market regulators proactive approach to the changes in the global scenario as well as to meet the needs of domestic investors. The RBI has carried out major reforms in the Indian financial markets in the last few years primarily by reducing Cash Reserve ratio by 4% over three years and Bank Rate by 5% over five years. It is due to measures like these that the Indian economy is currently showing fundamental robustness, with the GDP expected to grow by almost 8%. With rising exports and stable inflation of around 5%, the foreign exchange reserves are at an all time high of $118 billion. The interest rates in the country are at record lows and have led to an increase in credit flow to the commercial sector. The equity markets have passed through a tumultuous phase in the last 3 years. The improving macro-economic fundamentals of the Indian economy have led the market players to expect a bright future. During the year, the equity markets around the world are showing good performance. However the markets in India outperformed the world major scripts showed around more than 75% growth in last 12 months. The year began with resumption of peace process with Pakistan and end of war in Gulf. The market also has welcome robust increase in agriculture production with more-than-normal monsoons. Most of the groundwork for the disinvestment completed over the last few years, the last Government had started disinvestments and new government has already acquired shape and started it is not reluctant of divestment.
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The debt markets have witnessed a rally for over 2 years and now seem to be stabilizing. The measures to deepen and widen the debt markets continued throughout the year. A key step in developing the markets was the launch of Negotiated Dealing System (NDS). NDS allows electronic bidding in primary markets, thereby bringing about transparency in trading, electronic settlement of trades and better monitoring and controls. Issuances of a 30-year paper, floaters ranging from 5 to 15 years and securities with call and put options by the government will also go a long way in deepening the markets. In a bid to increase the retail participation, non-competitive bidding is being encouraged by the RBI. INDUSTRY STRUCTURE Global Scenario At the end of 2006:Q3, mutual fund assets worldwide were $ 17.28 trillion, having increased 18 percent over the year 2005:Q3. Worldwide mutual fund assets (trillions of US dollars)
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Worldwide assets of Equity, Bond, Money Market & Balanced fund (Billions of US dollars)
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Composition of world Wide mutual fund assets by the types of fund 2006 Q4
Source: Ici.org The end of 2006:Q3, mutual fund assets were split into 44% Equity, 18% Money market, 20% Bonds, 9% Balanced / Mixed and remaining 8% unclassified.
Worldwide mutual fund assets by region 2006;Q3
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At the end of 2006:Q3 by region, 55% of the global assets was in America, 34% in Europe and the remaining 11% in Africa and Asia / Pacific. World wide mutual funds by the type of fund 2006;Q2
At the end of the fourth quarter of 2006, the number of mutual funds worldwide stood at 54,986. By type of fund, 41 percent were equity funds, 24 percent were bond funds, 20 percent were balanced/mixed funds, and 6 percent were money market funds.
Number of funds 2000-2006;Q3
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2005
2006
2000
2001
2002
2003
2004
Q4
Q1
Q2
Q3
52,746
51,692
52,849
54,110
54,569
54,984
55,095
55,919
56,095
Equity
22,453
20,381
22,348
22,974
22,688
22,364
22,796
23,043
23,050
Bond
15,474
13,128
12,183
11,619
11,886
13,309
13,127
13,213
13,225
Money Market
6,745
4,692
4,277
4,394
4,974
3,623
3,618
3,598
3,569
Balanced/Mixed
6,375
11,110
11,155
11,228
11,465
11,603
11,111
11,291
11,181
Other
612
1,000
1,195
1,310
1,578
1,997
2,364
2,659
3,017
39,367
41,620
42,393
41,689
42,356
42,093
42,529
42,377
1
All Reporting Countries
Countries Reporting in Every Period2 35,962 Equity
15,656
18,637
20,630
20,808
20,018
19,920
19,971
20,052
19,952
Bond
10,867
10,176
9,830
9,946
9,847
9,961
10,004
10,026
10,076
Money Market
2,701
2,786
2,727
2,674
2,652
2,899
2,901
2,867
2,831
Balanced/Mixed
6,149
6,926
7,500
7,723
7,857
8,095
7,674
7,966
7,850
Other
589
842
933
1,242
1,315
1,481
1,543
1,618
1,668
MUTUAL FUNDS IN INDIAN SCENARIO Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds. In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are – to protect the interest of investors in securities and to promote the development of and to regulate the securities market. As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors.
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All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type. It may be mentioned here that Unit Trust of India (UTI) is not registered with SEBI as a mutual fund (as on January 15, 2002). In February 2003, following the repeal of Unit Trust of India act 1963; UTI was bifurcated into two separate entities. One is the specified undertaking of UTI with assets under the management of Rs.29, 835 crores as at the end of January 2003; representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The specified undertaking administrator & under rules framed by Government of India and does not come under the purview of mutual fund regulation. The second is the UTI mutual fund Ltd sponsored by SBI, BOB & LIC. It is registered with SEBI & 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 assets under management and with setting up of a UTI mutual fund, conforming to the SEBI, mutual fund regulation 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. 231358.03 crores under 421 schemes.
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GROWTH IN ASSETS UNDER MANAGEMENT
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The Company Background: In 1982, a group of Hyderabad-based practicing Chartered Accounts started Karvy Consultants Limited with a capital of rs.1, 50,000 offering auditing and taxation services initially. Later, it forayed into the Registrar and Share Transfer activities and subsequently into financial services. All along, Karvy’s strong work ethic and professional background leveraged with Information Technology enabled it to deliver quality to the individual. A decade of commitment, professional integrity and vision helped Karvy achieve a leadership position in its field when it handled the largest number of issues ever handled in the history of the Indian stock market in a year. Thereafter, Karvy made inroads into a host of capital-market services,-corporate and retail which proved to be a sound business synergy.
GROUP OF COMPANIES
KARVY CONSULTANTS LIMITE
Deals in Registrar and Investment Services KARVY INC
Deals in distribution of various investment products, viz., equities, mutual funds, bonds and debentures, fixed deposits, insurance policies for the investor. KARVY INVESTOR SERVICES LIMITED 38
Deals in Issue management, Investment Banking and Merchant Banking. KARVY STOCK BROKING LIMITED
Deals in buying and selling equity shares and debentures o the National stock Exchange (NSE), the Hyderabad Stock Exchange (HSE) and the Over-TheCounter Exchange of India. (OTCEI). KARVY COMPUTERSHARES LIMITED
KARVY GLOBAL SERVICES LIMITED
KARVY COMMODITIES BROKING LIMITED
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BOARD OF DIRECTORS Mr.C.Parthasarathy Mr.M.Yugandhar Mr.M S.Ramakrishna QUALITY POLICY To achieve and retain leadership, Karvy shall aim for complete customer satisfaction, by combining its human and technological resources, to provide superior quality financial services. In the process, Karvy will strive to exceed Customer’s expectations. Quality objectives As per the Quality Policy, Karvy will: • Build in-house processes that will ensure transparent and harmonious relationships with its clients and investors to provide high quality of services. • Establish a partner relationship with its investor services agents and vendors that will help in keeping up its commitments to the customers. • Provide high quality of work life for all its employees and equip them with adequate knowledge & skills so as to respond to its customer’s needs. • Continue to uphold the values of honesty & integrity and strive to establish unparalleled standards in business ethics. • Use state-of-the art information technology in developing new and innovative financial products and services to meet the changing needs of invetors and clients.
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• Strive to be a reliable source of value-added financial products and services and constantly guide the individuals and institutions in making a judicious choice of it. • Strive to keep all stake-holders (shareholders, clients, investors, employees, suppliers and regulatory authorities) proud and satisfied. ACHIEVEMENTS • Largest mobiliser of funds as per PRIME DATABASE. • First ISO-9002 Certified Registrar in India. • A Category –I-Merchant banker. • A Category-I-Registrar to public Issues. • Ranked as “The Most Admired Registrar” by MARG. • Handled the largest-ever public issue-IDBI • Handled over 500 public issues as registrars. • Handling the reliance Account which for nearly 10 million account holders. • First Depository Participant from Andhra Pradesh. Major issues managed as arrangers •
Kerala state electricity board.
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Power Finance Corporation.
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A.P. Water resources Development Corporation.
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A.P Roads Development corporation.
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A.P state electricity board.
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Haldia Petrochemicals ltd.
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Major issues managed as co-managers • IDBI Equity • Morgan Stanley Mutual Fund. • Bank of Baroda • Bank of Punjab Ltd • Corporation Bank • IndusInd Bank Ltd •
Jammu and Kashmir bank Ltd
• Housing and Urban Development corporation (HUDCO) Ltd • Madras refineries Ltd • Tamil Nadu Newsprint & Paper Ltd • BPL Ltd • Birla 3M Ltd • Essar Steels Ltd • Hindustan Petroleum corporation Ltd • Infosys technologies Ltd • Jindal Vijaynagar Steels Ltd • Nagarjuna Fertilizers & Chemicals Ltd • Rajshree Polyfil Ltd Karvy securities Ltd. • Karvy has secured over rs.500 crore in the following debt issues. • Andhra Pradesh road development corporation Ltd • ICICI Bonds (private placement) • ICICI Bonds-96 • ICICI Bonds-97-I • ICICI Bonds-97-II • ICICI safety Bonds March 98 42
• IDBI Bonds 96 • IDBI Flexi Bonds I • IDBI Flexi Bonds II • IDBI Flexi Bonds III • Kerala state electricity Board • Krishna Bhagya Jala Nigam Ltd • Power Finance Corporation Ltd • Andhra Pradesh Water Resources Development Corporation • Andhra Pradesh state Electricity Board KARVY CAPABILITIES Technology infrastructure It has desktops and 200 plus enterprise class servers having licensed software across technology platforms. It has wide area network connecting branches all over India. It has 24 * 7 back up and Redundancy support for critical business data. PHYSICAL INFRASTRUCTURE It has 40 branches and 65 investor centers connected with communication facilities like Email, Fax, Videoconferencing, WAN and LAN. MAN POWER It has work force of over 2000 highly trained people. It has experience of processing over 120 million transactions. The Domain experience in the areas of Data processing operations, Technology, Management and Financials and legal processing. It has specialist expertise in quality control and cast management. QUALITY PROCESS
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It is an ISO 9002 certified operations by DNV Norway. It performs regular internal and external audits for quality standards. TRAINING It has full-fledged learning center to train 150 people simultaneously. It has simulated environment and on the Job training facilities. BUSINESS CONTINUITY It is a two-decade-old company of repute in the industry. It has a disaster recovery center at separate location. It has investment in infrastructure. VALUES INTEGRITY TRANSPARENCY PASSION FOR QUALITY HARD WORK AND TEAM PLAY LEARNING AND INNOVATION EMPATHY AND HUMILITY SENSE OF OWNERSHIP. KARVY ACHIEVEMENTS • India’s # 1 public issue registrars with 655-market share. • # 2 in India in mutual fund registraring and investor servicing. • Amongst the top 5 mobilizers of funds in India. • Among the top 3 depository Participants. • Among the top 5 retail brokers in the country. • ISO 9002 certified operations by DNV. • Among the top 10 medical transcriptionists. • Adjudged as one of the top 50 IT users in India by MIS Asia.
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DATA ANALYSYS
SOME OF THE SCHEMES OF MUTUAL FUNDS: Standard Chartered Mutual Fund Schemes: Grindlays cash fund: It is an Open-ended Income scheme with high liquidity. A scheme that invests in money market instruments like Treasury Bills, Call money, Repos , Short-term Corporate Debentures, Commercial Papers, Certificate of Deposits, etc that provide a high level of stability and easy liquidity . Tax: The GCF is also very taxed efficient. It comes with a daily (compulsory reinvestment), Weekly (compulsory reinvestment), Monthly and Bi-monthly dividend options. Each day gains are declared in the form of dividends and then reinvested after netting it off against Dividend Distribution Tax (currently 20.91%).This dividend is completely tax free. So the net tax incidence is just 20.91% as compared to 36.5925% for comparable non mutual fund option. Grindlays Floating Rate Fund: It seeks to generate stable returns with a low risk strategy by creating a portfolio that is substantially invested in good quality floating rate debt or money market instruments, fixed rate debt and money market instruments.
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GFRF primarily invests in Floating rate debentures and bonds, Short tenor fixed rate instruments and long tenor fixed rate instruments swapped to floating rate.
Plans: The fund comes in two plans Short term plan for investors with a time horizon of 1-6 months.
Long term plan for investors with a time horizon of beyond 6 months.
Grindlays Debt Funds: Debt funds are funds that invest only in debt securities and
are designed to primarily protect your capital and provide better returns
by investing in high quality debt securities. Operations of Debt funds: There are two important sources of revenue that a debt fund earns: a) Interest income When you invest in a Bank / Company deposit, it offers you a fixed rate of interest with the principal being returned on maturity. Similarly when a debt fund invests in various debt securities the issuers of these securities offer a rate of interest and the principal on maturity. The issuers of these securities could either could either be various corporates like Reliance, Hindalco, ICICI, Bharat Petroleum or the Government of India. b) Mark to Market gain/loss As interest rates on bank fixed deposits change frequently so do interest rates on debt securities. Interest rates and debt security prices are in fact the two sides in seesaw. In general, prices fall when interest rates rise and rise when interest rates fall. If the interest rates were to decline then newer bonds would be issued at
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lower interest rates than existing bonds. Consequently old bonds would be dearer and hence prices of these older bonds would rise. Similarly if interest rates were to raise then value of old bonds would fall, as newer bonds would bear higher interest rates. The traded price of a bond may thus differ from its face value. The longer a bonds period to maturity, the more its price tend to fluctuate as market interest rates change.
DSP Merrill lynch Mutual Fund: Schemes Liquidity Fund: It is an open-ended fund liquid scheme seeking to generate a reasonable return commensurate with low risk and high degree of liquidity from a portfolio constituted of money market securities and high quality debt securities. Floating rate Fund: It is an open-ended income scheme seeking to generate income commensurate with prudent risk from a portfolio substantially constituted of floating rate debt securities and fixed rate debt securities swapped for floating rate returns. The scheme may also invest in fixed rate debt securities and money market securities. Short term Fund: It is an open-ended income scheme seeking to generate income commensurate with prudent risk, from a portfolio constituting of money market securities, floating rate debt securities and debt securities. Bond fund:
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It is an open-ended income scheme seeking to generate an attractive return, consistent with prudent risk from a portfolio, which is substantially constituted of high quality debt securities of issuers predominantly domiciled in India.
Equity Fund: It is an open ended growth scheme seeking to generate long term capital appreciation, from a portfolio which is substantially constituted of equity and equity related securities of issuers domiciled in India. The scheme may also invest a certain portion of its corpus in debt and money market securities, in order to meet liquidity requirements from time to time. T.I.G.E.R Fund: It is an open ended growth scheme whose primary investment objective is to seek to generate capital appreciation, from a portfolio that is substantially constituted of equity securities of corporates, which could benefits from structural changes brought about by continuing liberalization in economic policies by the government and / or from continuing investments in infrastructure, both by public and private sector.
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HDFC MUTUAL FUND Schemes HDFC Growth Fund: It is a open ended scheme seeking to generate long term capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments HDFC Equity Fund: It is an open-ended growth scheme to achieve capital appreciation. HDFC Top 200 Fund: It is an open-ended growth scheme seeking to generate long-term capital appreciation from a portfolio of equity and equity-linked instruments primarily drawn from the companies in BSC 200 index. HDFC Balanced Fund: It is an open ended balanced scheme seeking to generate capital appreciation along with current income from a combined portfolio of equity and equity related and debt & money market instruments. HDFC Tax Savers Fund: 50
It is an open-ended equity linked saving scheme with a lock-in period of 3 yrs seeking to generate long term growth of capital. HDFC Gilt Fund: It is an open-ended income scheme seeking to generate credit risk-free returns through investments in sovereign securities issued by central government or state government.
Birla Sun Life Mutual Fund: Schemes Birla Advantage Fund: It is an open-ended diversified equity fund and portfolio remains over wait across banks MNC pharma, IT and Telecom. Birla Dividend Yield Plus: It is an open-ended growth scheme investing in high dividend yield companies and continuously having a positive outlook on banking sector. Birla Mid cap Fund: It is an open ended growth scheme investing primarily in mid cap stocks and the portfolio remains well diversified across pharmaceutical, banking, consumer non durable, IT, Hotels. Birla MNC Fund: It is an open-ended growth scheme investing in multi national companies and the portfolio remains over weight across consumer non-durable, IT, Agro chemicals. Birla Gilt Plus: 51
It is an open-ended government security scheme. Birla Equity Plan: It is an open-ended equity linked savings scheme with a lock-in for three years.
Kotak Mutual Fund Schemes: Kotak 30: It is an open-ended equity growth scheme seeking to generate capital appreciation from a portfolio of predominantly and equity related securities with investment in, generally, not more than 30 stocks. Kotak opportunities: It is an open-ended equity growth scheme seeking to generate capital appreciation from a diversified portfolio of equity and equity related securities. Kotak Global India: It is an open-ended growth scheme seeking to generate capital appreciation from a diversified portfolio of equity and equity related securities issued by globally competitive Indian companies. Kotak Liquid: It is an open-ended debt scheme to provide reasonable returns and high level of liquidity by investing in debt and money market instruments of different maturities so as to spread the risk across different kinds of issuers in debt markets. 52
Chola mutual fund: Schemes:Cholamandalam growth fund: It is an open ended scheme seeking to generate long term capital appreciation, income through investments in equity & equity related instruments; the secondary objective is to generate some current income and distributive dividend. Chola midcap fund: It is an open ended scheme seeking to generate capital appreciation by investing primarily in mid cap stocks. The scheme will invest primarily that have a market capitalization between Rs.300 crores to Rs. 3000 crore. Chola opportunities fund: It is an open ended scheme which will invest mainly to generate long term capital appreciation from a diversified portfolio of equity and equity related securities. Chola Multi-cap fund: It is an open-ended growth scheme which will provide long term capital appreciation by investing in a well diversified portfolio of equity and equity related instruments across all ranges of market capitalization. Chola Gilt investment plan:
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It is an open-ended growth scheme seeking to generate returns from a portfolio by investing in Government securities.
Chola monthly income plan: It is an open-ended growth scheme seeking to generate monthly income through investment in range of debt, equity and money market instruments.
CHOOSING FUNDS When it comes down to it, the decision to invest in a mutual fund is one you have to make on your own. When you try to choose an investment, however, it is a good idea to seek the guidance of a financial advisor who will review its objective to make sure it supports your financialgoal. As an investor, your goals are unique, and a financial advisor can help match you with the best funds. Remember, however, when you are choosing funds, to consider how much risk you are comfortable with and when you'll need the money. If you have the time to weather the market's ups and downs, you may want to consider equity investments. Before you select a mutual fund, it is essential to read the prospectus carefully to learn all you can about the fund's performance, investment goals, risks, charges and expenses. DECISION MAKING FACTORS WHILE INVESTING IN MUTUAL FUNDS Before looking at the mutual funds available to you, it may be best to decide the mix of stock, bond, and money market funds you prefer. Some experts believe this is the most important decision in investing. Here are some general points to keep in mind when deciding what your investment strategy should be. 54
Diversify. It is a good idea to spread your investment among mutual funds that invest in different types of securities. Stocks, bonds, and money market securities work differently. Each offers different advantages and disadvantages. You may also want to diversify within the same class of securities. Diversifying can keep you from putting all your eggs in one basket and therefore, may increase your returns over along period of time. Consider the effects of inflation. Since the money you set aside today may be intended to be used several years down the road, you need to look at inflation. Inflation measures the increase of general prices over time. Conservative investments like money market funds often may be popular because they are managed to keep a steady value. But their return after accounting for the inflation rate can be very low, perhaps even negative. For example, a 4% inflation rate over a period of many years could erase a money market fund's 3% yield over the same period of time. So even though such an investment may give some safety of principal, it may not be able to grow enough in value over the years or even keep up with the rate of inflation. Patience is a virtue. It's no secret—the prices of common stocks can change quite a bit from day to day. Therefore, the part of your account invested in stock funds would likely fluctuate in value much the same way. If you don't need your money right away (for at least 5 years), you probably don't need to panic if the stock market declines or you find that your quarterly statement shows the value of your investment has fallen. In the past, the stock market has regained lost value over time. Although you are not assured it will do so in the future, try to be patient and allow your stock funds time recover.
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to
Remember the saying, "buy low, and sell high." Switching out of a stock mutual fund when prices are low is usually not the way to make the most of your investment. Of course, if a fund continues to under-perform over time as well as your other fund choices, you may want to consider
changing
funds.
Look at your age. Younger investors may be more at ease with stock funds, because they have time to wait out the short-term ups and downs of stock prices. By investing in a stock fund, they might be able to receive high returns over the long-term. On the other hand, people who are closer to retirement may be more interested in protecting their money from possible drops in prices, since they'll need to use it soon. In this case, it may be wise to place a greater percentage of money in bond and/ or money market funds, which may not have such large changes in value. How can you determine an investment mix appropriate for your age? One way is to subtract your age from 100. The answer you come up with may be a good number to start with in deciding what portion of your total investments to put into
stock mutualfunds.
Risk. When you are choosing funds, be sure to consider how much risk you are comfortable with and how close you are to retirement. If retirement is around the corner, you may want a portfolio with very little risk. On the other hand, if you are younger, and have the time to weather the market's ups and downs, you may want to choose a more aggressive investment strategy. READ FUND DOCUMENTS Your primary source of data concerning the mutual fund will be the prospectus. It is a legal document illustrating the rules and regulations that a mutual fund must follow and contains information on the fund's goal and strategy, risks,
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performance, financial highlights fees and expenses, and a wide variety of information that you should know before investing.
What are the fund' s goal and strategy? Goals vary from fund to fund, and they're important to understand so you can
decide if they match your personal objectives. Some funds generate
income for their shareholders, while others concentrate on capital appreciation. Some focus on a combination of the two, and others are oriented towards tax benefits or preservation of capital. Funds also implement differing strategies to help accomplish their goals. The Goals and Strategies section of a prospectus details the types of securities in which fund managers can invest and how managers analyze them Funds can be limited to domestic investments, focus on a certain country or region, or invest anywhere in the world. In addition, some funds invest only in specific industries or in particular types of companies. Others invest in large-, medium- or small-capitalization companies. What are the risks? As with all investments, each fund, whether domestic, international or sector specific, carries different risks. The Main Risks section of a prospectus explains which ones are associated with the securities in that particular fund, which may help you decide what level of risk you're comfortable having in your investment portfolio. How has a fund performed?
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While historical performance doesn't predict how a fund will do in the future, you may be interested in how it performed in past market environments. Depending on the age of the fund, a prospectus will provide its 1- 5- and 10-year average annual returns, including a comparison to its benchmark index over the same period.
What are financial highlights? In this section a prospectus lists 5 years of annual financial information, if a fund is less than 5 years old, provides data since inception. Information includes net asset values at the beginning and end of each year, and details the gains or losses, dividends and distributions that account for any changes. Financial Highlights also show fund asset information such as net assets ratios to average net assets for expenses and net investment income, and portfolio turnover rates. What are the expenses of a fund? Operating a fund entails some costs you should be aware of. The Fees and Expenses section breaks out these costs and who pays them. In addition, an example of fund expenses is provided to help you compare the cost of investing in one fund versus another. Who's managing the fund? In the Management section, a prospectus gives a brief biography of a fund' s managers, including how long they have worked on the fund and their overall industry
experience.
.MARKET SEGMENTATION 58
Market segmentation is the division of market into homogeneous groups, which will respond differently to promotions, communications, advertising and other marketing mix variables. A different marketing mix can target each group, or “segment”, because the segments are created to minimize inherent differences between respondents within each segment and maximize differences between each segment. Market segmentation was first described in the 1950’s, when product differentiation was the primary marketing strategy used. In the 1970’s and 1980’s, market segmentation began to take off as a means of expanding sales and obtaining competitive advantages. Uses of Market Segmentation There are many good reasons for dividing a market into smaller segments. The primary reasons: Easier marketing It is easier to address the needs of smaller groups of customers, particularly if they have many characteristics in common (e.g. seek the same benefits, same age, gender, etc.). Find niches Identify under-served or un-served markets. Using “niche marketing”, segmentation can allow a new company or new product to target less contested buyers and helps a mature product seek new buyers. Efficient More efficient use of marketing resources is by focusing on the best segments for the investor offering—product, price, promotion, and place (distribution). Segmentation can help avoid sending the wrong message or sending message to the wrong people. Classification variables
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Classification variables are used to classify survey respondents into market segments. Almost any demographic, geographic, Psychographic or behavioral variable can be used to classify people into segments. Demographic variables — Age, gender, income, ethnicity, martial status, education, occupation, household size, length of residence, type of residence, etc. Geographic variables – City, state, zip code, census tract, country, region, metropolitan or rural location, population density, climate, etc. Psychographic variables – Attitudes, lifestyle, hobbies, risk aversion, personality traits, leadership traits, magazines read, television programs watched, PRIZM clusters, etc. Behavioral variables – Brand loyalty, usage level, benefits sought, distribution channels used, reaction to marketing factors, etc. Summary Target marketing or market segmentation based on customer needs and wants can increase profits. Target market identifies customer groups and the reasons they purchase. Market segmentation helps a business be more responsive to changing customer needs. An overall marketing plan or strategy visually shows how all aspects of a marketing effort work together. The ultimate goal of any business is to sell the product or service.
PRIMARY DATA FOR THE PROJECT: For the customized needs o the project, primary data was collected through a survey in the twin cities of Hyderabad & Secunderabad. A Random sample of 100 investors were surveyed. They were all asked to answer a questionnaire true to their knowledge. The feedback obtained from the customer was instrumental, gauging the perception of the investors towards mutual funds.
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It also throws light on the factors, which influence them to make decisions while investing. Further the interaction with few of the investors goes a long way in understanding the inlaid reasons for their decisions.
SECONDARY DATA: The main sources of secondary data are the web sites of various mutual fund houses like cholamandalam mutual fund, Franklintempletonindia, ICICI, BIRLA SUNLIFE, KOTAK and more such houses. Many references were collected from different libraries to gain an insight on mutual funds. Previous studies conducted in this field provided valuable help. In addition to the above sources, Working with Karvy associates and interaction with their personnel provided a pragmatic edge to my theoretical concepts. Survey Details Total Sample Size
100
Economic Status Criterion
Tax payees & Non tax payees
Age groups
23 years and above
Martial Status Criterion
Married, Married with children &
Unmarried
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FACTORS CONSIDERED BY INVESTORS WHILE INVESTING
Every investor considers several factors while investing in any of the products as it deals with the most important need of life “money”. The five main factors that were considered are: 1. Safety & security 2. Tax exemption 3. Liquidity 4. Profitability 5. Return pattern
Factors considered by investors While investing 17% 14% 12%
31%
Safety & security
26% Tax exemption
Liquidity
Profitability
Return pattern
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SAMPLE SIZE ECONOMIC STATUS
100 TAX PAYEES AND NON-TAX PAYEES
The above graph shows that 31% people consider safety & security as the main factor while investing, 26% goes for Tax exemption, 17% considered return pattern in the investment, 14% went with profitability and 12% showed interest in liquidity. ANALYSIS OF THE ABOVE GRAPH:
In a developing country like India most of the people fall in the lower middle class and middle class sectors. The attitude of the investors is of primary concern. As more and more options that warrant high returns are available in the market, investor tends to be more skeptical. So, while investing in any avenue, their first priority is safety and security. Even the age of the investor plays a major role in the decision-making. For example, if the investor is in the age of 50 and above, he usually looks for low or no risks while investing. Therefore, 31% of investors surveyed preferred safety & security. Next is the “tax exemption”; as there is tremendous boom in the corporate sector and the remuneration system for a particular sector has changed. This created a change in income levels and thereby affected the expenditure patterns. In the past, it took employee years of time to reach a five-figured salary. But, gradually the system has changed. Even the employee in the lower level or the middle level of the corporate ladder is receiving a handsome emolument. So, they are opting for the exemption of tax. Therefore, the next preference is for tax exemption that is 26% of the total. Besides investors going for Safety & security, there are investors who opt for return on investments they made. They are mainly in the age group of 23 and 35. Because these investors are likely to think that, at this age they are mentally more stable and feel that they can cope with financial risks. Any profits made
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would further bolster their financial stability. And so, 17% went with return pattern of their investment. In the same way, 14% of the investors look for profitability, especially those who are already doing business, i.e. those who are already accustomed to taking risks.Out of the total, 12% of investors preferred liquidity. The main reason for this could be that, that making the invested money liquefied as and when required is important, and this is not possible if the investments are made in any insurance, Bank deposits, etc. Though there are numerous factors that can be attributed to an investor’s psyche, by large, we can conclude that maximum number of investors is investing in those sectors where there is safety & security for their principal. The other factors antecede safety.
INVESTMENT PATTERN:
Investment pattern 7% 5% 4% 2% 9%
42%
31% Bank deposits
insurance
mutual fund
bonds
shares
Equity
none Sample size
100
Economic status
Tax payees & non-tax payees
From the above graph, it is clear that 42% opted for an investment in bank deposits, 31% for insurance, 7% for shares, 9% for mutual fund, 2% for bonds,
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5% for equity and remaining 4% have invested in some other investments such as real estates etc.
ANALYSIS OF THE ABOVE GRAPH:
The investment pattern of an investor is also very important because this shows the avenues where the people are really interested. Here, 42% have invested in bank deposits as it is very safe and risk free. Out of the sample of 100,it is observed that those who opted for an investment in banks in the form of deposits are found to be in the age group of 40 and above and are in government services. The next preference, as observed in the pie chart for investment pattern is “Insurance”. People generally opt for life insurance because it promotes a sense of safety & security for the dependents on the person and even his belongings. So, the next priority is insurance. 7% of the investors went for an investment in shares as it brings quick returns, although shares are prone to high risks. As shown 9% of the investors opted for an investment in mutual funds. From this we can infer that the market of mutual fund is picking up slowly. According to the survey, the people who have invested in the mutual funds belong to high-income range and they want an exemption from tax and a mere 2% opted for bonds, 5% for investment in equity and 4% have invested in other investments such as Real estate to make quick returns on their investments.
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AWARENESS TOWARDS MUTUAL FUNDS:
Awareness towards mutual funds 13%
87% Aware of mutual fund
Not aware of mutual fund
In the above pie chart, we can observe that nearly 90% of investors are aware of mutual funds and only 13% people are not aware of it. This shows that most of the investors know about mutual funds in one or the other way. ANALYSIS OF THE ABOVE GRAPH:
Of the sample surveyed, almost all of the people are aware of mutual funds. They are aware of the term “mutual fund”. Though the questionnaire cannot identify the extent of the awareness. Through the interaction it is found that they are not actually aware of the advantages in investing mutual funds, various types of mutual funds and different schemes offered in it. It is found that People often have an inhibition that investments in mutual funds can be done only by those who have surplus amount of money with them and want to avail tax redemption. 66
MUTUAL FUND INVESTMENTS:
Mutual funds are medium risk investments. Though Investing in mutual fund doesn’t assure a fixed amount of returns, nevertheless, they are not low. The awareness about mutual funds is the primary criterion.
Mutual fund investments 19% 6% 75%
Equity funds
Debt funds
Liquid funds
Sample size
16
Criterion
Mutual fund investors in the survey
From the graph, it is clear that only 16 out of 100 invested in mutual funds. From those 16, 12 have invested in Equity funds, 3 in liquid funds and the remaining 1 in debt funds. ANALYSIS OF THE ABOVE GRAPH: Only 16 out of 100 invested in mutual funds this can be mainly attributed to the low level of awareness, various inhibitions and a not so clear idea about the mutual funds. It is very important to have a clear perception of mutual funds, 67
how they work and how the money is invested in different portfolios according to the investors’ choice. Investors who opted for equity funds are 12 of 16 percent. Equity funds being the majority preference can be reasoned as they want their investments to be put in various sectors i.e. DIVERSIFIED FUNDS so that they can make profits out of it easily. Even some went for INDEX FUNDS as the investments are made in Bench Nark Index Stock like BSE, NSE. A few (3%of 16%) investors made investments in liquid funds as they want a Short term investments where the investor need not wait for much time for the return. These are also called as Money Markets for short term. Only a single investor went for debt funds where investments are in various debt products like Certificate of Deposits (CD’s), Commercial papers and call money as the investor want a secured investment, which he can avail in Debt Funds.
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FINDINGS • Many of the investors are aware of mutual funds but most of their perception towards them is not positive. • Investors are mainly concerned with the risk factors of mutual funds and are not directing towards them. • The investors who have invested in mutual funds mainly go for it because of the Liquidity matter and Tax exemption. • Most of the people don’t know the advantages of mutual funds and the various types of mutual funds. • There are nearly 1173 schemes of mutual funds offered by various mutual fund houses, which an ordinary person is not aware. • A common investor basically looks for the Tax exemption and Safety & security while investing. • Investors often feel that those people, who have surplus amount with them and invest to avail Tax exemption, can do investing in mutual funds.
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SUMMARY This report is an attempt to provide an analysis of the perception of an investor towards mutual funds. However, what has been reported is only the tip of iceberg in terms of data that are available. However, my examinations suggests that employees are interested to invest in mutual funds provided sufficiently educated and a know-how is provided on its working. Though the self-employed are investing in mutual funds and insurance, they are investing small amounts in them because they do not want to take high risks. Karvy stock broking ltd should educate the people about the various advantages of investing in mutual funds and create an awareness regarding various investment options. In conclusion, it is important to remember that the main purpose for initiating the project is to analyze the perception of an ordinary investor towards the mutual funds and the aspects that guide him to make investment decisions. The study does not aim to advocate investments in mutual funds.
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CONCLUSION
Mutual funds are still and would continue to be the unique financial tool in the country. One has to appreciate the fact that every aspect of life as its periods of high and lows. This has been the case with the stock markets. Why not apply the same logic to mutual funds? Mutual funds have not failed in any country where they worked with regulatory frame work. Their future is bright. The poor performance of many mutual funds schemes may be mostly attributed to the quality of personal involved and their matter of fund management.
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SUGGESTIONS Make people aware of mutual funds by: Arranging free seminars in different organizations about mutual fund investments. Arranging stalls in Public places is a good publicity. More advertisements need to come to explain the various advantages of mutual funds and even the various schemes offered by them. What to expect from a financial advisor The key for mutual fund investors is to define and recognize the value of professional financial services, and then insist on getting that value. When you pay a sales charge or a fee, what can you expect a professional to do for you? Your advisor should at least: •
Understand investor needs and help him formulate long-term investment goalsandobjectives. Before making specific recommendations, advisor should try to gain a whole picture of investors past experience, lifestyle and goals, as well as his other investments and current financial situation. When the investor planning to retire, for example? Does the investor have life insurance? Does he own real estate? How secured is his job?
•
Help the investor develop realistic expectations by discussing the risks and rewardsofeachinvestment.Every investment choice has its strengths and weaknesses, and investor should never feel less than fully informed. When investor ask questions, or have doubts,
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•
Investor should expect your financial advisor to answer honestly, and help him develop a strategy that is both realistic and comfortable for him.
•
Match investor’s goals and objectives with appropriate mutual funds. Investor should expect your advisor to make clear and specific recommendations, and explain the reasons behind them in terms he can understand. Of course, the advisor should be confident and well informed about the management and
portfolio
strategiesofanymutualfundsrecommended. •
Continually monitor investor portfolio and help you interpret performance. Your advisor cannot influence or predict a fund's results. However, he or she should discuss results with you and help you judge your progress. You should feel
•
you
canalwaysaskyouradvisor,"HowamIdoing?"
Conduct regular reviews to ensure that your strategy continues to provide optimal
•
that
results
for
you.
One of the most valuable services your advisor can provide is to help you "stay on course" with your investment program. But "staying on course" long term does not necessarily mean staying put. Expect your financial advisor to work with you to adjust your portfolio in response to any significant change in your lifestyle, priorities, assets or responsibilities.
•
These are the basic services that investors should expect from their financial advisors. Beyond the basics, many investors could use even more specialized assistance, like advice on retirement plan distribution options, setting up and servicing retirement plans for small businesses and self-employed individuals, developing tax-advantaged strategies for children's college education, insurance, estate, and trust planning; and year-end mutual fund tax advice. If you need specialized services, there are many financial advisors who can help you obtain the help you n
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BIBLIOGRAPHY S.No. Name of the Author
Publisher
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Page Nos.
Punithavathi Pandyan V.A.Avadhani
1 2
Securities Analysis and Portfolio 29,30,411&412 Management Investment and Securities Markets in 427,428 India
MAGAZINES: 1. Business standard 2. Economic times Marketing dictionary A. IVONAVIC S.NO
WEBSITE’S
MONTH OF SEARCH
1
http:// www.karvy.com
May 2007
2
http:// www.amfiindia.com
May 2007
3
http:// www.ici.org
May2007
4
http:// www.google.com
May 2007
5
http:// www.moneycontrol.com
June 2007
6
http:// www.franklintempletonindia.com
June 2007
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Investor’s perception towards Mutual Funds
PERSONAL INFORMATION A) Name: B) Type of Business: C) Address: D) Telephone:
Mobile:
E) Fax:
Email:
F) Annual Income:
ANNEXURE 1.In which part of these modes have you made your major part of investment? [] Shares
[] Equity
[] Bank Deposit
[] Mutual Fund
[] Insurance
[] Bonds
[] Others Specify--------------------------------2.Why do you prefer the above option? [] Return Pattern
[] Tax Exemption
[] Liquidity
[] Safety & Security
[] Profitability
[] Guaranteed Return
[] Others Specify----------------------------------3.How long would you like to invest? [] Short term (below 1yr)
[] Medium term (up to 2yrs)
[] Long term (above 3yrs) 4.Have you seen any advertisements for Mutual Funds? [] Yes
[] No
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5.If yes, what are the advertisement have you seen for? [] Birla sunlife mutual funds
[] Reliance mutual fund
[] Chola mutual funds
[] Standard charted mutual funds
[] Franklin Templeton mutual fund [] Sundaram mutual fund [] HDFC mutual fund
[] UTI mutual fund
[] ING VYSA mutual fund
[] Any other specify--------------------
[] Prudential ICICI mutual fund 6. Rank the following services preferred by you from a financial Advisory Institution? Services
Rank
1. Telephone services 2. Online services 3. Mobile services 4. Personal services 7. Mention the names of mutual funds you have invested? --------------------------------------------------------------------8. In which scheme of mutual funds have you invested? [] Debt
[] Equity
[] Liquidity
[] Mixed (Debt & Equity)
[] Others specify--------------------------9. What was the approximate return you got on your investment? [] Debt
[] Equity
[] Liquidity
[] Mixed
[] Others specify--------------------------10. Which factors you consider the most while, investing in mutual funds? [] Return patterns
[] Performance
[] Services
[] Risk factors
[] Quality of portfolio
[] Professional management
[] Wealth creation
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11. Which period of dividend income you prefer the most? [] Monthly
[] Quarterly
[] Half yearly
[] Annual
12. How often you need reminders (recall) about mutual fund? [] Monthly
[] Quarterly
[] Half yearly
[] Annual
13. If you need so, which mode you would prefer? [] Account statements
[] Remainder letters
[] Television & Internet
[] News papers & Magazines
14. Please rank your expectations from a mutual funds Advisory concern Expectations
Rank
1. Right Advice 2. Speed of transaction 3. Research inputs 4. Reputations 5. Reliability 6. Investor facilitation 7. Advertisements 8. Easy procedure 15. Are you willing to invest in mutual funds? [] Yes
[] No
If no, specify the reason-----------------------------------------If yes, do you need further assistance from Wealth Management Executives from Karvy Consultants Ltd? [] Yes 16.
As
investors
[] No please
specify
your
needs,
recommendations to Develop the mutual funds.
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expectations
and
