A PROJECT REPORT ON
“Study of Consumer Awareness, Perception and Practice Regarding of Mutual Fund Investment” SUBMITTED TOWARDS THE PARTIAL FULFILLMENT OF POST GRADUATE DIPLOMA IN BUSINESS MANAGEMENT ACCADEMIC SESSION (2007-2009) Submitted To:-
Submitted by:-
ACKNOWLEDGEMENMT To test test the studen student’s t’s academ academic ic knowl knowledg edge e in practi practical cal condit condition ions s of industry, eight weeks summer training has been included in the PGDM course. I express my gratitude of …….. for allowing me to undergo summer training in SBI Funds Management Pvt. Ltd. I have the honour to express my sincere thanks to the management of SBI Funds Management for providing me the opportunity to pursue my training in their esteemed organization. I place on record my thanks to ……… for giving me every sort of help and guidance.
My summer training training has added to my practical practical knowledge and build up my confidence. I thank once again all the staff members of SBI Funds Management with the active support ot whom I was able to complete my project report successfully. I am also greatful to …………. New Delhi and the faculty who have supported a lot and given me the permission of Summer Training in SBI Funds Management Pvt. Ltd. Also I would like to give regards to my Parents, seniors, friends who have helped a lot in completing this project.
ACKNOWLEDGEMENMT To test test the studen student’s t’s academ academic ic knowl knowledg edge e in practi practical cal condit condition ions s of industry, eight weeks summer training has been included in the PGDM course. I express my gratitude of …….. for allowing me to undergo summer training in SBI Funds Management Pvt. Ltd. I have the honour to express my sincere thanks to the management of SBI Funds Management for providing me the opportunity to pursue my training in their esteemed organization. I place on record my thanks to ……… for giving me every sort of help and guidance.
My summer training training has added to my practical practical knowledge and build up my confidence. I thank once again all the staff members of SBI Funds Management with the active support ot whom I was able to complete my project report successfully. I am also greatful to …………. New Delhi and the faculty who have supported a lot and given me the permission of Summer Training in SBI Funds Management Pvt. Ltd. Also I would like to give regards to my Parents, seniors, friends who have helped a lot in completing this project.
TO WHOM IT MAY CONCERN Thi This s is to cert certif ify y that that ……. ……...
stud studen entt of
………. ………...
has has don done e his his liv live e
Summer training project under my guidance and supervision from 13 th May 2008 to 27 th June 2008. He has completed the project titled “ Study of Consumer Awareness, Perception and Practice Regarding of Mutual Fund Investment ”
towards the partial fulfillment of PGDBM under my supervision. During his project he was found to be very sincere and attentive to small details whatsoever told to him. I wish him luck and success in future.
TABLE OF CONTENTS CONTENT
PAGE
2
ACKNOWLEDGEMENT EXECUTIVE SUMMARY
8
INTRODUCTION TO MUTUAL FUND
10
Structure consists of Sponsor Asset Management Company (AMC) 17
RISK-RETURN TRADE-OFF
Return Risk 25
BENEFIT OF MUTUAL FUND INVESTMENT
Recent trends in mutual fund industry Structure of the Indian mutual fund industry Mutual Fund Companies in India Major Mutual Fund Companies in India
ASSOCIATION OF MUTUAL FUND IN I NDIA (AMFI)
The objectives of AMFI Net Asset Value (NAV)
TYPES OF MUTUAL FUNDS SCHEMES
35
Open-end Funds Closed-ended Funds
41
INVESTMENT OBJECTIVE
43
Equity Oriented Schemes Debt Based Schemes Hybrid Schemes Special Schemes Tax Saving schemes Liquid Income Schemes Money Market Schemes
SNAPSHOT OF MUTUAL FUND SCHEMES
49
THE OFFER DOCUMENT
50
What is an Offer Document?
50
Contents Regulation and Investors' Rights SEBI Guidelines
55
Where to Obtain the Updated Offer Documents?
Investor’s rights & Obligations Rights - Legal Limitations Obligations
CHOOSING A FUND
57
Benchmark returns Time period Market conditions Final checklist
Compare funds that are similar
60
62
HISTORY OF INDIAN MUTUAL FUNDS INDUSTRY
First Phase – 1964-87 Second Phase – 1987-1993 (Entry of Public Sector Funds) Third Phase – 1993-2003 (Entry of Private Sector Funds) Fourth Phase – since February 2003
BROKERAGE
67
Asset Management Business :
67
Broking Mutual Fund Trends Nothing Speaks like Money Larger than Life
When do you take a this a Sales Call?
Fund Manager Research Marketing Sales Dealing Operations Technology
SBI MUTUAL FUNDS
Introduction Company Profile Product Profile Equity Schemes DEBT Schemes BALANCED SCHEMES
SBIMF WAS FOUNDED WITH A VISION
75
Vision
82
METHODOLOGY
Research Methodology
SOURCE OF DATA COLLECTION
86
Primary data Secondary data
DATA ANALYSIS & INTERPRETATION
85
Interpretation
87 101
People who invest in mutual fund
102
People who do not invest in mutual fund
104
LIMITATION
105
RECOMMENDATION
106
CONCLUSIONS
107
QUESTIONNIRE SURVEY
109
EXECUTIVE SUMMARY
Individual saving means spending less on consumption than available from one's disposable income. What an individual saves can be held in many ways. It can be deposited in a bank, put into a pension fund, used to buy a business, pay down debt, or kept under the mattress, for example. The common element is the claim on assets that can be used to pay for future consumption. If there is a return on the saving in the form of interest, dividend, rent, or capital gain, there can be a net gain in individual saving, and thus in individual wealth. In current scenario, the inflation rate is quite high and the interest rates are quite low so people don’t get satisfactory returns on their investments. While opting for traditional tax saving instruments like PPF and Fix Deposits the investor will get a return of 7% to 8% and sacrifice superior returns given by stocks. So study concentrate on Equity linked Saving Schemes offered by Mutual Funds. 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”. Usually, the investors appoint professional investment managers, to manage their funds. The same objective is achieved when professional investment managers create a “product”, and offer it for the investment to the investor. This product represents a share in the pool, and pre-states investment objectives. For Example, a mutual fund, which sells a “money market mutual fund,” is actually seeking investors willing to invest in a pool that invest predominately in money market This healthy growth of saving has been boosted by the household sector which has contributed a substantially high percentage to total
domestic savings. Traditionally, GIC, banks, LIC, and PFs have been intermediaries to mobilise domestic savings to the productive sectors of the economy. With the growth of capital markets and the emergence of alternative savings instruments, investors are tend to move towards liquid short term instruments as the units of the mutual funds along with corporate equities and debentures Mutual funds have been the latest growing institution during this period in the household savings sector. Growing market complications and investment risk in the stock market with high inflation have pushed households further towards mutual funds.
INTRODUCTION TO MUTUAL FUND Mutual Fund
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 invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciation realized by the scheme is 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 portfolio at a relatively low cost. The small savings of all the investors are put together to increase the buying power and hire a professional manager to invest and monitor the money. Anybody with an i surplus of as little as a few thousand rupees can invest in Mutual Funds it pre specifies the investment objectives of the fund, the risk associated, the costs involved in the process and the broad rules for entry into and exit from the fund and other areas of operation. In India, as in most countries, these sponsors need approval from a regulator, SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the sponsor and its financial strength in granting approval to the fund for commencing operations.
A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to be the custodian of the assets of the fund and perhaps a third one to handle registry work for the unit holders (subscribers) of the fund. In the Indian context, the sponsors promote the Asset Management Company also, in which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC).
Saving s Unit s
Unit holders
AMC Investment s
Trus t Return s
Registrar
SEBI
Trust Custodian
AMC
The structure consists of Sponsor Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the Investment Managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund.
Trust The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908. The Fund Sponsor acts as the Settler of the Trust, contributing to its initial capital and appoints a Trustee to hold the assets of the Trust for the benefit of the unit-holders, who are the beneficiaries of the Trust. The fund then invites investors to contribute their money in the common pool, by subscribing to "units" issued by various schemes established by the trust, units being the evidence of their beneficial interest in the fund.
It should be understood that a mutual fund is just "a pass-through" vehicle. Under the Indian Trusts Act. The Trust or the Fund has no independent legal capacity itself, rather it is the Trustee or Trustees who have the legal capacity and therefore all acts in relation to the trust are taken on its behalf by the Trustees. The Trustees hold the unit-holders' money in a fiduciary capacity i.e. the money belongs to the unit-holders and is entrusted to the fund for the purpose of investment. In legal parlance, the investors or the unit holders are the "beneficial owners" of the investments held by the Trust, even as these investments are held in the name of the trustees on a day-to-day basis. Being Public Trusts, mutual funds can invite any number of investors as beneficial owners in their investment schemes.
Trustee Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and interalia ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manner.
The Board or the Trustee Company, as an independent body, acts as protector of the unit-holders' interests. The Trustees do not directly manage the portfolio of securities. For this specialist function, they appoint an Asset Management Company. They ensure that the fund is managed by the AMC as per the defined objectives and in accordance with the Trust Deed and SEBI Regulations. The trust is created through a document called the Trust Deed that is executed by the Fund Sponsor in favour of the Trustees. The Trust Deed is required to be stamped as registered under the provisions of the Indian Registration Act and registered with SEB!. Clauses in the Trust Deed, inter alia, deal with the establishment of the Trust, the appointment of Trustees, their powers and duties, and the obligations of the Trustees towards the unit-holders and the AMC. These clauses also specify activities that the fund/AMC cannot undertake. The Third Schedule of the SEBI (MF) Regulations, 1996 specifies the contents of the Trust Deed. The Trustees being the primary guardians of the unit-holders' funds and assets, a Trustee has to be a person of high repute and integrity. SEBI has laid down a set of conditions to be fulfilled by the individuals being proposed as trustees of mutual funds - both independent
and
"disqualifications",
non-independent. SEBI
has
also
set
Besides down
specifying the
Rights
the and
Obligations of the Trustees. Broadly, the Trustees must ensure that the investors' interests are safeguarded and that the AMCs operations are along professional lines. They must also ensure that
the
management
of
the
fund
is
in
accordance
with
SEBI
Regulations. Some important rights and obligations are listed below. For details, please refer to Chapter IIIL of the SEBI (MF) Regulations-1996.
Asset Management Company (AMC) The Trustee as the Investment Manager of the Mutual Fund appoints the AMC. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. At least 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 crores at all times. The role of an AMC is to act as the Investment Manager of the Trust. The sponsors, or the Trustees, if so authorized by the Trust Deed, appoint the AMC. The AMC so appointed is required to be approved by SEBI. Once approved, the AMC functions under the supervision of its own Board of Directors, and also under the direction of the Trustees and SEBI. The Trustees are empowered to terminate the appointment of the AMC by majority and appoint a new AMC with the prior approval of SEBI and unit-holders. The AMC would, in the name of the Trust, float and then manage the different investment "schemes" as per SEBI Regulations and as per the Investment Management Agreement it signs with the Trustees. Chapter IV of SEBI (MF) Regulations, 1996 describes the issues relevant to appointment,
eligibility
criteria,
and
activities and obligations of the AMC.
restrictions
on
business
The AMC of a mutual fund must have a net worth of at least Rs. 10 crores at all times. Directors of the AMC, both independent and non-independent, should have adequate professional experience in financial services and should be individuals of high moral standing, a condition also applicable to other key personnel of the AMC. The AMC cannot act as a trustee of any other mutual fund. Besides its role as the fund manager, it may undertake specified activities such as advisory services and financial consulting, provided these activities are run independently of one another and the AMCs resources
(such
as
personnel,
systems,
etc.)
are
properly
segregated by activity. The AMC must always act in the interest of the unit-holders and report to the trustees with respect to its activities.
RISKS ASSOCIATED WITH MUTUAL FUNDS
Risk & Return
The performance of a fund depends upon two things must be considered
Return, and
Risk
Return
All investments are characterized by the expectation of a return in the future. In fact, investments are made with the primary objective of deriving a return. The return may be received in the form of yield plus capital appreciation. The difference between the sale price and the purchase price is capital appreciation. The dividend or interest received from the investment is the yield. The return from an investment depends upon the nature of the investment, the maturity period and a host of other factors.
But important thing is that the future is uncertain, so is the future expected return. The expected return is the uncertain future return that an investor expects to get from his investment. The realized return on the contrary, is the certain return that an investor has actually obtained from his investment at the end of the holding period. The investor makes the investment decision based on the expected return from the investment. The actual return realized from the investment may not correspond to the expected return. This possibility of variation of the actual return from the expected return
is
termed
as
risk.
There are three types of returns that can be calculated
Absolute return
Simple annualized return
Compounded annualized return
The formulae for each of the above mentioned returns are as follows: ABSOLUTE RETURN
Rn = (N2a-N1)* 100 / N1 SIMPLE ANNUALIZED RETURN Rn = (N2a-N1)* 100*365 / (N1*n) COMPOUNDED ANNUALIZED RETURN Rn=[{(N2a/N1)^(365/n)}-1]*100
Risk
In general, it refers to the possibility of incurring a loss in a financial transaction. “Risk” is the potential for variability in returns.” Risk arises where there is a possibility of variation between
expectations
and
realizations
with
regard
to
an
investment. The variation in returns is caused by a number of factors. These, factors which produce variations in the returns from an investment constitute the elements of risk. The elements of risk may be broadly classified into two groups. The first, group Comprises factors that are external to a company and affect a large number
of
securities
simultaneously.
These
are
mostly
uncontrollable in nature. The second, group includes those factors which are internal to the companies and affect only those particular companies. These are controllable to a great extent.
Risk produced by the first group of factors is known as systematic risk, and that produced by the second group is known as unsystematic risk. The total variability in returns of a security represents the total risk of that security. Where, Total
risk
=
systematic
risk
+
unsystematic
risk
Systematic risk
As the society is dynamic, changes occur in the economic, political and social systems constantly. These changes have an influence on the performance of companies and thereby on their stock prices but these changes affect all companies and all securities in varying degrees. Thus the impact of economic and political and social changes is system wide and that portion of total variability in security returns caused by such system-wide factors is referred as systematic risk. systematic risk is further subdivided into
Interest rate risk
Price risk
Reinvestment risk
Market risk and
Purchasing power risk (inflation risk)
Interest Rate Risk
In a free market economy interest rates are difficult if not impossible to predict. Changes in interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of bonds fall and vice versa. Equity might be negatively affected as well in a rising interest rate environment. Market Risk
Sometimes prices and yields of all securities rise and fall. Broad, outside influences affecting the market in general lead to this. This is true, may it be big corporations or smaller mid-sized companies. This is known as Market Risk.
Purchasing power risk
The root cause, “Inflation” is the loss of purchasing power over time. A lot of times people make conservative investment decisions to protect their capital but end up with a sum of money that can buy less than what the principal could at the time of the investment. This happens when inflation grows faster than the return on your investment. Unsystematic risk
The returns from a security may sometimes vary because of certain factors affecting only the company issuing such security. When variability of returns occurs because of such firm – specific factors, it is known as unsystematic risk. The unsystematic risk affecting specific securities arises from two sources:
The operating environment of the company, and
The financing pattern adopted by the company.
These two types of unsystematic risk are referred to as business risk and financial risk respectively. Business risk is a function of the operating conditions faced by a company and is the variability in operating income caused by the operating conditions of the company. Financial risk is the variability in EPS (earning per share) due to the p resence
of
debt
in
th e
c a p it a l
stru ctur e
of
a
compa ny .
Measurement of risk
Risk or variability in returns can be measured and can be analyzed in two ways
on portfolio basis, where the asset is held as one of a number of assets in a portfolio, and
On stan stand d alon alone e basi basis, s, wh wher ere e the the asse assett is consi onside dere red d in isolation.
Measuring stand alone risk- The Standard Deviation
Variance is a measure of fluctuation in returns. And like variance standard deviation is a comprehensive risk measure that considers considers both both marke markett retu return rn and comp company any retu return, rn, a highe higherr valuat valuatio ion n of standard deviation higher is the risk.
The variance and the standard deviation measure the extent to which which returns returns are expected expected to vary around an average average over time. time. They measure the riskiness of a Measuring systematic risk Beta
One of the most popular indicators of risk is a statistical measure called beta. Stock analysts use this measure all the time to get a sense of stocks' risk profiles. Beta is a measure of a stock's volatility in relation to the market. Beta is the only relevant measure of a stock's risk. It measures a stock's relative relative volatility volatility - that is, it shows how much the price of a particular stock jumps up and down compared with how much the stock market as a whole jumps up and down. The Beta coefficient, or financial elasticity is a sensitivity of the asset returns to market returns, relative volatility. Beta can also be defined as the risk of the stock to a diversified portfolio. Therefore the the beta beta of a stoc stock k will will be much uch lower ower than than its its (the (the stoc stock' k's) s) standard deviation. The formula for the Beta of an asset is The β coefficient measures the asset's non-diversifiable risk, also called systematic risk or market risk, where, rm measures the rate of return of the market and ra measures the rate of return of the asset. On an indi indivi vidua duall asset asset level level,, measu measuri ring ng beta beta can give give clue clues s to volati volatili lity ty and and liqui liquidi dity ty in the the marke marketp tplac lace. e. On a portf portfol olio io leve level, l,
measuring beta is thought to separate a manager's skill from his willingness to take risk. Disadvantages of Beta
However, if you are investing in a stock's fundamentals, beta has plenty of shortcomings. Like,
Beta doesn't incorporate new information.
At the same time, many new stocks are so new to the market that they have insufficient insufficient price history to establish establish a reliable reliable beta.
Anot An other her troub troubli ling ng fact factor or is that that past past price price movem movemen ents ts are very poor predictors predictors of the future. Betas are merely rear-view mirrors, reflecting very little of what lies ahead.
Lastly, the beta measure on a single stock tends to flip around over time, which makes it unreliable. Granted, for traders looking to buy and sell stocks within short time periods, beta is a fairly good risk metric. But for investors with long-term horizons, it's less useful.
Benefits of Mutual Fund investment
Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.
Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.
Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.
Return Potential Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected
securities.
Low Costs Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.
Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closedend schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.
Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.
Flexibility Through
features such as regular
withdrawal plans
and
investment plans, regular
dividend reinvestment plans, you
can
systematically invest or withdraw funds according to your needs and convenience.
Affordability
Investors individually may lack sufficient funds to invest in highgrade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.
Well Regulated All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors.
The
operations
of Mutual
Funds
are
regularly
monitored by SEBI.
Recent trends in mutual fund industry The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players. Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was not good. Some schemes
had
offered
guaranteed
returns
and
their
parent
organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. The service levels were also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the activity in a major way. The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in the long term and requires deep-pocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on. The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc. In fact, they have forced the industry to upgrade itself
and
service
levels
of
organizations like UTI have improved dramatically in the last few years
in
response
to
the
competition
provided
by
these.
Structure of the Indian mutual fund industry 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 nonUTI players entered the industry.
The Unit Trust of India dominates the Indian mutual fund industry, which has a total corpus of more than Rs700bn collected from more than 20 million investors. The UTI has many funds/schemes in all categories i.e. equity, balanced, income etc with some being openended and some being closed-ended. The Unit Scheme 1964 commonly referred to as US 64, which is a balanced fund, is the biggest scheme with a corpus of about Rs200bn. UTI was floated by financial institutions and is governed by a special act of Parliament. Most of its investors believe that the UTI is government owned and controlled, which, while legally incorrect, is true for all practical purposes. The second largest categories of mutual funds are the ones floated by nationalized banks. Canbank Asset Management floated by Canara Bank and SBI Funds Management floated by the State Bank of India are the largest of these. GIC AMC floated by General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of the other prominent ones. The third largest category of mutual funds is the ones floated by the private sector and by foreign asset management companies. The largest of these are Prudential ICICI AMC and Franklin Templeton AMC and HDFC AMC. The aggregate corpus of assets managed by this category of AMCs is in excess of Rs 300 bn. 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) were Rs. 67bn. The private sector entry to the fund family raised the AUM to Rs. 470 bn in March 1993 and till April 2005; it reached the Height of 1,640 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 but perception changing very fast now days. Large sections of Indian investors are yet to be educated 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.
Mutual Fund Companies in India
The concept of mutual funds in India dates back to the year 1963. The era between 1963 and 1987 marked the existence of only one mutual fund company in India
with Rs. 67bn assets under
management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By the end of the 80s decade, few other mutual fund companies in India took their position in mutual fund market. The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund.
The succeeding decade showed a new horizon in Indian mutual fund industry. By the end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started penetrating the fund families. In the same year the first Mutual Fund Regulations came into existence with re-registering all mutual funds except UTI. The regulations were further given a revised shape in 1996. Kothari Pioneer was the first private sector mutual fund company in India which has now merged with Franklin Templeton. Just after ten years with private sector player’s penetration, the total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India.
Major Mutual Fund Companies in India RELINACE
Reliance Mutual Fund (RMF) is one of India’s leading Mutual Funds, with Average Assets Under Management (AAUM) of Rs. 84563.92 Crs (AAUM for June 30th 08 ) and an investor base of over 68.38 Lakhs. Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is one of the fastest growing mutual funds in the country. RMF offers investors a well-rounded portfolio of products to meet varying investor requirements and has presence in 118 cities across the country. Reliance Mutual Fund constantly endeavors to launch innovative products and customer service initiatives to increase value to investors. "Reliance Mutual Fund schemes are managed by Reliance Capital Asset
Management Limited., a subsidiary of Reliance Capital Limited, which holds 93.37% of the paid-up capital of RCAM, the balance paid up capital being held by minority shareholders ICICI-Pru to unveil first FMP for retail investors
Mumbai: India's second largest mutual fund house ICICI-Prudential is offering a fixed maturity plan for retail investors. ICICI Prudential's equity-linked Fixed Maturity Plan (FMP) endeavors to couple the best features of equity and FMP. The most attaining feature of equity is its growth potential and the most salient feature of 'FMP' is its structure of downside protection. We hope to achieve the twin objective through the product. ICICI's product was India's first equity-linked FMP. Conventional investors fear a loss of money when the equity markets go down. This product will have ideally protected investors from wealth erosion in the recent crash. The equity-linked FMP brings an investment solution that offers risk-managed returns. This kind of product is popular among HNI clients of foreign banks. The minimum ticket size for the product being offered by foreign banks is Rs 10 lakh and above. The investors profit when the Nifty goes up. If the Nifty goes down, the fund is designed such that investors do not lose their initial corpus HDFC MUTUAL FUND
HDFC Asset Management Company (AMC) is the first AMC in India to have been assigned the ‘CRISIL Fund House Level – 1’ rating. This is its highest Fund Governance and Process Quality Rating which reflects the highest governance levels and fund management practices at HDFC AMC It is the only fund house to have been assigned this rating for two years in succession. Over the past, we have won a number of awards and accolades for our performance. Average Assets under Management for April 2008 : Rs. 51,770.82 crore, No. of investors : 2,865,557 , No. of
ARN certified distributors : 26,061 UTI
UTI Asset Management Company presently manages a corpus of over Rs. 46, 120 Crores * as on 31st July 2008 UTI Mutual Fund has a track record of managing a variety of schemes catering to the needs of every class of citizenry. It has a nationwide network consisting 98 UTI Financial Centres (UFCs) and UTI International offices in London, Dubai and Bahrain. With a view to reach to common investors at district level, 3 satellite offices have also been opened in select towns and districts. We have a well-qualified, professional fund management team, who have been highly empowered to manage funds with greater efficiency and accountability in the sole interest of unit holders. The fund managers are also ably supported with a strong in-house securities research department. To ensure better management of funds, a risk management department is also in operation
SBI MUTUAL FUND
SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable track record in judicious investments and consistent wealth creation. In twenty years of operation, the fund has launched 38 schemes and successfully redeemed fifteen of them. In the process it has rewarded it’s investors handsomely with consistently high returns. A total of over 5.4 million investors have reposed their faith in the wealth generation expertise of the Mutual Fund. Schemes of the Mutual fund have consistently outperformed benchmark indices and have emerged as the preferred investment for millions of investors and HNI’s. Today, the fund manages over
Rs. 31,794 crores of assets and has a diverse profile of investors actively parking their investments across 36 active schemes. The fund serves this vast family of investors by reaching out to them through network of over 130 points of acceptance, 28 investor service centers, 46 investor service desks and 56 district organisers.
Association of Mutual Funds in India(AMFI) With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organization. Association of Mutual Funds in India (AMFI) was incorporated
on
22nd
August,
1995.
AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors.
Assoc Associa iati tion on of Mu Mutu tual al Funds Funds Indi India a has broug brought ht down down the the India Indian n Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders.
The The objec objecti tives ves of Asso Associa ciati tion on of Mutu Mutual al Fund Funds s in India The Association of Mutual Funds of India works with 30 registered AMCs AM Cs of the the coun countr try. y. It has has cert certai ain n defi define ned d obje object ctiv ives es wh whic ich h juxtaposes the guidelines of its Board of Directors. The objectives are as follows: This mutual fund association of India maintains a high professional and ethical standard in all areas of operation of the industry.
It also recommends and promotes the top class business practices and code of conduct which is followed by members and related peop people le enga engag ged in the the acti activi viti ties es of mutua utuall fund fund and and asse assett management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry.] Association of Mutual Fund of India do represent the Government of Indi India, a, the the Rese Reserv rve e Bank Bank of Indi India a and and othe otherr rela relate ted d bodi bodies es on matters relating to the Mutual Fund Industry. It develops a team of well qualified and trained Agent distributors. It impl implem emen ents ts a prog progra ram m of trai traini ning ng and and cert certif ific icat atio ion n for for all all intermediaries and other engaged in the mutual fund industry. AMFI undertakes all India awareness programme for investors in order to promote proper understanding understanding of the concept and working of mutual funds. At last but not the least association of mutual fund of India also disseminate disseminate information’s information’s on Mutual Fund Industry and undertakes undertakes studies and research either directly or in association with other bodies.
Net Asset Value (NAV) 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 dissolved or liquidated, liquidated, by selling 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. For the purpose of the NAV calculation, the day on which NAV is calculated by a fund is known as the valuation date. 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 divided by the number of units outstanding. The detailed methodology for the calculation of the asset value is given below. Asset value is equal to Sum of market value of shares/debentures + Liquid assets/cash held, if any + Dividends/interest accrued - Amount due on unpaid assets - Expenses accrued but not paid
Details on the above items for liquid shares/debentures, valuation is done on the basis of the last or closing market price on the principal exchange where the security is traded. For illiquid and unlisted and/or thinly traded shares/debentures, the value has to be estimated. For shares, this could be the book value per share or an estimated market price if suitable benchmarks are available. For debentures and bonds, value is estimated on the basis of yields of comparable liquid securities after adjusting for liquidity. The value of fixed interest bearing securities moves in a direction opposite to interest rate changes Valuation of debentures and bonds is a big problem since most of them are unlisted and thinly traded. This gives considerable leeway to the AMCs on valuation and some of the AMCs are believed to take advantage of this and adopt flexible
valuation policies depending
on the
situation.
Interest is payable on debentures/bonds on a periodic basis say every 6 months. But, with every passing day, interest is said to be accrued, at the daily interest rate, which is calculated by dividing the periodic interest payment with the number of days in each period. Thus, accrued interest on a particular day is equal to the daily interest rate multiplied by the number of days since the last interest payment date. NAV of all schemes must be calculated and published at least weekly for closed end schemes and daily for open-end schemes.
NAV's for a day must also be posted on AMFI's website by 8.00 p.m. on that day. This applies to both the open-end and closed-end funds. One exception is those closed end schemes which are not mandatory required to be listed in any stock exchange- these funds may publish NAV at monthly or quarterly intervals as permitted by SEBI. An example of such permitted schemes is the Monthly Income Schemes that are not listed on a stock exchange. A fund's NAV is affected by four sets of factors:
Purchase and sale of investment securities
Valuation of all investment securities held
Other assets and liabilities, and
Units sold or redeemed
Nowadays, many funds calculate and announce their NAVs even daily. Such frequent computations of asset values involve valuation of all investment securities at their market prices and inclusion of other assets and liabilities. "Valuation" of securities is covered in the following Section Two.
"Other Assets" include any income due to the fund but not received as on the valuation date (for example, dividend announced
by
a company yet to be received).
"Other
Liabilities" have to include expenses payable by the fund, for example custodian fees or even the management fees payable to the AMC. These income and expense items have to be "accrued" and included in the computation of the NAY. SEBI requires, therefore, that all expenses and incomes are accrued up to the valuation date and considered for NAV computation. Major expenses such as management fees
should be accrued on a day-to-day basis, while others need not be so accrued, if non-accrual does not affect NAV by more than 1 %.
It can be seen from the NAV definition that additions to and sales from the portfolio of securities, and changes in the number of units outstanding will both affect the per unit asset value. Such changes in securities and number of units must be recorded by the next valuation date. If frequency of NAV declaration does not permit this, recording may be done within 7 days of the transaction, provided that the nonrecording does not affect NAV calculations by more than 2%. For example, if a fund declares NAV every week, with the next declaration date being January 15, then all sales/purchases/ redemptions up to January 14 have to be reflected in the NAV as of January 15, except for transactions whose value does not affect the NAV by more than 2%. Such unrecorded transactions have to be included in the next week's NAV calculation. If a fund calculates NAV daily, it will include all transactions concluded up to today, except for small-value transactions, which can be reflected in the next day's NAV subject to the 2% restriction. Open-end funds are required to declare their NAVs daily. Types of Mutual Fund Scheme
Mutual fund schemes may be classified on the basis of its structure and its investment objective. By Structure Open-end Funds
An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. Benefits of Open-ended Schemes Liquidity
In open-ended mutual funds, you can redeem all or part of your units any time you wish. Some schemes do have a lock-in period where an investor cannot return the units until the completion of such a lock-in period. Convenience
An investor can purchase or sell fund units directly from a fund, through a broker or a financial planner. The investor may opt for a Systematic Investment Plan (“SIP”) or a Systematic Withdrawal Advantage Plan (“SWAP”). In addition to this an investor receives account statements and portfolios of the schemes.
Flexibility
Mutual Funds offering multiple schemes allow investors to switch easily between various schemes. This flexibility gives the investor a convenient way to change the mix of his portfolio over time. Transparency
Open-ended mutual funds disclose their Net Asset Value (“NAV”) daily and the entire portfolio monthly. This level of transparency,
where the investor himself sees the underlying assets bought with his money, is unmatched by any other financial instrument. Thus the investor is in the know of the quality of the portfolio and can invest further or redeem depending on the kind of the portfolio that has been constructed by the investment manager. Closed-ended Funds
A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor.
Fixed Maturity
Fixed Corpus
Generally Listed
Buy and sell in the Stock Exchanges
Entry/Exit at the market prices
Investment Objective Equity Oriented 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.
Debt Based Schemes
These schemes, also commonly called 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 not in a position to take higher equity risks, such as retired individuals. 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. Hybrid Schemes
These schemes are commonly known as balanced schemes. These schemes 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 and are ideal for investors with a conservative, long-term orientation. General Purpose
The investment objectives of general-purpose equity schemes do not restrict them to invest in specific industries or sectors. They thus have a diversified portfolio of companies across a large spectrum of industries. While they are exposed to equity price risks, diversified general-purpose equity funds seek to reduce the sector or stock specific risks through diversification. They mainly have market risk exposure.
Sector Specific
These schemes restrict their investing to one or more pre-defined sectors, e.g. technology sector. Since they depend upon the performance of select sectors only, these schemes are inherently more risky than general-purpose schemes. They are suited for informed investors who wish to take a view and risk on the concerned sector. Special Schemes
Index schemes
The primary purpose of an Index is to serve as a measure of the performance of the market as a whole, or a specific sector of the market. An Index 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
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, 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. Real Estate Funds
Specialized real estate funds would invest in real estates directly, or may fund real estate developers or lend to them directly or buy shares of housing finance companies or may even buy their securitized assets .
Liquid Income Schemes
Similar to the Income scheme but with a shorter maturity than Income schemes. 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 networth individuals having short-term surplus funds.
Gilt Funds
This scheme primarily invests in Government Debt. Hence the investor usually does not have to worry about credit risk since Government Debt is generally credit risk free Balanced Funds
The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth.
Load Funds
A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history.
No-Load Funds
A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work.
Snapshot of Mutual Fund Schemes
Mutual
Fund
Objective
Risk type
Type Money market
Liquidity
+ Negligible
Investment
Who
Portfolio
invest
Treasury
moderate income +
Certificate
reservation
Deposits,
of
capital
t er m
oft he ir
(Floating
+L it tl e
ShortModerate Income
i nt er es tCall
rate
f un ds
current
Commercial papers,or
f un dsLiquidity
horizon
Bills, Those who park 2
call money S ho rt
shouldInvestment -
3
-
3
inweeks
account
sho rt
term
bank deposit money,Those
with3
commercial papers.surplus
term)
days
Treasury
weeks
shortmonths
bills,term funds
CD’s, Short Term G- secs. Bond funds (Floating
Regular Income Long-
Credit
risk
&Predominantly
Salaried
Interest rate risk Debentures,
term)
&More than 9 -
conservative
Government
12 months
investors
securities, corporate Bonds Gilt funds
Equity funds
Security& income Interest rate risk G overnment
Long term capitalHigh risk
Salaried
and12
months
securities
conservative
more
Stocks
Aggressive
3 years plus
appreciation
i nv es to rs long
term
w it h o ut
look. Index funds
To generate returns Nav, vary withPortfolio index likeAggressive which
areindex
BSE NIFTY etc
investors.
marketBalanced ratio
of Moderate
3 years plus
commensurate with performance returns Balanced funds
of
respective index Growth & regularCapital income
risk and interesteq ui ty
and
debtAggressive
risk
fu nd s
to
ig her
returns
ensure
lower risk
OFFER DOCUMENT
at
&2 year plus
&
INTRODUCTION What is an Offer Document?
When an Asset Management Company or a Fund Sponsor wishes to launch a new scheme of a mutual fund, they are required to formulate the details of the scheme and register it with SEBI before announcing the scheme and inviting the investors to subscribe to the fund. The document containing the details of a new scheme that the AMC or Sponsor prepares for and circulates to the prospective
investor
is
called
the
Prospectus
or
the
Offer
Document. Many investors are familiar with the prospectuses for new issues of shares in the primary markets. The Offer Documents issued by mutual funds serve the same purpose of inviting investors and giving them the information about the new issue. The prospectus of a closed-end fund is issued only once at the time of issue, as the units are normally not re-purchasable from investors. In fact, investment in a closed-end fund is like investing in
a
company
issuer's
new
shares. However,
it
should
be
understood that the open-end mutual funds could issue and repurchase units on an ongoing basis. This means that the offer document of the open-end funds is valid for all the time, until amended, though it will be first issued at the time of the launch of the scheme. SEBI requires the offer document of an open-end fund to
be
revised
Importance for the Investor
every
two
years
The offer document is one of the most important sources of information from the perspective of the prospective investor considering investment in a new mutual fund. Apart from the scheme details, the Offer Document also gives much valuable information that is relevant for the investor's decision making on whether he should consider subscribing to the new scheme being proposed. It is imperative that the investor carefully studies the information contained in the offer document before committing his investment. In particular, the investor must understand the fundamental attributes of the scheme, before he makes his investment decision. Fundamental attributes are the essence of the scheme and include key information such as the objectives and the terms of the scheme. Any change in the scheme attributes can only be made with the investors' approval or knowledge. The offer document is the operating document and describes the product i.e. the scheme on offer. For the investor to understand what he is buying, he needs to study the offer document carefully. As in the case of physical goods, the principle of 'BUYER BEWARE" applies here i.e. an investor who invests in units of a mutual fund without studying the information contained in the offer document cannot subsequently hold the fund responsible for loss. The investor must appreciate that he is buying units at his risk subject to information contained in the offer document. The offer document contains all of the important "disclosures" that the mutual fund has to make, by regulation. The fund's obligation to give the relevant information to the investor ends with the disclosures in the prospectus. The investor must base his decision on these disclosures. His right to ask for more information
generally is not tenable later on. The offer document is, therefore, the primary vehicle for the investment decision, a legal document that protects and governs the right of the investor to information before he takes his decision, and a reference document for the investor to look for the relevant information at any time. The investor and his advisor must, therefore, read and acquaint themselves thoroughly with this document. The offer document contains a statement that SEBI does not approve. or disapprove anything contained in the offer document; however, the trustees must vet the document before it is issued. The Contents
Broadly, the offer documents issued by mutual funds in India are required by SEBI to include the following information:
Details of the Sponsor and the AMC
Description
of
the
Scheme
and
the
investment
objective/strategy
Terms of Issue
Historical statistics
Investors' Rights and Services
In addition, an abridged version of the offer document is usually distributed with the application form. This is called the Key Information Memorandum.
SEBI Regulations lay down the format for a standard Offer Document and Key Information Memorandum. Mutual funds in India are required to follow this format. They may also include other disclosures, which are considered material by the Trustees from the investors' perspective. Section Two, which follows, outlines the specific items that must be included in the Offer Document. However, before we get into the specifics, we need to develop an appreciation of some of the practical aspects of the Offer Document. Regulation and Investors' Rights
Investors' Right to Information on Material Changes in Schemes SEBI does not permit a scheme to be launched unless the Offer Document is filed with it. The Offer Document must contain all of the essential information about the scheme. Hence, the Offer Document remains valid as long as the information it contains remains valid. In other words, the offer document will remain effective until a material change in any of its contents occurs. In any mutual fund scheme, material changes do occur over a period of time, thereby creating the need to revise the Offer Document.
Examples of such major changes include:
reconstitution of the AMC
imposing or enhancing of entry or exit loads
change in the key personnel of the AMC especially the fund manager
addition of new plans in the existing scheme
change in management/controlling interest of the AMC
fresh litigation cases or adjudication proceedings referred by SEBI against sponsors or any company associated with the sponsors, penalties imposed, etc.
SEBI Guidelines
SEBI wants to ensure the investors' basic right to information about the funds. The information source is primarily the Offer Document. Hence, SEBI has framed certain guidelines, with the objective being to help the investors to get all the material information about their schemes at all times, not just before they take investment decisions. These SEBI guidelines include: Periodic Revisions required in Offer Document
The offer document and the memorandum (i.e. abridged offer document) have to be fully revised and updated at least once in two years.
After completion of one year by any open ended scheme, its condensed financial information has to be included in the offer document and the memorandum. This information also has to be updated in the subsequent years in the form of addendum to the offer document till the time new revised offer document is printed.
Distribution of Revised Documents Specified
Till the time the offer document is revised and reprinted, an addendum giving details of each of the changes has to be attached to offer documents and the memorandum. The addendum has to be circulated to all the distributors/brokers, so that the same can be attached to all offer documents and abridged offer documents already in stock. The addendum has also to be sent to the existing unit holders.
The date of the revised offer document/latest addendum has to be given in the offer document. It may be mentioned in the offer document that the investors may also like to ascertain any further changes, after the date of the offer document, from
the
mutual
funds
its
investor
service
centers/
distributors or brokers.
The mutual funds have to make arrangements to display the modifications in the offer document in the form of a notice in all the investor service centers and in the offices of their distributors/brokers. The mutual funds may also give an advertisement or may issue a press release about new changes and these can also be displayed on the websites of mutual funds.
A copy of all changes has to be filed with SEB!.
Where to Obtain the Updated Offer Documents?
In view of the fact that the Offer Document is the only source of comprehensive, authentic. information about the scheme on offer and the fund itself, it is imperative that the investor secures a copy and studies it carefully. It is the investors' legal right to ask for a detailed offer document; the investor may obtain a copy of the Offer Document directly from the AMC/fund office or through an agent. The Key Information Memorandum is a concise version of the Offer Document, and it would be easier for the investor to obtain a copy with the application form at various distribution points such as the banks, the agents and brokers.
Investor’s rights & Obligations Rights - Legal Limitations
Unit holders are not distinct from trust, they cannot sue trust.
Sponsors do not have any legal obligations (Limited to initial contribution)
No rights to prospective investors
Obligations
Must read offer doc & AOD
Beware of risk factors
Must monitor investments regularly
Investor’s complaint redressal mechanism
Client Servicing
Compliance Officer
Companies Act cannot protect investors.
Choosing a Fund Choosing a mutual fund seems to have become a very complex affair lately. There is no dearth of funds in the market and they all clamor for attention. The most crucial factor in determining which one is better than the rest is to look at returns. Returns are the easiest to measure and compare across funds. At the most trivial level, the return that a fund gives over a given period is just the percentage difference between the starting Net Asset Value (price of unit of a fund) and the ending Net Asset Value. Returns by themselves don't serve much purpose. The purpose of calculating returns is to make a comparison. Either between different funds or time periods. Absolute returns Absolute returns measure how much a fund has gained over a certain period. So you look at the NAV on one day and look at it, say, six months or one year or two years later. The percentage difference will tell you the return over this time frame. But when using this parameter to compare one fund with another, make sure that you compare the right fund. So the returns of a diversified equity fund (one that invests in different companies of various sectors), should be compare with other diversified equity funds. Don't compare it with a sector fund, which invests only in companies of a particular sector. Don't even compare it with a balanced fund (one that invests in equity and fixed return instruments).
Benchmark returns
This will give a standard to make the comparison. It basically indicates what the fund has earned as against what it should have earned. A fund's benchmark is an index that is chosen by a fund company to serve as a standard for its returns. The market watchdog, the Securities and Exchange Board of India, has made it mandatory for funds to declare a benchmark index. In effect, the fund is saying that the benchmark's returns are its target and a fund should be deemed to have done well if it manages to beat the benchmark. Let's
say
the
fund
is
a
diversified
equity
fund
that
has
benchmarked itself against the Sensex. So the returns of this fund will be compared vis-a-vis the Sensex. Now if the markets are doing fabulously well and the Sensex keeps climbing upwards steadily, then anything less than fabulous returns from the fund would actually be a disappointment. If the Sensex rises by 10% over two months and the fund's NAV rises by 12%, it is said to have outperformed its benchmark. If the NAV rose by just 8%, it is said to have under performed the benchmark. But if the Sensex drops by 10% over a period of two months and during that time, the fund's NAV drops by only 6%, then the fund is said to have outperformed the benchmark. A fund's returns compared to its benchmark are called
its
benchmark returns. At the current high point in the stock market, almost every equity fund has done extremely well but many of them have negative benchmark returns, indicating that their performance is just a side-
effect of the markets' rise rather than some brilliant work by the fund manager. Time period
The most important thing while measuring or comparing returns is to choose an appropriate time period. The time period over which returns should be compared and evaluated has to be the same over which that fund type is meant to be invested in. If you are comparing equity funds then you must use three to five year returns. But this is not the case of every other fund. For instance, cash funds are known as ultra short-term bond funds or liquid funds that invest in fixed return instruments of very short maturities. Their main aim is to preserve the principal and earn a modest return. So the money you invest will eventually be returned to you with a little something added. Investors invest in these funds for a very short time frame of around a few months. So it is all right to compare these funds on the basis of their six-month returns.
Market conditions
It is also important to see whether a fund's return history is long enough for it to have seen all kinds of market conditions. For example, at this point of time, there are equity funds that were launched one to two years ago and have done very well. However, such funds have never seen a sustained declining market (bear
market). So it is a little misleading to look at their rate of return since launch and compare that to other funds that have had to face bad markets. If a fund has proved its mettle in a bear market and has not dipped as much as its benchmark, then the fund manager deserves a pat on
the
back.
Final checklist Compare funds that are similar
Compare a fund with it's own stated benchmark, not another. For instance, Fidelity Equity, Escorts Growth and BoB Growth are all diversified equity funds with different benchmarks.
While there are other factors that have to be considered when investing in a mutual fund, return is the most important. So make sure you do your homework right on this count. The rational choice is to choose an option where the tax liability is the lowest. Of course, the choice may be superceded by some specific requirements. You will consider dividend payout if you need a regular income. Or, if you want your investment to grow over the years, you should opt for the growth option.
If you want to invest in an equity fund for less than a year, it is better to go for dividend payout or re-investment option as it reduces your tax liability.
Debt funds are not so simple, as you have to balance out between the capital gains tax and the dividend distribution tax.
For a person whose total income falls below the minimum taxable limits, it is advisable to go for a growth or a bonus option. This will save the investor from dividend distribution tax and nor will he be subject to capital gains tax.
If you are a taxpayer and plan to hold a debt fund for less than one year and fall under the 10% tax slab, then go for the growth option or the bonus option, as this will save you from the 12.5% dividend distribution tax, while your capital gains tax will be at the lower rate of 10%.
However, if you fall in a higher tax slab of 20% or 30%, then it would make more sense to go for the dividend payout or reinvestment option, which will save you more on the capital gains tax, even after factoring in the dividend distribution tax in most of the cases.
As regards the long-term investment in a debt-oriented fund, it would be advisable to go for growth or bonus option. This is because the capital gains tax liability on such an investment cannot be more than 10% and you will not shell out the 12.5% dividend distribution tax.
While evaluating the performance of a portfolio, the return earned on the portfolio has to be evaluated in the context of the risk associated with that of portfolio.
HISTORY OF INDIAN MUTUAL FUNDS INDUSTRY The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct phases. First Phase – 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. 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)
1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 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
established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 Crores.
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
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under 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 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 assets under management 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 schemes.
The graph indicates the growth of assets over the years.
GROWTH IN ASSETS UNDER MANAGEMENT
Note: While UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India effective from February 2003. The Assets under management of the Specified Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from February 2003 onwards. The Assets under Management of UTI was Rs. 67bn. by the end of 1987. The performance of mutual funds in India through figures is appreciable. From Rs. 67bn. the Assets under Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher performance by April 2004. It rose as high as Rs. 1,540bn. The net asset value (NAV) of mutual funds in India declined when stock prices started falling in the year 1992. Those days, the market regulations did not allow portfolio shifts into alternative investments. There was rather no choice apart from holding the cash or to further continue investing in shares. One more thing to be noted, since only closed-end funds were floated in the market, the investors disinvested by selling at a loss in the secondary market. The performance of mutual funds in India suffered qualitatively. The 1992 stock market scandal, the losses by disinvestments and of course the lack of transparent rules in the whereabouts rocked confidence among the investors. Funds now have shifted their focus to the recession free sectors like
pharmaceuticals,
FMCG
and
technology
sector.
Funds
performances are improving. Funds collection, which averaged at less than Rs100bn per annum over five-year period spanning 199398 doubled to Rs210bn in 1998-99. In the 2000 mobilization had
exceeded Rs300bn. Total collection for the financial year ending March 2000 reached Rs450bn. India had been at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change. The figures indicate that in the first quarter of the year 1999-2000 mutual fund assets went up by 115% whereas bank deposits rose by only 17%. (Source: Think tank, The Financial Express September, 99)
This is forcing a large number of banks to
adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely. Their role as intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way banks do business in the future
Brokerage Industry Overview Asset Management Business:
What do you do if all you want to deal is in money and the people who make money (at least in the bull run), want to meet CEOs of large listed companies on a regular basis and thinking about becoming the next Peter Lynch out of India: join the business of managing money i.e. Asset Management. Asset Managers are the professionals who manage your portfolio investments in mutual funds. Broadly, Asset Managers' role is to convert mass-savings in to profitable investments. Typically asset management is used in a more restrictive sense of investing in securities and instruments that are issued in either Money Market or in Capital Market. In larger sense, it can also be used for investments in currently non-tradable securities, however expected to become tradable sometime in future, such as Venture Capital. The asset manager's role is specified by the investment objectives which he or she seeks to achieve by investing in a variety of instruments. Generic categories invested in are obviously Debt and Equity. However based on two factors, duration and uncertainty or risk, each of these could be segmented in to several types such as call money, short-term debt, government debt, corporate debt, defensive shares, aggressive shares, convertibles etc. The industry consists of several participants such as investment bankis,
brokerages,
mutual
funds,
insurance
companies
and
commercial banks. These different outfits provide different roles and opportunities to the interested professionals. Mutual Funds are
the firms that are of central importance in this whole scheme, while Brokerages are the exchange-registered firms that are authorised to buy and sell securities on the behalf of these funds. Investment Banking is a profession in its own right, and is of peripheral interest in talking about Asset Management. Investment Banks play a role in origination of fresh securities, acting as intermediaries both, in private placements deals as well as in IPOs. Banks and Insurance companies also invest in various asset classes, as a part of assetliability matching exercise. The firms that play the most active roles in securities business are Brokerages and Mutual Funds. Typical roles that exist in the business are in Sales/Dealing, Research and Portfolio Management. The former two are found in Broking, while all the three are found in a Mutual Fund. Broking
The roles that are of interest to finance professionals in a Brokerage, related to this business are in Sales/ Dealing and in Research. Sales is about generating the buy/ sell orders from the clients as well as providing a variety of services to these clients. Dealing relates to execution of these orders. In some brokerages, the same team does dealing in the market hours, while is selling is done in the after-market hours. Research in brokerage is done as an advisory "free" service to the clients. Research done in Brokerages houses is called sell -side research. The focus is on generating brokerage business by providing buy-sell advice. There is a high-degree of client focus in sell-side research. Some researchers focus on just providing information, while others
provide full-fledged research reports on Companies, Industries and Economy. Mutual Fund
Mutual Funds provide the most comprehensive roles in the asset management business to the finance professionals. The roles exist in Research, Portfolio Management and Dealing/ Trading. Trends
Mutual funds in India are experiencing never before collections riding on the bull run, slew of new products, improved customer service and huge advertising campaigns. The industry, which was dominated earlier by public sector (UTI and others), is shifting towards private sector domination with the emergence of new layers like Birla, ICICI Prudential, Kothari Pioneer etc. The lure of Indian markets has not left even the largest mutual fund in the world, Fidelity untouched which is about to make its debut soon. The other new player in the market is Principal Group of USA (in collaboration with IDBI). Most of the foreign and private sector banks (Standard Chartered, ANZ, Amex, HDFC) are thinking about mutual fund plans. The hottest development in the industry is internet trading with SEBI allowing individuals to put their buy and sell order thru the inernet. A lot of action (and bloodbath) is expected in the sector in coming months. Nothing Speaks like Money
The money in asset management probably can’ t match that in investment banking, but it is becoming almost as good. Good fund
managers and brokers tend to earn as good money as anybody in investment banking and if you like the game of stock investing and trading, then probably you could end up making more bucks from your personal portfolio than you would care to get in salary. And all this without the pressure packed work life of investment banking. Larger than Life
If Fidelity created a Peter Lynch in USA, the mutual fund industry in India is creating many in the form of Sameer Arora, Bharat Shah and Ketan Parekh. If you are successful in making more money from money, then nothing can beat you. Whether you are a research analyst or a fund manager, a good performance at work has the potential to catapult you into the big league where you would be almost worshipped by people. When do you take a Break?
After a period of time you won't be able to distinguish when you're working and when you're not. When you are home after watching BSE sensex gyrate 300 points up and 250 points down, you would be tuned to CNBC to find out the latest Infy price on NASDAQ (the premier technology exchange based in USA for the uninitiated). That's not to say you won't be able to get away to the Goa from time to time, but your mind will always be on stocks and the stock market. You will be completely addicted to finding the next bit of news and data on the stock you added to your portfolio recently. Your brain will take over your apartment. Is this a Sales Call?
If you happen to be part of the sales team at brokerage houses, prepare to be hated, hung up on, abused, and ignored. Cold calling is the most ego-battering, exhausting form of misery ever devised. But calling people regularly who give you business and thus bonuses (read fund managers) is part of the ritual everyday, if you plan to sell and sell well. You will soon forget this when you get a glimpse of your year-end bonus. Good sales people are the most wanted and highest paid professionals in the business Employment Tips Key Jobs
Fund Manager
Research
Dealing
Sales
Marketing
Ttechnology Operations (back office)
Fund Manager
This is the biggest of them all. If you are in fund management, that’s what you aspire to be. But getting here is not easy. Most of the fund managers a re groomed internally, typically have research background and have to prove themselves before they are promoted to the position. As a fund manager, you would be involved in stock allocation, sector allocation, putting buy and sell orders to trading room, portfolio
review
and
reporting.
The
operations
in
asset
management companies are centered around fund managers. With the advent of more opportunities and growth in the sector, the demand for good fund manager is rising and you can expect to become a fund manager with 4-5 year of research experience except in some public sector funds (UTI) where you can expect much bigger responsibilities much early in your career. Research
This is where most of the fresh MBAs are absorbed. In a mutual fund this will be called ‘buy side research’ where in you would be making internal research for
investment decisions
and
your
research will not be published. While in brokerages you will be part of ‘sell side research’ and your reports will go out to fund managers and other people connected to the markets. Typically you would be assisting a senior research analyst who could be handling research in a number of industry sectors, securities markets or economy. A research analyst values individual stocks by forecasting cash flows, profits and other efficiency parameters. This job typically involves
meeting
dynamics, quarterly
company
management,
results, daily
tracking
news and
other
industry corporate
developments to arrive at forecasts. After putting in few years of research work, you can expect to graduate to being a research head or an assistant fund manager. Propelled by the demand being driven by surging stock markets, you would probably find it easy to get a research job. But to excel in research you need to have good analytical and communication skills (at least writing skills) and a good understanding of theoretical concepts in finance. Marketing
If you aspire to be a marketing wizard, the growth of the mutual fund
industry
by
leaps
and bound
provides
you
plenty
of
opportunities to hone your skills and put your creative energies to work. The
marketing
budgets
at most
of
the
asset
management
companies are being reworked to meet the increased demand and you will be able to work on product launches, target markets, and entirely new marketing concepts like internet distribution and financial supermarkets. Also a fair amount of your time will be spent watching the rearview mirror so that you don't get beaten to the punch with a hot new product from "Kothari Pioneer". Sales
As a sales person, you could be involved in retail or institutional sales. In mutual funds you would be selling the schemes. While in a broker house your time will be used in soliciting business (i.e. buy and sell orders) from clients. The key to success in a sales job is building of lasting client relationships. Dealing
Did you watch your mom haggling over the price of vegetable during your wonder years. Think you can do the same. Then you are (over) qualified for being a dealer. Dealers are responsible for executing the buy and sell orders given by fund managers. To excel in a dealer’s job you require a cool head (to be able to take 300+ and 200 down movement of BSE within an hour), speed of thinking (to get that lot of Wipro before someone else does), and great people skills. Operations
The role of back office is to handle post trade activities including settlement, payments etc. In mutual funds, they would be also be involved in calculating NAVs of the funds.
Technology
That’s where many challenging opportunities are coming. The convergence in banking and mutual fund product offerings and new channels of distribution (including internet) has created a lot of space for technology people within the sector. You would be involved in automating the processes and integration of various platform used for dealing, distribution.
SBI MUTUAL FUNDS INTRODUCTION 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 and Société Générale Asset Management, one of the world’s leading fund management companies that manages over US$ 500 Billion worldwide. SGAM was established in the year 1996 and has presence in United States, Continental Europe, United Kingdom and Asia SBI Mutual Funds is the first mutual fund set up by the public sector bank. Last year SBI Mutual Funds as one of the fastest growing AMCs (Assets Managements Company) in the country registered a total Income at Rs.127.77 crs. posted a YOY growth of 55% and Profit After Tax at Rs.47.77 crs. posted a YOY growth of 81%. Its assets under management of Rs. 30,132 Crores as on June 2008. The Board of Trustees of SBI MF has entrusted the management of the fund to SBI Funds Management Pvt. Ltd., the AMC.
COMPANY PROFILE SBI Funds Management Pvt. Ltd. (SBIMF) having it’s corporate office at 191, Maker Tower “E”, 19 th Floor, Cuffe Parade, Mumbai 400 005 is a joint venture between SBI and SGAM. Today the Fund has an investor base of over 2.8 million spread over 23 schemes.
Pursuant to the shareholder’s and Share
Purchase Agreement dated November 5, 2004 entered into amongst State Bank of India (SBI), Societe Generale Asset Management (SGAM), Societe Generale S.A. and SBI Funds Management Private Limited (SBIFM), 37% of the paid up share capital of the AMC (i.e. 18,50,000 equity shares of Rs. 100/- each) had been transferred by SBI to SGAM on December 21, 2004. SBIFM had entered into an Investment Management Agreement with the Trustees of SBI Mutual Fund on 14th May, 1993 and also a supplemental thereto on 28th April, 2003 and the same have been replaced by Restated and Amended Investment Agreement entered into between SBIMFTCPL and SBIMF on December 29, 2004. in terms of this Agreement,
SBIMF
has
assumed
the
day
to
day
investment
management of the fund and in that capacity makes investment decisions and manages the SBI Mutual Fund Schemes in accordance with the scheme objectives, Trust deed, provisions of Investment Management Agreement and SEBI Regulations & Guidelines. To date, SBIMF has successfully launched and managed 37 schemes (including 2 offshore funds) of SBI Mutual Funds of which 19 schemes have been redeemed. Of the 18 schemes still being managed, 16 are open-ended schemes and the rest are close-ended schemes, with total net assets of Rs. 30,132 Crores as on June 2008. In addition to the Investment Management activity, SBI Funds Management Private Limited has also been granted a certificate of
registration as a Portfolio Manager with registration code INP000000852. the certificate of registration is valid for a period of three years up to 15th January 2007. The AMC certifies that there would be no conflict between the Asset Management activity and the Portfolio Management activity.
Sponsor Sponsor is a person who sets up a Mutual Fund. Sponsor contributes to the initial capital of the Trust. Sponsor appoints the Board of Trustees. Sponsor appoints Asset Management Company. Sponsor contributes minimum 40% of net worth of AMC. For SBI Mutual Fund the sponsor is State Bank of India
Board of Trustees Trustees appointed by the Sponsor with SEBI approval. Trustees oversee the functioning of AMC. The trustee company is SBI Mutual Fund Trustee Company Private Limited
Registrar & Transfer Agent The Registrar & Transfer Agent issues, redeems, transfers units of MF schemes and Keeps Unit Holders A/c’s upto date. For SBI MF The Registrar
is
Computer
Age
Management
Services
Pvt.
Ltd.,
Computronics Financial Services India Ltd and Datamatics Financial Software Services Ltd.
Custodian A Custodian keep record & account of Securities / Investments and Collects benefits under Securities. The custodian for SBI MF is Citi Bank, HDFC Bank Ltd. And Stock Holding Corporation of India. PRODUCT PROFILE
SCHEMES OF SBI
1) EQUITY SCHEMS 2) DEBT SCHEMES 3) BALANCED SCHEMES
EQUITY 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 are 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 Equity 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 - Emerging Businesses Fund
MSFU - IT Fund
MSFU - Pharma Fund
MSFU - Contra Fund
MSFU - FMCG Fund
SBI Arbitrage Opportunities Fund
SBI Blue chip Fund
SBI Infrastructure Fund - Series I
SBI Magnum Tax gain Scheme 1993
SBI ONE India Fund
SBI TAX ADVANTAGE FUND - SERIES I
DEBT 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
1.
Magnum Gilt Fund (Long Term)
2.
Magnum Gilt Fund (Short Term)
Magnum Income Fund
Magnum Income Plus Fund
1.
Magnum Income Plus Fund (Saving Plan)
2.
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
1. SDFS 15 Months Fund 2. SDFS 90 Days Fund
3. SDFS 13 Months Fund 4. SDFS 18 Months Fund 5. SDFS 24 Months Fund 6. SDFS 30 DAYS 7. SDFS 30 DAYS 8. SDFS 60 Days Fund 9. SDFS 180 Days Fund 10. SDFS 30 DAYS
SBI Premier Liquid Fund
SBI Short Horizon Fund
1.
SBI Short Horizon Fund - Liquid Plus Fund
2.
SBI Short Horizon Fund - Short Term Fund
BALANCED 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
SBI Mutual Fund was founded with a vision:
SBI MF draws its strength from India's Largest Bank State Bank of India and Societe Generale Asset Management, France
SBI Mutual Fund is celebrating 20 years of rich experience in fund management. We are a joint venture between State Bank of India—one of India's largest banking enterprises—and Societe Generale Asset Management (France)—one of the world's leading fund management companies. vision:
“To reach out to the smallest of the small investor and provide them with alternate investment options to help achieve their financial goals.” It is our endeavour to be a globally respected organisation whose core values lie in the integrity and consistency with which we provide expert investment solutions and value to our investors.
In 1987, we took on the challenging task of establishing mutual funds as a viable investment option to the masses in our country. For this, we developed innovative, need specific products and educate them about the benefit of investing in capital markets through mutual funds. Today, we offer our investment expertise not only in domestic mutual funds but
also offer an Offshore Fund, and Portfolio Management Services for institutional
clients
through
SBI
Funds
Management
Pvt.
Ltd.
Empowering dreams of investors has always been our singular focus. At SBI MF, we devote considerable resources to gain, maintain and sustain our profitable insights into market movements. We consistently push the envelope to ensure our investors get value for their investments. The trust reposed on us by over 37 lac investors is a genuine tribute to our expertise in Fund Management and dedication to our singular focus. This has also resulted in various awards and accolades for us from the mutual fund industry. But naturally, this motivates us to do better.
Today, SBI MF has created an identity of its own by proposing and practicing customer care, financial inclusion and governance of the highest standards. We are now synonymous with Innovation and Performance—our benchmarks of success over the years. Our expertise and performance are frequently recognised by the industry and are responsible for us becoming proud recipients of numerous awards
OBJECTIVES Significance: Significance of the project is to analyze various tax saving investment instrument. This study will try to analyze various tools that help in judging the performance of mutual funds. The study will try to find out that out of a number of tax saving funds available in market how can an
investor select a fund on the basis of its performance and volatility measures with the help of certain statistical tools. The study also provides various investment options available for the investors. The study will compare various mutual funds that are eligible for deduction under section 80 C. Objectives: To study the Mutual funds industry in detail To study the Investment options available for investors To study the deduction under section 80 C for investment in various instruments. To do a comparative analysis of various Tax Saving Mutual Funds in Industry. To compare various tax saving funds on the basis of Standard Deviation, Sharp Ratio, Beta Ratio, R- Squared and Expense Ratio. Scope of the Study: In current scenario, the inflation rate is quite high and the interest rates are quite low so people don’t get satisfactory returns on their investments. While opting for traditional tax saving instruments like PPF and Fix Deposits the investor will get a return of 7% to 8% and sacrifice superior returns given by stocks. So study will concentrate on Equity linked Saving Schemes offered by Mutual Funds. There is a large number of tax saving funds available in the market. The study will concentrate on to do a comparative analysis of the funds on the basis of various ratios and other statistical tools.
METHODOLOGY
RESEARCH METHODOLOGY I decided to do the project in two parts. The first part of the project is comprised of the study of Mutual Funds as a whole and the second part deals with the investor’s perception regarding
their investment
preferences about investment in Mutual Funds. The first part of the project i.e. descriptive study is comprising an overall study of Mutual funds as what it is ,why to invest and where to invest, risk factor associated with it
ie, an overview of whole Mutual fund
industry. The second part of the project that is related to investors perception about investment in Mutual funds available in market. Indian Stock market has undergone tremendous changes over the years. Investment in Mutual Funds has become a major alternative among Investors. The project has been carried out to understand investor’s perception about Mutual Funds in the context of their trading preference and explore investor’s risk perception. The first part of the project relating the study of Mutual funds
is
collected through secondary data obtained from internet & books whereas the second part relating the Investors perception about investment in Mutual Funds is covered using primary data.
SOURCE OF DATA COLLECTION
Both Primary and Secondary data are required Primary data is the first hand information collected directly from the
respondents. The tool used here is questionnaire. Primary Data is collected through survey among existing clients along with the other investors Secondary data is collected through internet, books. I had prepared a
questionnaire for collecting information about second part of the pr oject.
DATA ANALYS AND INTERPRETATION Q1. Do you invest in mutual fund?
YES 2. NO
QUESTION
RESPONDENTS
YES
50
NO
150
180 160 140 120 100 NUMBER
80 60 40 20 0 Yes
(A)
If yes than
No
Q2. What is your main objective of investing in mutual funds?
Objectives of investment
Respondent
20
Growth Liquidity Safety Tax-saving Immediate gains Any other
8 4 16 2 0
20 15 10 numbers
5 0 Grow th
Q3:-
safety
Imm ediate gains
For how long have you been investing in mutual funds?
Less than 1 year
Between 1 to 2 years.
Between 2 to 3 years.
More than 3 years.
Period of Investment
Respondents
6
Less than one year Between 1 to 2 year
10
Between 2 to 3 years
14
More than 3 years
20
20 15 10
numbers
5 0 less than 1 yr.
Between 1 & 2 yr. Between 2 & 3 yr.
Q4:- Which type of mutual fund do you own?
Sector wise •
Public sector funds
•
Private sector funds
Nature wise •
Open ended funds
•
Close ended funds
Type wise •
Equity
•
Debt
•
Balanced
•
Blue chip
More than 3 yr.
Sector wise investment
Public sector funds Private sector funds
Respondent
34 16
Public Sector Privae Sector
Nature wise investment
Respondent
Open ended funds Close ended funds
38 12
40 35 30 25 20 15 10 5 0
Open ended funds Close ended funds
Type wise investment
Respondent
Equity Debt Balanced Blue-chip
20 14 6 10
25 20 15 numbers 10 5 0 Equity
Debt
Balanced
Q5:- Which information do you rely on?
Prospectus/Self analysis
News-paper
Investment adviser
TV.(CNBC,etc)
Friends/Relatives
blue-chip
Information Rely
Respondent
Prospectus/self analysis News paper Investment advisor T.V(NDTV, etc) Friends and relatives
14 8 12 10 6
14 12 10 8 6
Numbers
4 2 0 Prospectus
Q6:-
Invest. Advisor
Friends & Relatives
What is the most important criterion for you for selecting
a particular mutual fund?
Past performance
Service
Promoter’s background
Any other
Criterion for selection of fund
Respondent
Past performance Service
30 4
Promoter’s background Any other
8 8
30 25 20 15 NUMBER
10 5 0 PAST PERFORMANCE
SERVICE
PROMOTER BACKGROUND
ANY OTHER
Q7:- What is your level of satisfaction from your mutual fund?
Satisfied
Dissatisfied
Neither satisfied Nor dissatisfied
Level of satisfaction
Respondents
Satisfied
35
Dissatisfied
0
Neither satisfied nor dissatisfied
15
35 30 25 20 NUMBER
15 10 5 0 SATISFIED
DISSATISFIED
INDIFFERENT
Q8:- What deficiencies do you find in your mutual fund?
Track record
Transparency
Service quality
Any other
Deficiencies in funds
Track records Transparency Service quality Any other
Respondent
6 20 14 10
20 15 10 NUMBER 5 0 TRACK RECORDSTRANSPARENCY
SERVICE QUALITY
ANY OTHER
Q10:- If you are given an option to invest, in which mutual fund would you like to invest In ?
UTI mutual fund
SBI mutual fund
Prudential ICICI mutual fund
HDFC mutual fund
Franklin Templeton mutual fund
HSBC mutual fund
Major Responses
UTI mutual fund SBI mutual fund Prudential ICICI mutual fund HDFC mutual fund Franklin Templeton mutual fund HSBC mutual fund
6 14 8 4 14 6
14 12 10 8 NUMBER
6 4 2 0 UTIMF
SBIMF
ICICIMF
HDFCMF
FRTMF
HSNCMF
Q11. Are you aware that mutual fund industry is regulated by SEBI?
Yes
No Awareness
about
SEBI Respondent
Regulation
Yes
40
No
10
40 35 30 25 20
NUMBER
15 10 5 0 YES
NO
Q11:-Do you think SEBI regulations regarding mutual fund are appropriate?
Yes
No
Appropriation of SEBI regulation
Respondent
Yes
35
No
15
35 30 25 20 Numbers
15 10 5 0 Yes
No
Q12:-What do you think about the future of mutual fund in India?
Very bright
Bright
Very bleak
Bleak
Does not know
Future of mutual fund in India
Respondent
Very bright Bright Very bleak Bleak Doesn’t know
8 20 0 6 16
20 15 10 Numbers 5 0 Very Bright
If no then
Bright
Bleak
Very Bleak
Dsnt Know
Q13:- Why you have not invested in mutual fund?
Lack of information
Past bad experience
High risk
Any other
Reason to not invest in mutual fund
Respondent
Lack of information
80
Past bad experience
20
High risk Any other
16 34
80 70 60 50 40 30 20 10 0
Num
Lack of knowledge
Past bad Experience
High Risk
Any Other
Q14:- Would you consider investing in mutual fund?
Yes
No
Will you invest in mutual funds
Respondent
Yes
50
No
100
100 80 60 Numbers
40 20 0 Yes
No
Interpretation
It was found that Bank deposits are still the most preferred investment instruments among most of the investors. The second most preferred investment instrument is the Insurance. Then comes the Bonds/Debentures, any Other (PPf, GPF, Property), Equity Shares, Mutual fund.
On the basis of survey conducted only 25% people invested in mutual fund, and 75% people are not invested in mutual fund.
People who invest in mutual fund
The objective of investing in mutual fund is Growth, second main objective is Tax saving.
Generally people have more than 3 years’ experience of investing in mutual fund. Some people have 2 to 3 years’ experience of investing in mutual fund.
Also most of people own Public sector mutual funds. They preferred the nature of mutual fund as an open-ended fund, and the type of mutual funds they preferred are Debt funds. Then comes Balanced and Equity fund.
People rely more on information supplied by friends,/relatives and by the investment adviser.
Mostly people are Satisfied with their mutual funds, some of them Neither satisfied Nor dissatisfied.
The main problem that the people find with mutual funds is Transparency in both Public and Private sector funds.
Regarding preference of mutual fund Prudential ICICI preferred by most of the investors. Second preference some investor preferred UTI, SBI, HDFC.
Above 80% of people aware that mutual fund industry is regulated by SEBI.
70% people think that SEBI regulations regarding mutual fund are appropriate.
According to survey 32% people Do not know about the future of mutual fund in India, 40% people think that the future of mutual fund is Bright.
People who do not invest in mutual fund
Also in India most of the people lack of awareness about mutual fund. They don’t know any thing about what is mutual fund, how it works. How fund managers invest people’s money in different portfolios and provide the better returns to the customers.
55% people were not considering to invest in mutual fund because they have had bad experience or they simply don't have money to invest.
LIMITATIONS
There were certain limitations faced during the study.
Some people were not willing to disclose the investment profile
The biased ness was being taken care of.
The area of sample was decided after taking into consideration the major factors like
Availability of investors
Approachability,
Time available with investor for interaction, etc.
RECOMMENDATIONS From my study I have found out that very less number of people are aware about Mutual Funds so the various Asset Management Companies should try to increase the Awareness level of the people collectively in the interest of both the investors and the industry. The advertisements should be put more into Financial Newspapers and on Business Channels as they are considered as highly Reliable by the investors. Various Asset Management Companies such as Fidelty, Franklin Templeton and other who were not in the top 5 companies as perceived by the investors should try to increase the awareness level of the people about their Brands. To maintain the investor’s faith in a Brand name it must provide good services and try to ensure the safety and profitability of their investment as they correlate a Good Brand name with Good Service.
CONCLUSION Today
large number of Mutual fund companies
are there in the
market. Presently all the mutual fund companies are governed by the rules and regulation framed by the (SEBI ) Securities and Exchange Board of India. Thus realizing the necessity of the performance appraisal of various mutual fund schemes in the present scenario comparative study of selected mutual fund schemes (Equity and tax saving schemes ) with the SBI mutual fund schemes has been undertaken. Comparison has been done taking into consideration the Various parameter like standard deviation , sharpe ratio, R Squared ratio, Alpha values , beta values etc. In conducting
the study secondary data has been used which was
collected from various books magazines, Newspapers , Internet, etc.and required information was also collected from various Mutual fund houses by visiting their offices. The comparative analysis of the mutual fund schemes enables us to rank the performance of various portfolios and evaluate the adequacy of their performance. These are abundantally relied both by the portfolio managers and investors in their investment decisions making process. It is shown in the study that schemes have perform well in the long run There are variation of return in the short run so investor may get benefit from a particular scheme and may earn loss in the short run but when we see the long run
return the results are
satisfactory . Schemes selected in the study ie. Equity schemes and Tax Saving schemes give better return over three year period, tax saving schemes have lock in period of three year so these schemes are better for long term investment they save tax
and give
satisfactory return also. It
to invest
is advisable for the investor
money in the mutual fund for long period of time and not for a month or two month , in the short run performance may or may not be satisfactory, in the long run mutual fund give better return
QUESTIONNIRE SURVEY My
Name
is
Lalit
Kumar
Chhoda;
I am from
“SBI
Funds
Management Pvt. Ltd”. I have been advised to conduct a survey
concerning, “ To assess the Study of Consumer Awareness, Perception and Practice Regarding of Mutual Fund Investment
and investors with various investment in mutual fund how to increase the market potential of “SBI MUTUAL FUND”. The Objective of the study is to know about the customer awareness, perception regarding of mutual fund, and market potential of
this organization and customers
desire related to current situation for improvement in quality of products and performance of services of this organization. We will maintain full secrecy of data provided by you. I
would be greatly obliged if you will
fill this questionnaire. QUESTIONNIRE SAMPLE
Q-1:- Do you invest in mutual fund?
(A)
Yes
No
If yes than
Q2:- What is your main objective of investing in mutual funds ?
Growth
Liquidity
Safety
Tax-saving
Immediate gains
Any other
Q3:- For how long have you been investing in mutual funds?
Less than 1 year Between 2 to 3 years
Between 1 to 2 years More than 3 years
Q4:- Which type of mutual fund do you own?
a. Sector wise Public sector funds
Private sector funds
b. Nature wise Open ended funds
Close ended funds
c. Type wise Equity
Debt
Balanced
Blue chip
Q5:- Which information do you rely on?
Prospectus/Self analysis Investment adviser
News-paper TV.(CNBC,etc)
Friends/Relatives Q6:- What is the most important criterion for you for selecting a particular mutual fund?
Past performance
Service
Promoter’s background
Any other
Q7:- What is your level of satisfaction from your mutual fund?
Satisfied
Dissatisfied
Neither satisfied Nor dissatisfied Q8:- What deficiencies do you find in your mutual fund?
Service quality
Track record
Transparency Any other
Q9:- If you are given an option to invest, in which mutual fund would you like to invest in?
UTI mutual fund
SBI mutual fund
Prudential ICICI mutual fund
HDFC mutual fund
Franklin Templeton mutual fund
HSBC mutual fund
Q10:- Are you aware that mutual fund industry is regulated by SEBI?
Yes
No
Q11:-Do you think SEBI regulations regarding mutual fund are appropriate?
Yes
No
Q12:-What do you think about the future of mutual fund in India?
Very bright
Bright
Very bleak
Bleak
Does not know If no then
Q13:- Why you have not invested in mutual fund?
Lack of information
Past bad experience
High risk
Any other
Q14:- Would you consider investing in mutual fund?
Yes
No
NAME ______________________________________________________
SEX
M
AGE:
<25
F
25-45
46-60
ABOVE 61
OCCUPATION:
SERVICE
BUSINESS
PROFESSIONAL
SELF EMPLOYED
HOUSE WIFE
INCOME:
0-100000
300001-500000
100001-300000
500001 and above
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