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A PROJECT REPORT ON
MUTUAL FUND INVESTMENT
BY
CHETANAS
HAZARIMAL SOMANI COLLEGE OF COMMERCE AND
ECONOMICS
BANDRA (E), MUMBAI 400 051
DECLARATION
I further declare that information submitted by me is true and original to the best of my
knowledge.
DATED: ____________
PLACE: _____________
______________________
Signature of Student
(Rahul D. Belote)
CERTIFICATE
This to certify that Mr. Rahul D. Belote has successfully carried out the project work on
the topic of Study Of Marketing Strategy Of Hotel In Mumbai in partial fulfillment of
Bachelor of Management Studies as per the curriculum laid down by the University of
Mumbai for the academic year 2012-2013.
This is a bonafide project work and to the best of my knowledge, the information
presented is true and original.
Project Guide
External Examiner
Co-ordinator
Principal
Date:
Place:
College Seal
ACKNOWLEDEGEMENT
OBJECTIVES
To give a brief idea about the benefits available from Mutual Fund Investment.
To give an idea of the types of schemes available
To discuss about the market trends of Mutual Fund investment.
To study some mutual fund companies and their funds.
To observe the fund management process of mutual funds.
Explore the recent developments in the mutual funds in India.
To give an idea about the regulations of mutual funds.
LIMITATIONS
Through I tried to collect some primary data but they were too inadequate for the
EXECUTIVE SUMMARY
A mutual fund is scheme in which several people invest their money for a
common financial cause. The collected money invests in the capital market
and money, which they earned, is divided based on the number of units,
which they hold.
The mutual fund industry started in India in a small way that the UTI Act
creating what was effectively a small savings division within the RBI. Over
a period of 25 years this grew fairly successfully and gave investors a good
return, and therefore in 1989, as the next logical step, public sector banks
financial institutions were allowed to float mutual funds and their success
emboldened the government to allow the private sector to foray into this
area.
The advantages of mutual fund are professional management,
diversification, economies of scale, simplicity, and liquidity.
The disadvantages of mutual fund are high costs, over-diversifications,
possible tax consequences, and the inability of management to guarantee a
superior return.
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.
6
The biggest problems with mutual funds are their cost and fees it include
purchase fee, Redemption fee, Exchange fee, management fee, Account fee
& Transaction costs. There are some loads which add to the cost of mutual
fund. Load is type of commission depending on the type of funds.
Mutual funds are easy to buy and sell. You can either buy them directly
from the fund company or through a third party. Before investing in any
funds one should consider some factor like objective, risk, Fund Managers
and scheme track record, cost factor etc.
There are many types of mutual funds. You can classify funds based
structure (open-ended & close-ended), Nature (equity, debt, balanced),
investment objectives (growth, income, money market) etc.
A code of conduct and registration structure for mutual fund intermediaries,
which were subsequently mandated by SEBI. In addition, this year AMFI
was involved in a number of developments and enhancements to the
regulatory framework.
INDEX
SR NO.
TOPICS
PAGE
NO.
1.
INTRODUCTION
2.
10
3.
12
4.
13
5.
16
6.
19
7.
24
RISK FACTORS
25
9.
26
10.
27
11.
30
12.
32
13.
33
14.
35
15.
37
16.
40
17.
ARTICLES
45
18.
CASE STUDY
50
19.
CONCLUSION
20.
BIBLOGRAPHY
8
INTRODUCTION
There are a lot of investment avenues available today in the financial market
for an investor with an investible surplus. He can invest in Bank Deposits,
Corporate Debentures, and Bonds where there is low risk but low return. He
may invest in stock of companies where the risk is high and the returns are
also proportionately high. The recent trends in the stock markets have
shown that an average retail investor always lost with periodic bearish tends.
10
People began opting for portfolio managers with expertise in stock markets
who could invest on their behalf. Thus we had wealth management services
provided by many institutions. However they proved too costly for a small
investor. These investors have found a good shelter with the mutual funds.
What is Mutual Fund?
A mutual fund is a financial intermediary that allows a group of investors to pool their
money together with a predetermined investment objective. The mutual fund will have a
fund manager who is responsible for investing the gathered money into wide variety of
different securities (stocks or bonds). When investors invest in a mutual fund, they are
buying units or portions of the mutual fund and thus on investing becomes a unit holder
of the fund.
A mutual fund is a professionally managed investment company that combines the
money of many individuals and invests this pooled money in a wide variety of different
securities. It is by pooling the money of many individuals that mutual funds are able to
provide the diversification and money management (along with many other advantages)
that were once reserved only for the wealthy.
Professional money managers take this pool of money and invest it in a wide variety
of stocks, bonds, or other securities depending on the investment objective, or goal, of the
particular fund. It is the investment objective of the fund that guides the manager in
selecting the various securities for the fund.
It is the investment objective of the mutual fund that also guides the investor on which
funds to invest in. Since different investors have different objectives, there are a number
of different kinds of mutual funds, i.e., some mutual funds may provide monthly income
while others seek long-term capital appreciation.
Mutual funds can be classified according to their investment objective. Some of the
classifications include money market funds, growth funds, balanced funds, income funds,
and many others.
11
A Mutual Fund is a vehicle for investing in stocks and bonds. It is not an alternative
investment option to stocks and bonds; rather it pools the money of several investors and
invests this in stocks, bonds, money market instruments and other types of securities.
Buying a mutual fund is like buying a small slice of a big pizza. The owner of a mutual
fund unit gets a proportional share of the fund's gains, losses, income and expenses.
A Mutual Fund is a body corporate registered with the Securities and Exchange Board
of India (SEBI) that pools up the money from individual / corporate investors and invests
the same on behalf of the investors /unit holders, in equity shares, Government securities,
Bonds, Call money markets, in order to provide highly relative safety and returns etc.,
and distributes the profits. In other words, a mutual fund allows an investor to indirectly
take a position in a basket of assets. Mutual funds have become one of the most attractive
ways for the average person to invest their money.
Each Mutual Fund with different type of schemes is managed by respective Asset
Management Company (AMC). An investor can invest his money in one or more
schemes of Mutual Fund according to his choice and becomes the unit holder of the
scheme. The invested money in a particular scheme of a Mutual Fund is then invested by
fund manager in different types of suitable stock and securities, bonds and money market
instruments. Each Mutual Fund is managed by qualified professional man, who uses this
money to create a portfolio which includes stock and shares, bonds, gilt, money-market
instruments or combination of all.
When investors invest in a mutual fund, they are buying units or portions of the
mutual fund and thus on investing becomes a unit holder of the fund. Mutual funds are
considered as one of the best available investments as compare to others they are very
cost efficient and also easy to invest in, thus by pooling money together in a mutual fund,
investors can purchase stocks or bonds with much lower trading costs than if they tried to
do it on their own. But the biggest advantage to mutual funds is diversification, by
minimizing risk & maximizing returns.
Mutual funds are set up to buy many stocks. Beyond that, investors can diversify even
more by purchasing different kinds of stocks which helps to spreading out investors
12
money across different types of investments and hence, reduces risk tremendously up to
certain extent. It could take you weeks to buy all these investments, but if you purchased
a few mutual funds you could be done in a few hours because mutual funds automatically
diversify in a predetermined category of investments.
It could take you weeks to buy all these investments, but if you purchased a few
mutual funds you could be done in a few hours because mutual funds automatically
diversify in a predetermined category of investments.
DEFINITIONS:
Mutual funds are collective savings and investments vehicles where savings of
small (or sometime big) investors are pooled together to invest for their mutual benefit
and returns distributed proportionately.
A mutual fund is on investment that pools your money with the money of an
unlimited number of other investors. In return, you and the other investors each own
shares of the fund. The funds assets are invested according to an investment objective
into the funds portfolio of investments. Aggressive growth funds seek long-term capital
growth by investing primarily in stocks of fast-growing smaller companies or market
segments. Aggressive growth funds are also called capital appreciation funds.
slightly higher as compared to the bank deposits but the risk involved also increases in
the same proportion.
Thus investors choose mutual funds as their primary means of investing, as Mutual
funds provide professional managements, diversification, convenience and liquidity.
That doesnt mean mutual fund investments risk free.
This is because the money that is pooled in are not invested only in debts funds which
are less higher riskier but are also invested in the stocks markets which involves a higher
risk but can expects higher returns. Hedge fund involves a very high risk since it is
mostly traded in the derivatives market which is considered very volatile.
RETURN RISK MATRIX
HIGHER RISK
HIGHER RISK.
MODERATE RETURNS
HIGHER RETURNS
EQUITY
VENTURE CAPITAL
BANK FD
MUTUAL FUNDS
POSTAL
SAVINGS
14
LOWER RISK
LOWER RETURNS
LOWER RISK
HIGHER RETURNS
First Phase-(1964-87):
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was
setup 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 managements.
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.
1992-93
UTI
Public Sector
Total
Amount Mobilised
Assets Under
Mobilisation as % of gross
Management
Domestic Savings
11,057
38,247
5.2%
1,964
8,757
0.9%
13,021
47,004
6.1%
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 doesn't come under the purview of the Mutual Fund Regulation The second is the
UTI Mutual Fund, 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. A graph indicates the growth of assets over the years.
A graph indicates the growth of assets under management over the years.
17
1) Professional Management
Mutual funds offer investors the opportunity to earn an income or build their wealth
through professional management of their investible funds. There are several aspects to
such professional management viz. investing in line with the investment objective,
investing based on adequate research, and ensuring that prudent investment processes are
followed.
2) Affordable Portfolio Diversification
Units of a scheme give investors exposure to a range of securities held in the
investment portfolio of the scheme. Thus, even a small investment of Rs 5,000 in a
mutual fund scheme can give investors a diversified investment portfolio. As will be seen
in Unit 12, with diversification, an investor ensures that all the eggs are not in the same
basket. Consequently, the investor is less likely to lose money on all the investments at
the same time. Thus, diversification helps reduce the risk in investment. In order to
achieve the same diversification as a mutual fund scheme, investors will need to set apart
several lakh of rupees. Instead, they can achieve the diversification through an investment
of a few thousand rupees in a mutual fund scheme.
3) Economies Of Scale
The pooling of large sums of money from so many investors makes it possible for the
mutual fund to engage professional managers to manage the investment. Individual
investors with small amounts to invest cannot, by themselves, afford to engage such
professional management. Large investment corpus leads to various other economies of
scale. For instance, costs related to investment research and office space get spread across
investors. Further, the higher transaction volume makes it possible to negotiate better
terms with brokers, bankers and other service providers.
4) Liquidity
At times, investors in financial markets are stuck with a security for which they cant
find a buyer worse; at times they cant find the company they invested in! Such
19
investments, whose value the investor cannot easily realise in the market, are technically
called illiquid investments and may result in losses for the investor. Investors in a mutual
fund scheme can recover the value of the moneys invested, from the mutual fund itself.
Depending on the structure of the mutual fund scheme, this would be possible, either at
any time, or during specific intervals, or only on closure of the scheme. Schemes where
the money can be recovered from the mutual fund only on closure of the scheme are
listed in a stock exchange. In such schemes, the investor can sell the units in the stock
exchange to recover the prevailing value of the investment.
5) Tax Benefits
Specific schemes of mutual funds (Equity Linked Savings Schemes) give investors the
benefit of deduction of the amount invested, from their income that is liable to tax. This
reduces their taxable income, and therefore the tax liability. Further, the dividend that the
investor receives from the scheme is tax-free in his hands.
6) Tax Deferral
As will be discussed in Unit 6, mutual funds are not liable to pay tax on the income
they earn. If the same income were to be earned by the investor directly, then tax may
have to be paid in the same financial year. Mutual funds offer options, whereby the
investor can let the moneys grow in the scheme for several years. By selecting such
options, it is possible for the investor to defer the tax liability. This helps investors to
legally build their wealth faster than would have been the case, if they were to pay tax on
the income each year.
7) Convenient Options
The options offered under a scheme allow investors to structure their investments in
line with their liquidity preference and tax position.
20
8) Investment Comfort
Once an investment is made with a mutual fund, they make it convenient for the
investor to make further purchases with very little documentation. This simplifies
subsequent investment activity.
9) Regulatory Comfort
The regulator, Securities & Exchange Board of India (SEBI) has mandated strict
checks and balances in the structure of mutual funds and their activities. These are
detailed in the subsequent units. Mutual fund investors benefit from such protection.
10) Systematic Approach To Investments
Mutual funds also offer facilities that help investor invest amounts regularly through a
Systematic Investment Plan (SIP); or withdraw amounts regularly through a Systematic
Withdrawal Plan (SWP); or move moneys between different kinds of schemes through a
Systematic Transfer Plan (STP). Such systematic approaches promote an investment
discipline, which is useful in long term wealth creation and protection.
investment management is left to the fund manager (within the broad parameters of the
investment objective). Thus, the unit-holder cannot influence what securities or
investments the scheme would buy. Large sections of investors lack the time or the
knowledge to be able to make portfolio choices. Therefore, lack of portfolio
customization is not a serious limitation in most cases.
I.
Choice Overload
Over 800 mutual fund schemes offered by 38 mutual funds and multiple options within
those schemes make it difficult for investors to choose between them. Greater
dissemination of industry information through various media and availability of
professional advisors in the market should help investors handle this overload.
II.
managing the scheme are shared by all the Unit holders in proportion to their holding of
Units in the scheme. Therefore, an individual investor has no control over the costs in a
scheme. SEBI has however imposed certain limits on the expenses that can be charged to
any scheme. These limits which vary with the size of assets and the nature of the scheme.
An investor in a mutual fund has no control of the overall of investing. The investor
pays investment management fees as long as he remains with the fund, albeit in return for
the professional management and research. Fees are payable even if the value of his
investments is declining. A mutual fund investor also pays fund distribution costs, which
he would not incur in direct investing. However, this shortcoming only means that there
is a cost to obtain the mutual fund services.
22
TYPES OF MUTUAL
FUNDS
BY
STRUCTURE
BY NATURE
Open
Ended
Schemes
Equity Fund
close
Ended
Schemes
Debt Fund
BY
INVESTMENT
OBJECTIVE
OTHER
SCHEMES
Growth
Schemes
Tax Saving
Schemes
Income
Schemes
Index
Schemes
23
Interval
Schemes
Balanced
Fund
Balanced
Schemes
Sector
Specific
Schemes
Money
Market
Schemes
A) BY STRUCTURE
I.
24
The scheme does not have any kind of time frame in which it is to be closed. The
ongoing entry and exit of investors implies that the unit capital in an open-ended
fund would keep changing on a regular basis.
II.
Close-ended funds:
Have a fixed maturity.
Investors can buy units of a close-ended scheme, from the fund, only during its
NFO.
The fund makes arrangements for the units to be traded, post-NFO in a stock
stock exchange.
Similarly, investors who want to sell Units will have to find a buyer for those
III.
Interval funds:
Combine features of both open-ended and close-ended schemes.
They are largely close-ended, but become open-ended at pre-specified intervals.
For instance, an interval scheme might become open-ended between January 1 to
B) BY NATURE
I.
Equity Fund:
These funds invest a maximum part of their corpus into equities holdings. The
structure of the fund may vary different for different schemes and the fund managers
outlook on different stocks. The Equity funds are sub-classified depending upon their
investment objective, as follows:
II.
Debt Funds:
The objective of these Funds is to invest in debt papers. Government authorities,
private companies, banks and financial institutions are some of the major issuers of
debt papers. By investing in debt instruments, these funds ensure low risk and
provide stable income to the investors. Debt funds are further classified as:
Gilt Funds:
Invest in only treasury bills and government securities, which do not have a credit risk
(i.e. the risk that the issuer of the security defaults).
Income Funds:
Invest a major portion into various debt instruments such as bonds, corporate
MIPs:
26
Seeks to declare a dividend every month. It therefore invests largely in debt securities.
However, a small percentage is invested in equity shares to improve the schemes yield.
As will be discussed in Unit 8, the term Monthly Income is a bit of a misnomer and
investor needs to study the scheme properly, before presuming that an income will be
received every month.
Meant for investment horizons for 3 to 6 months. These funds primarily invest in
short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs).
Some portion of the corpus is also invested in corporate debentures.
Liquid schemes:
Or Money Market Schemes are a variant of debt schemes that invest only in debt
securities where the moneys will be repaid within 91-days. As will be seen later in this
Work Book, these are widely recognized to be the lowest in risk among all kinds of
mutual fund schemes.
III.
Balance Funds
As the name suggest they, are a mix of both equity and debts funds. They invest in
both equities and fixed income securities, which are in line with pre-defined investment
objective of the scheme. These schemes aim to provide investors with the best of both
the words. Equity part provides growth and the debt part provides stability in returns.
Further the mutual funds can be broadly classified on the basis of investment
parameter viz,
27
C) BY INVESTMENT OBJECTIVE:
I.
Growth Schemes:
Growth Schemes are also known as equity schemes. The aim of these schemes is to
provide capital appreciation over medium to long term. These schemes normally invest a
major part of their fund in equities and are willing to bear short-term decline in value for
possible future appreciation.
II.
Balanced Funds:
Balanced Schemes aim to provide both growth and income by periodically distributing
a part of the income and capital gains they earn. These schemes invest in both shares and
fixed income securities, in the proportion indicated in their offer documents (normally
50:50).
III.
Income Funds:
Income Schemes are also known as Debt schemes. The aim of these schemes is to
provide regular and steady income to investors. These schemes generally invest in fixed
income securities such as bonds and corporate debentures. Capital appreciation in such
schemes may be limited.
IV.
Money market schemes aim to provide both growth and income by periodically
distributing a part of the income and capital gains they earn. These schemes invest in
both shares and fixed income securities, in the proportion indicated in their offer
documents.
28
V.
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.
VI.
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 corpus is put to work.
D) OTHER SCHEMES:
E)
I.
Tax Saving Scheme
Tax-saving schemes offer tax rebates to the investor under tax laws prescribed from
time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity
Linked Saving Scheme (ELSS) are eligible for rebate.
II.
Index Schemes:
Index schemes attempt to replicate the performance of a particular index such as the
BSE Sensex or the NSE 50. The portfolio of these schemes will consist of those stocks
that constitute the index. The percentage of each stock to the total holding will be
identical to the stocks index weightage. And hence, the returns from schemes would be
more or less equivalent to those of the Index.
III.
There are the funds/schemes which invest in the securities of only those sectors or
industries as specified in the offer documents e.g. Pharmaceuticals, Software, Fast
moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are
dependent on the performance of the respective sectors/industries. While these funds
may give higher returns, they are more risky compared to diversified funds. Investors
29
need to keep a watch on the performance of those sectors/industries and must exit an
appropriate time.
Calculation of NAV:
Let us see an example. If the value of a funds assets stands at Rs. 100 and it has 10
investors who have bought 10 units each, the total numbers of units issued are 100, and
the value of one unit is Rs. 10.00 (1000/100). If a single investor in fact owns 3 units, the
value of his ownership of the funds will be Rs. 30.00(1000/100*3). Note that the value
of the funds investments will keep fluctuating with the market-price movements, causing
the Net Asset Value also to fluctuate. For example, if the value of our funds asset
increased from Rs.1000 to 1200, the value of our investors holding of 3 units will now be
(1200/100*3) Rs. 36. The investment value can go up or down, depending on the
markets value of the funds assets.
30
RISK FACTORS
Standard Risk Factors:
Investment in Mutual Fund Units involves investment risks such as trading volumes,
settlement risk, liquidity risk, default risk including the possible loss of principal.
As the price / value / interest rates of the securities in which the scheme invests
fluctuates, the value of your investment in the scheme may go up or down (Mutual Funds
may also provide factors affecting capital market in general and not limited to the
aforesaid)
Past performance of the Sponsor/AMC/Mutual Fund does not guarantee future
performance of the scheme.
The name of the scheme does not in any manner indicate either the quality of the
scheme or its future prospects and returns.
The sponsor is not responsible or liable for any loss resulting from the operation of the
scheme beyond the initial contribution of _____ made by it towards setting up the Fund.
The present scheme is the first scheme being launched under its management.
(Applicable, if the AMC has no previous experience in managing a Mutual Fund)
The present scheme is not a guaranteed or assured return scheme (applicable to all
schemes except assured return schemes)
Scheme Specific Risk Factors
Schemes investing in Equities - Describe briefly risks associated with investment in
equity.
Schemes investing in Bonds Describe briefly risks associated with fixed income
products like Credit Risk, Prepayment Risk, Liquidity Risk etc.
Risks associated with Investing in Foreign Securities - (if the scheme invests in these
instruments)
Risks associated with Investing in Derivatives - (if the scheme invests in these
instruments)
Risks associated with Investing in Securitised Debt - (if the scheme invests in these
instruments)
31
Risks associated with Short Selling and Securities Lending - (if the scheme intends
to participate in short selling and securities lending).
The mutual fund collects money directly or through brokers from investors. The
money is invested in various instruments depending on the objective if the scheme. The
32
33
It is established as a trust
It raises moneys through sale of units to the public or a section of the public
The units are sold under one or more schemes
The schemes invest in securities (including money market instruments) or gold or gold
related instruments or real estate assets.
SEBI has stipulated the legal structure under which mutual funds in India need to be
constituted. The structure, which has inherent checks and balances to protect the
investors, can be briefly described as follows:
Mutual funds are constituted as Trusts.
The mutual fund trust is created by one or more Sponsors, who are the main persons
behind the mutual fund business.
Every trust has beneficiaries. The beneficiaries, in the case of a mutual fund trust, are
the investors who invest in various schemes of the mutual fund.
The operations of the mutual fund trust are governed by a Trust Deed, which is executed
by the sponsors. SEBI has laid down various clauses that need to be part of the Trust
Deed.
The Trust acts through its trustees. Therefore, the role of protecting the beneficiaries
(investors) is that of the Trustees. The first trustees are named in the Trust Deed, which
also prescribes the procedure for change in Trustees.
In order to perform the trusteeship role, either individuals may be appointed as trustees
or Trustee Company may be appointed. When individuals are appointed trustees, they are
jointly referred to as Board of Trustees. A trustee company functions through its Board of
Directors.
Day to day management of the schemes is handled by an Asset Management Company
(AMC). The AMC is appointed by the sponsor or the Trustees.
34
The trustees execute an investment management agreement with the AMC, setting out
its responsibilities.
Although the AMC manages the schemes, custody of the assets of the scheme
(securities, gold, gold-related instruments & real estate assets) is with a Custodian, who is
appointed by the Trustees.
Investors invest in various schemes of the mutual fund. The record of investors and their
unit-holding may be maintained by the AMC itself, or it can appoint a Registrar &
Transfer Agent (RTA).
Let us understand the various agencies, by taking the example of the constitution of SBI
Mutual Fund.
Mutual Fund Trust SBI Mutual Fund
Sponsor
Trustee
AMC
Custodian
regulations provide that if the sponsor or its associates control 50% or more of the shares
of a custodian, or if 50% or more of the directors of a custodian represent the interest of
the sponsor or its associates, then that custodian cannot appointed for the mutual fund
operation of the sponsor or its associate or subsidiary company. An independent
custodian ensures that the securities are indeed held in the scheme for the benefit of
investors an important control aspect. The custodian also tracks corporate actions such
as dividends, bonus and rights in companies where the fund has invested. All custodians
need to register with SEBI.
RTA
The RTA maintains investor records. Their offices in various centres serve as Investor
Service Centre (ISCs), which perform a useful role in handling the documentation of
investors. The appointment of RTA is done by the AMC. It is not compulsory to appoint a
RTA. The AMC can choose to handle this activity in house. All RTAs need to register
with SEBI.
Auditors
Auditors are responsible for the audit of accounts. Accounts of the schemes need to be
maintained independent of the accounts of the AMC. The auditor appointed to audit the
scheme accounts needs to be different from the auditor of the AMC. While the scheme
auditor is appointed by the Trustees, the AMC auditor is appointed by the AMC.
Fund Accountants
The fund accountant performs the role of calculating the NAV, by collecting information
about the assets and liabilities of each scheme. The AMC can either handle this activity
in-house, or engage a service provider.
Distributors
Distributors have a key role in selling suitable types of units to their clients i.e. the
investors in the schemes. Distributors need to pass the prescribed certification test, and
36
register with AMFI. Regulatory aspects of their role are discussed in Unit 3, while some
of the distribution and channel management practices are covered in Unit 5.
Collecting Bankers
The investors moneys go into the bank account of the scheme they have invested in.
These bank accounts are maintained with collection bankers who are appointed by the
AMC. Leading collection bankers make it convenient to invest in the schemes by
accepting applications of investors in most of their branches. Payment instruments
against applications handed over to branches of the AMC or the RTA need to be banked
with the collecting bankers, so that the moneys are available for investment by the
scheme. Through this kind of a mix of constituents and specialized service providers,
most mutual funds maintain high standards of service and safety for investors.
The (AMFI) works with 30 registered AMCs of the country. It has certain defined
objectives which juxtaposes the guidelines of its Board of Directors. The objectives are
as follows:
This mutual fund association of India professional and ethical standards in all
fund industry.
Associations of Mutual Fund of India do represent the Government of India, the
Reserve Bank of India and other related bodies on matters relating to the Mutual
Fund Industry.
It develops a team of well qualified and trained Agents distributors. It implements
a programed of training and certification for all intermediaries and other engaged
AMFI Publications:
AMFI publish mainly two types of bulletin. One is on the monthly basis and the other
is quarterly. These publications are of great support for the investors to get intimation of
the knowhow of their parked money.
38
39
ROLE OF MUTUAL FUNDS:Mutual funds perform different roles for different constituencies:
markets.
It is possible for mutual funds to structure a scheme for any kind of investment
objective. Thus, the mutual fund structure, through its various schemes, makes it
possible to tap a large corpus of money from diverse investors. (Therefore, the
mutual fund offers schemes. In the industry, the words fund and scheme are
Growth linked mutual fund investing shall be done always with long term time horizon
(min 5 to 7 years).
2. Mutual fund investing in international markets is good:
To give an example of the magnitude of world investment potential, Canada is about
4.9% of world market capitalization. This means that if you limit your investment in
Canada only, you may miss out (95.1%) on many opportunities that is available in global
markets. A combination of global and domestic investment, which is possible by
international mutual fund investing, can increase the potential returns while reducing risk.
3. Long term mutual fund investment in growth funds reduces risk:
In all assets classes, returns can fluctuate widely. The fluctuations will be more in
stocks and least in stocks. For long periods, however, yield tends to balance and stabilize.
Mutual fund investing if done for long term; reduces risk and increases the potential for
high returns.
the same index or a representative sample in the same proportions. Index funds provide
investors a high degree of diversification, reflecting the composition of stock indices
generally contains a portion a portion of many companies among the largest, strongest
and recognized in their geographic area. This management approach, called passive
management usually offers investors a lower management costs, because with the
emulation of the equity portfolio of the market index, research costs are low. The savings
thus obtained is transferred to investors.
Bargaining
power of
Supplier
Competitive Rivalry
within an Industry
I Industry
Bargaining
power of
Customers
43
Threats
Of
Substitute
1) Competitive Rivalry:
In Mutual fund industry, competition is too high. Many Fund houses offer large
number of schemes.
2) Threat of Substitute Products:
It means many companies offer similar types of product, which create threats for
new companies because of substitute of their product is being offered by their major
competitors.
Customers of Mutual Funds industry would Bargain on the basis of returns and
Expense ratio (Expense incurred in managing the Fund) of various schemes.
Customer would choose the funds, which have low Expense ratio and probably give
high return in future.
5) Threats of New Entrance:
In Mutual Fund Industry, new players would be abandon due to Market regulator
SEBIs policy like removing the entry load, many legal requirement ect. Also,
volatility in the Stock market and high competition level would force new player to
keep themselves away from the industry.
45
From investors viewpoint mutual funds have several advantages such as:
Spreading risk over a larger quantity of stock whereas the investor has limited to
buy only a hand full of stocks. The investor is not putting all his eggs in one
basket
Ability to add funds at set amounts and smaller quantities such as $100 per month
Ability to take advantage of the stock market which has generally out performed
other investment in the long run
Fund manager are able to buy securities in large quantities thus reducing
brokerage fees
However there are some disadvantages with mutual funds such as:
The investor must rely on the integrity of the professional fund manager
The fund manager may not pass transaction savings to the investor
The fund manager is not liable for poor judgment when the investor's fund loses
value
There may be too many transactions in the fund resulting in higher fee/cost to the
investor - This is sometimes call "Churn and Earn"
There may be restrictions on when and how an investor sells/redeems his mutual
fund shares
gilt scheme. On the other hand, the return under a fixed deposit is certain,
subject only to the default risk of the borrower.
Both fixed deposits and mutual funds offer liquidity, but subject to some
differences:
The provider of liquidity in the case of fixed deposits is the borrowing
company. In mutual funds, the liquidity provider is the scheme itself (for
open-end schemes) or the market (in the case of closed-end schemes).
The basic value at which fixed deposits are encashed is not subject
market risk. However, the value at which units of a redeemed depends on
the market. If securities have gained in value during the period, then the
investor can even earn a return that is higher that will what he anticipated
when he invested. But he could also end up with a loss.
Early encashment of fixed deposits is always subject to a penalty charged
by the company that accepted the fixed deposits. Mutual fund schemes also
have the option of charging a penalty on early redemption of units
(through by way of an exit load). If the NAV has appreciated adequately,
then even after the exit load, the investor could earn a capital gain on his
investment.
48
BANKS
MUTUAL FUNDS
Return
Low
Better
Administrative exp.
High
Low
Risk
Low
Moderate
Investment options
Less
More
Network
High penetration
Liquidity
At a cost
Better
Quality of assets
Not transparent
Transparent
49
Interest calculation
Quarterly
Every month
Guarantor
Guarantor is needed
Account
Needed
Not needed
Eligibility to Invest
The following are eligible to purchase Units of most schemes:
Individual Investors:
They invest for their personal benefit or the benefit of their family.
Examples:
Resident Indian adult individuals, above the age of 18. They can invest, either singly or
jointly (not exceeding three names)
Minors i.e. persons below the age of 18: Since they are not legally eligible to contract,
they need to invest through their Parents/ Lawful guardians.
Hindu Undivided Families (HUFs): Here family members pool the family money
(inherited) for investments. The head of the family (called Karta) invests on behalf of the
family. Against his name in the application, he would add the letters HUF to show that
the investment belongs to the family.
Non-Resident Indians (NRIs) / Persons of Indian origin (PIO) resident abroad. An
Indian citizen, who is working abroad, and his / her family residing abroad, is typical
NRIs who invest in India. Some Indians go on to become citizens of foreign countries
such as US, Canada, New Zealand etc. Since India does not permit dual citizenship, they
need to give up their Indian citizenship. However, their status as erstwhile Indians,
entitles them to invest in mutual fund schemes on full repatriation or non-repatriation
50
basis. As part of the documentation, they will need to provide their PIO (Person of Indian
Origin) Card / OCI (Overseas Citizenship of India) Card. NRI / PIO resident abroad have
the facility of investing on repatriable basis i.e. when they sell the investment, the sale
proceeds can be transferred abroad. Alternatively, they can invest on non-repatriable
basis, in which case the proceeds from the sale of those investments cannot be remitted
abroad. The conditions related to making payments for repatriable investments are
discussed later in this unit.
Foreign investors can invest in equity schemes of MFs registered with SEBI after
completing KYC process.
Non-individual Investors: Here, the individuals who sign the documents are investing
on behalf of organizations / institutions they represent, such as:
Proof of Identity
Proof of Address
PAN Card
Photograph
Mutual funds have made an arrangement with CDSL Ventures Ltd (CVL), a wholly
owned subsidiary of Central Depository Services (India) Ltd. (CDSL), to make it
convenient for mutual fund investors to comply with the documentation requirements.
Appendix 5 is CVLs prescribed form for Individuals; Appendix 6 is CVLs prescribed
form for non-Individuals.
Select branches / offices of mutual funds, registrars and large distributors serve as
Points of Service (PoS) for the KYC documentation. Investors will need to provide the
Original, along with a copy of the relevant documents, to any of the PoS (listed in AMFI
website www.amfiindia.com). The Original will be returned after verification.
Alternatively, the investor can provide a True Copy attested by a Notary Public, Gazette
Officer or Manager of a Scheduled Commercial Bank.
CVL provides a facility where the PoS, from their own office, can access CVLs
system, enter the requisite data and generate an acknowledgement with a Mutual Fund
Identification Number (MIN). Based on this acknowledgement, the mutual fund investor
can invest in any mutual fund. Thus, the KYC documentation has to be done only ONCE,
with CVL acting through the PoS.
Similarly, in the event of change of address or any other information, the mutual fund
investor needs to fill the standard form and follow the prescribed process only once, with
any of the PoS. Based on that, the information will be updated with all the mutual\ funds
where the investor has invested.
Where investment is made by a minor, KYC requirements have to be complied with by
the Guardian.
In the case of investments by a Power of Attorney holder on behalf of an investor,
KYC requirements have to be complied with, by both, investor and PoA holder.
53
joint
holders)
can
submit
any
one
of
the
following
PHOTO
micro-SIPs is not available for HUFs and non-individuals. It is available for NRIs, but
not PIOs.
Demat Account
Dematerialisation is a process whereby an investors holding of investments in physical
form (paper), is converted into a digital record. Benefit of holding investments in demat
form is that investors purchase and sale of investments get automatically added or
subtracted from their investment demat account, without having to execute cumbersome
paperwork. Settlement of most transactions in the stock exchange needs to be
compulsorily done in demat form.
55
The benefits of demat facility for mutual fund investors has increased, with National
Stock Exchange and Bombay Stock Exchange making available screen-based platforms
for purchase and sale of mutual fund schemes.
The demat facility is typically initiated by the mutual fund, which would tie up with a
Depository (like National Securities Depository Ltd or Central Depository Securities
Ltd). On the basis of this tie-up, investors can go to a Depository Participant (which is
generally a bank or a broking house) and demat their investment holding i.e. convert their
physical units into demat units. In order to avail of this facility, the Depository Participant
will insist on the investor opening a demat account.
Usual KYC documentation will be required. On dematerialisation, the investors unitholding will be added to his / her demat account. As and when the investor sells the unitholding, the relevant number of units will be reduced from the investors demat account.
The investors benefits from a demat account are as follows:
Less paperwork in buying or selling the Units, and correspondingly, accepting or giving
delivery of the Units.
Direct credit of bonus and rights units that the investor is entitled to, into the investors
demat account.
Change of address or other details need to be given only to the Depository Participant,
instead of separately to every company / mutual fund where the investor has invested.
The investor also has the option to convert the demat units into physical form. This
process is called re-materialisation.
56
ARTICLES
Indian MF industry has immense growth
potential: Jimmy A Patel, CEO, Quantum
Mutual Fund
ET Bureau May 21, 2012, 01.07PM IST
57
How would you describe the current state of affairs in the Indian MF industry?
The Indian mutual fund industry has immense growth potential, and if aided well by
technological advancements and increased awareness, MFs can be a major contributor to
the overall Indian economy. However, it appears, the industry has not learnt from its past
mistakes. The industry still seems to be operating on an asset gathering mandate, and not
an asset managing one; the focus of the industry still seems to be driven by business
agendas and not on building a community that is truly concerned about its investors;
market share and "piece-of-the-wallet" concerns still precede issues like investor safety
and delivery of risk-adjusted returns. The fund industry is still in a learning stage, though
unfortunately, it seems to forget its earlier lessons all too soon
The MF industry, a few years ago, had set tall targets for itself. How far are we from
achieving those targets?
Targets are necessary. It's not just about achieving them, but more about moving in
that direction. Rather than meeting a number, the industry should focus on becoming
absolutely investor-friendly - right from the time an investor starts understanding about
mutual funds through to the entire experience of helping him create wealth. Better
58
59
While the law of economics suggests consolidation, which would reduce costs greatly,
different fund houses have different needs and objectives which might not sync favorably
with such an approach. For all you know, several fund houses may not even go for
consolidation; the moment they see their business becoming unviable they may just exit
the business. This may be the case for foreign fund houses operating in India. Domestic
fund houses again will not consolidate their business; they will try to survive the bad
times... They will wait for a gain in their valuations before finding a partnership deal with
some other player wanting to start an AMC business in the country.
In current times, when survival of the fittest holds water, what steps have you taken
to ensure your existence? What are your strategies to sustain this business?
We are a different fund house. Being the only direct-to-investor fund house, we are
constantly exploring new avenues to reach out to our investors and spread what we call
"the Quantum way of investing". Here again, the online medium would be our strength as
we look to reach out to the base of over 100 million online Indians and bring them a
better way of creating wealth over the long term. Some of our best ideas are a simple
implementation of our investors' feedback.
Do you think it is time the industry explored newer investment avenues - beyond
equities, fixed income and gold?
Investors today are saturated with schemes. Investors are also paranoid about opaque
markets, the disappointing corruption reports and repetitive scams. It thus, is the
responsibility of the industry to collaborate to re-instill faith in investors, not by
increasing the number of investor awareness programmes, or by launching new ad
campaigns to promote this message, but by simply stepping away from the wallet-share
game and retrospect on how they could best be asset managers working for the benefit of
the end investor.
What is your advice to retail investors with respect to investing in mutual funds and
equity markets?
60
61
62
Any fund with holding of more than 65% in equity can be considered as an equity fund.
But to keep things simple I have just taken 4 categories of diversified equity funds &
ignored balanced funds, sector funds, international funds or Equity Linked Saving
Schemes. Equity funds are divided according to Market Cap (size of the company).
If you are still not convinced with Mutual Funds you should read Magic of Systematic
Investment Plan (SIP).
Scheme Name
Nature
Ranking
1M%
6M%
1Y%
3Y%
(1Y)
SBI Emerg Buss Fund - Gr
Equity
7.15
29.36
59.15
23.40
Debt
1.84
5.94
12.62
8.71
1
SBI Magnum Balanced Fund
Balanced
2.28
8.91
1
35.51
6.05
MIP
2.31
0.61
19.79
Liquid
0.80
4.98
10.44
8.97
Not Ranked
1
Reliance Equity Linked S
ELSS
Not Ranked
1.55
4.19
2
47.66
9.63
ETF
Not Ranked
5.22
2.60
60.66
13.30
Gilt
Not Ranked
2.16
8.11
14.47
7.16
63
CHAPTER 2
THEORETICAL BACKGROUND
CASE STUDY
1. RELIANCE MUTUAL FUND:
Reliance Mutual Fund is Indias leading Mutual Fund with Quarter Average Assets under
management (AAUM) of Rs 102066Crores.
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 159 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 schemes that I have taken for analysis from Reliance Mutual Fund are:
64
1.1 RELIANCE BANKING FUND (G) [under Sector Fund]: The primary investment
objective of the Scheme is to seek to generate continuous returns by actively investing in
equity and equity related or fixed income securities of companies in the Banking Sector.
Fund overview:
Fund TypesInvestment PlanAssets sizesLaunches dateBenchmarkFund Manager-
Open Ended
Growth
Rs1466 Crores
May21, 2003
Bank Nifty
Mr. Sunil Singhania.
1.2 RELIANCE MEDIA & ENTERTAINMENT FUND(G) [under Sector Fund]: The
primary investment objective of the Scheme is to generate consistent returns by investing
in equity / equity related or fixed income securities of media & entertainment and
other associated companies.
Fund overview:
Fund TypesInvestment PlainAssets sizesLaunch dateBenchmarkFund Manager-
Open Ended
Growth
Rs112.05 crores
Sep 27, 2007
NA
Mr. Sailesh Raj Bhan
1.3 RELIANCE VISION (G) [under large cap fund]: Seeks to provide long term capital
appreciation by primarily investing in growth oriented stocks.
Fund overview:
Fund TypesInvestment PlanAssets SizesLaunch dateBench mark-
Open Ended
Growth
Rs 61crores
Aug8, 2007
BSE 100
65
Fund Manager-
Addressing the problem of advisor attrition and training a new advisor for effective
account management of a High Net worth (HNW) Customer is a major challenge in
investment and trading businesses. In similar business environments, an advisor usually
manages multiple accounts sometimes up to 15 in number. Managing the customer
information and maintaining interaction records for regulatory purposes becomes a
challenge. Also if all 15 customers are trying to reach the same advisor at some profitable
market position for immediate trading, handling or prioritizing calls in real-time becomes
an unachievable task leading to loss in business or even customer loss.
The business required add-on productivity to enhance customer experience. This included
increased call handling capacity per agent during peak call flow periods and also access
to the missed calls to initiate a real-time callback to retain the customer interest. When
the customer calls frequency is much less, the advisors sort and dial out to HNW clients
from database. This sorting and getting live call connects takes up a major chunk of the
advisors productive time. An automation of this process to harness maximum advisor
productivity was another business challenge.
67
SOLUTION:
Some highlight points of solution provided by Ameyo technology deployed at MOSL
were:
Centralized Information Management Ameyo provided for central management of
all customer information by recording of all customer-advisor transactions and regular
updated of all customer details in the integrated CRM. This enabled a new advisor to
effectively handle an existing customer. The HNI customer did not feel a disconnect or
the inconvenience to share previously communicated information again. Thus the pain
point of customer attrition rated due to unavailability of same advisor could be addressed
effectively.
Effective Customer Interaction Management - Multiple phone lines were configured
per advisor and multiple queues created to handle numerous simultaneous interactions.
The system pre-informed the advisor about the customer calling in or being called. A
customized CRM interface displaying customer info popped-up with each call to equip
the advisor with real-time info. The IVR and Dialer components were implemented for
broadcasting, as well as manual dialing.
No Important HNI call went Unpicked - A new desktop view was created for the
advisor enabling him/her to view his/her queue and pickup calls based on his/her
intelligence and market scenario. This enabled minimized drop rates for HNI calls during
peak hours. Thus the M-shaped call flow peaking at market opening and closing times
could be managed efficiently without any important customer being ignored.
Right Advisor per Customer - A intelligent multi-site, need- & skill-based routing
system was implemented for over 400 seats, with 3-4 lines per advisor, adding up to a
68
total of over 1400 channels. This enabled routing of customer calls to the advisor best
equipped or trained to handle the customer account. Prompt and proficient customer
handling translated to increased business.
Pick n choose Customer from Call Queues - Unlike a typical ACD, IP-PBX
functionality where calls are routed to the next available agent, the advisors can view the
calls in their personal or generic queues, and click on the call they wish to take. The
queue also shows clients rating, as certain HNW (High Net Worth) clients need to be
attended on a priority basis (on choice of the advisor). The system creates multiple ACD
queues for every advisor where he/she can view the clients in the queue waiting to be
served by him/her.
Pro-active Notifications - The system sent pro-active Email and SMS alerts on different
events and triggers. For instance, an advisor should be able to view missed calls during
her/his unavailability, so a callback could be scheduled appropriately. This ensured that
no important call missed earlier went unnoticed and a callback was initiated on time so
that no business opportunity was missed.
Enhanced Customer Service - Deployment of advanced technology platform to keep
ahead of time for a time-critical business process like MOSL's was a major determinant
of the success of Ameyo at MOSL. Prompt customer service coupled with pro-active
information delivery via broadcast messages that inform clients of specific market
behavior or event during the day were needed to enhance customer experience.
69
Value Delivered:
Increased Efficiency Hence More Profitability per Advisor
Single View of all Business Operations A centrally managed unified interface giving
complete view of all interactions and queues was implemented. The advisors could now
handle more accounts.
Greater Consumer Satisfaction and Retention
Increase in quality of customer handling Missed Call live report and queue view of
waiting calls enabled them to choose or pick priority calls. The customer gets to talk to
his/her preferred advisor.
Perfect Match to Current and Future needs
Custom Made Solution for Trading Houses Drishti's Ameyo Contact Center Software
was tailored to their needs including changes in business logic and User Interface.
Ameyo's Service Oriented Architecture and Model driven UI generation greatly reduced
the time for delivery.
All-in-one solution with Managed view of Customer Interactions
Single Solution for all Customer Interaction Processes- The client today has a managed
solution with a consolidated view of operations across geographies and functions. This
opens arena of data collation/ analysis and future improvement since any new process
flow or a change in existing process can be easily accommodated.
About Drishti (www.drishti-soft.com)
Drishti provides Contact Center Software & Enterprise Communications Solutions. The
Company creates
innovative communications
technologies
for next-generation
70
SURVEY QUESTIONNAIRE
Contact No:-
A. Graduation/PG
Others
[
[
B. under Graduate
C.
Agriculture [
Sec B. [
]
Pvt. Sec [
E. Others [
C. Business [
D.
(vi). what percentage of your monthly family income are invested? Pl tick ().
A. 5% to 10%
20% to 25% [
B. 10% to 15% [
C.
15% to 20%
D.
B. Fixed deposits
C. Insurance
F. Shares/Debentures
I. PPF
G. Gold/ Silver
j. PF
B. Low Risk
[ ]
C. High Return [ ]
D. Company reputation [ ]
3. Have you ever invested your money in mutual fund?
A. Yes
[ ]
B. No
If yes,
I) where do you find yourself as a mutual fund investor?
72
A. Totally ignorant
[ ]
[ ]
[ ]
D. Financial Advisors
B. Peer Group
C. Banks
[ ]
[ ]
Liquid fund
[ ]
D. Mid- Cap
[ ]
B. Close-ended
C.
F. Long-Cap
[ ]
G. Growth fund
[ ]
H. Sector fund
[ ]
If no,
I) if not invested in Mutual Fund then why?
A. Not aware of MF
[ ]
B. Higher risk
[ ]
[ ]
[ ]
B. Tax benefit
[ ]
C.
[ ]
[
]
5. In which Mutual Fund you have invested? Please tick (). All
applicable.
73
A. SBIMF
[
D. Reliance [
B. UTI
C. HDFC
F. JM mutual fund
G. Other.
[ ]
]
]
B. Brokers only
D. Other sources
] D. HDFC
B. UTI
C. Reliance
E. Kotak
[
F. ICICI
G. JM finance
C. Gold fund
E. Power sector
F. Debt fund
G. Banking fund
1st
I. General
10. How would you like to receive the returns every year?
A. Dividend payout
C. Growth in NAV
[
[
B. Dividend re-investment
]
74
75