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- 1 - A PROJECT REPORT ON STUDY OF INVESTORS AND ADVISORS PERCEPTION ABOUT MUTUAL FUNDwww.arni.in Submitted By: PARVINDER KUMAR SAHOTRA (AEMB0046A/10) MBA -3 sem. " id="pdf-obj-0-7" src="pdf-obj-0-7.jpg">
- 1 - A PROJECT REPORT ON STUDY OF INVESTORS AND ADVISORS PERCEPTION ABOUT MUTUAL FUNDwww.arni.in Submitted By: PARVINDER KUMAR SAHOTRA (AEMB0046A/10) MBA -3 sem. " id="pdf-obj-0-9" src="pdf-obj-0-9.jpg">

A PROJECT REPORT ON

STUDY OF INVESTORS AND ADVISORS PERCEPTION ABOUT

MUTUAL FUND

Submitted in partial fulfillment of the requirements of the award

of degree of

MASTER OF BUSINESS ADMINISTRATION

FROM ARNI SCHOOL OF BUSINESS MANAGEMENT

AUGUST 2011

Submitted to: Mr. ASHISH PARASHAR (Astt. Prof.) ASBM, ARNI UNIVERSITY KATHGARH (INDORA), KANGRA (H.P)

Submitted By: PARVINDER KUMAR SAHOTRA

(AEMB0046A/10)

MBA -3 RD sem.

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CERTIFICATE BY THE GUIDE

This is to certify that Parvinder Kumar Sahotra, student of M.B.A. 3rd semester at ARNI UNIVERSITY has completed his project entitled “STUDY OF INVESTORS AND ADVISORS PERCEPTION ABOUT MUTUAL FUND” Under my supervision. To the best of my knowledge and belief, this is his original work and this wholly or partly has not been submitted for any degree of this or any other university. I appreciate his efforts during his project and wish him Best of Luck for the future. The contents of this report have been verified and up to date.

Mr. ASHISH PRASHAR PROJECT GUIDE

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ACKNOWLEDGEMENTS

I am really happy and exiled in representing this summer training project report before you.

I must express my gratitude towards NJ FUNDS NETWORK for giving me opportunity to work on this project, Especially Mr.Amit Patial (Sr.Executive sales) without whose able guidance this would never have been possible. He’s been the sincere advisor and inspiring force behind the outcome of this project.

And off course I am very much thankful to Mr. RAVIKANT SWAMI (Dean ASBM) and Astt. Prof. Mr. ASHISH PRASHAR (Project Guide) for giving me his guidance and help through out preparing this Report. He has also provided me valuable suggestion about this training which proved very helpful to me to utilize my theoretical knowledge in practice field.

At last but not least I am also thankful to my family and friends who have given me their constructive advice, educative suggestions, encouragement, co-operation & motivation to prepare this report

(PARVINDER KUMAR SAHOTRA)

AEMB0046A/10

MBA-3 rd

DECLARATION

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I,Parvinder Kumar Sahotra Roll No/ID _AEMB0046A/10 M.B.A. Final year (III semester) of Arni School of Business Management hereby declare that the Summer Training Report entitled STUDY OF INVESTORS AND ADVISORS PERCEPTION ABOUT MUTUAL FUND is an original work and the same has not been submitted to any other University/Organization for the award of any other degree. A seminar presentation of the Training Report was made

and the suggestions as approved by the faculty were duly incorporated.

on

____

Signature of the Candidate

Countersigned

Director/Dean/Coordinator

Presentation In charge (Faculty)

(PARVINDER KUMAR SAHOTRA)

Certificate by guide Acknowledgement Declaration Abstract Objective of the study

Contents

  • 1. Company profile (4)

  • 2. Mutual Fund History (21)

  • 3. Mutual fund Industry (24)

  • 4. Mutual Funds an introduction (30)

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o

Types of mutual funds (32)

o

Net Asset Value (37)

o

Comparison of mutual fund (38)

o

Advantages of mutual fund (39)

o

Disadvantages of mutual fund (41)

o

Distribution channels of mutual fund (42)

o

Risk in mutual fund (45)

o

Factors affecting mutual fund (46)

o

Regulatory framework for mutual fund (49)

o

Structure of mutual fund (50)

  • 5. Research methodology (54)

  • 6. Data interpretation and analysis (57)

o

Limitation of study (67)

o

Findings and suggestions (68)

o

conclusion (70)

References and bibliography (71) Questionnaire (72)

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ABSTRCT

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The project includes a brief description of MUTUAL FUND Industry and perception of investors and advisors about mutual fund.

A mutual fund is a scheme in which several people invest their money for a common financial cause. The collected money invests in the capital market and the 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 with 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 and financial institutions were allowed to float mutual funds and their success emboldened the government to allow the private sector to foray into this area.

A survey was

conducted to get

the primary data

to judge the

factors that investor and advisor keep in mind before dealing in

mutual fund i.e. .Safety .Return .flexibility .Liquidity .Schemes

At present there are many Schemes being offered by various MUTUAL FUND companies. Each AMCs is competing with each other by Launching new products or relaunching old ones.

MUTUAL FUND industry today is facing a huge competition not only from with in the industry but also from other financial products like Insurance Policies.

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In

the project

I

tried my best

to study things which

I observed

during my training period .My analysis and conclusion is based on

actual research of the Topic.

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OBJECTIVES OF THE STUDY

The project was conducted for the following objective:-

To gain knowledge and understanding of Mutual Funds as an Investment tool.

To study the product profile of the company.

To study the perception of investors and advisors about mutual fund.

To know about the performance of Mutual Fund of different companies.

To know about the factors which affect mutual funds.

To know about the distribution channels of mutual fund.

To study the diversification of mutual fund.

To know the different Asset management companies involve in mutual fund.

]

Chapter 1

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COMPANY PROFILE

Chapter 1 - 10 - COMPANY PROFILE 1. ABOUT NJ Doing the 'right' thing is a

1. ABOUT NJ

Doing

the

'right'

thing

is

a

virtue

most

desirable.

The

difference between success and failure is often, not dictated by knowledge or expertise, but by its actual application and perseverance. When it comes to successful wealth creation for customers, it is something that we believe in & practice. For us it is more than a mission; it is what defines our lives and our actions at NJ India Invest.

With this passion, we continue to evolve and make the right product accessions and service innovations in our offerings. To the advisors, we offer a 360° comprehensive business platform with unmatched IT solutions, empowering them to set the best practice standards and deliver real value to their customers. Over the years, our passion has seen us grow from strength to strength and expand rapidly, setting new benchmarks in the process. But

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to us, what really matters the most is the number of lives we have managed to transform and we still have a long way to go ...

NJ India Invest Pvt. Ltd. is one of the leading advisors and distributors of financial products and services in India. Established in year 1994, NJ has over a decade of rich exposure in financial investments space and portfolio advisory services. From a humble beginning, NJ, over the years has evolved out to be a professionally managed, quality conscious and customer focused financial / investment advisory & distribution firm.

We are headquartered in Surat, India, and have more than INR 10,000 Crore plus of mutual fund assets under advice, with a wide presence at over 104 locations in 21 states in India. The numbers are reflections of the trust, commitment and value that NJ shares with 11 Lac plus customer base with over 14000+ Advisors.

NJ prides in being a professionally managed, quality focused and customer centric organization. The strength of NJ lies in the strong domain knowledge in investment consultancy and the delivery of sustainable value to clients with support from cutting- edge technology platform, developed in-house by NJ.

At NJ, we believe in ..

Having single window, multiple solutions that are integrated

for simplicity and sapience Making innovations, accessions, value-additions, a constant

process Providing customers with solutions for tomorrow which will keep them above the curve, today

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Technology has traditionally been NJ's key strength. Our offering on the technological front is unmatched, vibrant, and comprehensive in nature. Our focus & commitment on technology can be gauged from the fact that we have set-up distinct entity with a very strong, talented work-force for the sole purpose of providing the best to NJ in terms of technology and support. Finlogic Technologies (India) Pvt. Ltd. does all the development & support work in-house on a continuous basis. It has successfully developed & implemented a powerful support system for the mutual fund distribution business at NJ with a provision for integrating the same with other investment products as well as the financial accounting system. Today Fin logic Technologies has more than 100 employees for its IT development

Our Divisions NJ Fundz Network

NJ Fundz Network has been playing a pioneering role in India in providing independent advisors / advisory firms with integrated, comprehensive and practical business solutions for ensuring continuous growth & continuity of business. It provides the financial advisors and the institutions that serve them with insights, strategies and tools to help them significantly grow their

businesses. How do we do it? That’s because we understand how

financial & wealth management businesses work and what is needed to manage, monitor and grow the practice ...

With

the

360°

Advisory

platform,

NJ

has

managed to

successfully transform the business of many advisory / distribution houses, bringing them on equal footing or even better than the toughest competitors in the industry in the concerned domain. With a vast experience & strong delivery mechanism, we

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at NJ Fundz Network, help & ensure transformation and the exploitation of the opportunities available.

First in the Indian Mutual Fund Industry to offer a Complete Business Platform to Advisors

NJ Realty Services

This

is

an

integrated

service

model

offering

solutions

for

meeting the diverse real-estate needs of corporates & retail customers in transacting properties.

Finding the right property at the right value and the best buyer for a property is the crux of any realty solution. At NJ India Realty we value this critical element of retailing and aim to provide the customer with an integrated service model that not only focuses on him meeting his desired needs but also on enhancing the overall experience of the transaction.

The scope of properties embraces both commercial & residential projects / properties. The integrated value-added services ensure that the solutions are feasible, authentic, secure & profitable.

Leveraging upon the strengths of the parent company NJ, NJ India Realty aims to offer attractive options and operational

guidance to satisfactorily realize the customer’s realty dreams.

Today NJ Realty Services has tied up with over 40 developers with over 150 projects across India.

NJ Gurukul

(CFP) by Making people benefit from the growing economy is possible by attracting them to participate in Equity for long

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term, to make their money work for itself and create wealth. For this to happen, a huge force of effective Financial Advisors is needed. Visualizing this need and with a view to bridge the gap, NJ India Invest Pvt. Ltd. has set up NJ Gurukul to offer different training programs at moderate costs.

NJ

Gurukul

seeks

to

help

people become better

professionals / business personalities & achieve success in their

own endeavors.

For businesses, as a people partner, NJ Gurukul seeks to groom employees & management so that they deliver upon their expectations & responsibilities, successfully. NJ Gurukul is authorized to give training for Certified Financial Planner FBSB India. Today NJ Gurukul has offered over 1200 training programmes with over 20000 candidates.

Vision & mission of NJ India Invest

Vision

•To be the leader in our field of business through, • Total Customer Satisfaction • Commitment to Excellence • Determination to Succeed with strict adherence to

compliance

• Successful Wealth Creation of our Customers

Mission

Ensure creation of the desired value for our customers, employees and associates, through constant improvement, innovation and commitment to service & quality. To provide

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solutions which meet expectations and maintain high professional & ethical standards along with the adherence to the service commitments?

2. MANAGEMENT

The management at NJ brings together a team of people with wide experience and knowledge in the financial Services domain.The management provides direction and guidance to the whole organization. The management has strong visions for NJ as a globally respected company providing comprehensive services in financial sector.The ‘Customer First’ philosophy in deeply ingrained in the management at NJ. The aim of the management is to bring the best to the customers in terms of

• Range of products and services offered • Quality Customer ServiceProjectsformba.blogspot.com

All the key members of the organization put in great focus on the processes & systems under the diverse functions of business. The management also focuses on utilizing technology as the key enabler for all the activities and to leverage the technology for enhancing overall customer experience.

The key members of the management are:

Our Management

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Mr. Neeraj Choksi

 

Mr. Jignesh Desai

Jt Managing Directors

Sales Team:

Name

Category

Mr. Misbah Baxamusa

National Head

Mr. Kulbhushan Nandwani

 

Mr. Prashant Kakkad

A.V.P

Mr. Anil Taliaya

 

Mr. Manish Gadhvi

Mr. Sarfaraz Patel

Zonal Manager

Mr. Tushar Bhajantri

Executive Team:

Name

Department Head

Mr. Shirish Patel

Information Technology

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Mr. Vinayak Rajput

Operations & Customer Care

Mr. Tejas Soni

Finance

Mr. Abhishek Dubey

Business Process Management

Mr. Samanvay Maniar

Marketing

Mr. Jigesh Desai

Real Estate

Mr. Viral Shah

Research

Mr. Dhaval Desai

Human Resources

Mr. Kalpesh Mehta

Alternate Channel

3. OUR CORE VALUES

  • (A) Our values

While we constantly look for new ideas and changes that cause positive difference to our clients, we remain true to the values upon which NJ India Invest was found:

High-level of expertise:

Being a growing organization, we strive to constantly evolve by providing the highest level of expertise to our client, continuously,

integrity & transparency:

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We believe in doing business with a high standard of honesty & integrity. Creating long term 'trustworthy' relationships with our clients is at the core of our business model. We strive to maintain the highest level of transparency and are open to discussions when serving our advisors and investors.

performance:

Our drive for performance is distinguished by consistent and meaningful measurement. At NJ, we are passionate about our customer's wealth creation. The entire NJ team exudes confidence and spreads positive vibes around. Team NJ is well inclined towards its roles & responsibilities and is eager to learn to serve the customer better. We believe in continuous enhancement and growth of our human capital and people at NJ start each day afresh with an eagerness to learn and a passion to win

strong relationships Strong relationships grounded in trust and mutual respect over

the long-term allow us to successfully serve clients through the

various

phases

of

their

COMPREHENSIVE,

ACCURATE

COMMUNICATIONS

LEADING-EDGE TECHNOLOGIES

lives.

USING

We employ new technologies to set industry standards in reporting and client communications.

professional ethics

Our top priority is meeting the needs of our clients, and we unequivocally take full responsibility for the work we do. At NJ, we follow a strong process oriented approach in everything we

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do. We are firm believers of “Follow the process, Results will come” mantra. We have detailed processes related to sales, administration and client servicing, which help us evaluate our performance better and improve upon the shortcomings identified in the system.

striving excellence in servicing:

There is no substitute to quality service and advice. We accept this fact at NJ through our commitment to quality client servicing. We work on the latest technologies, solutions and products for our clients to ensure they stay ahead of the competition and make their business run in quick, efficient and the best way.

(B) Philosophy

At NJ, our Service and Investing philosophy inspire and shape the thoughts, beliefs, attitude, actions and decisions of our employees. Our philosophy is the spirit which drives our body called NJ.

Service Philosophy:

Our primary measure of success is customer satisfaction. We are committed to provide our customers with continuous, long- term improvements and value-additions, to meet the needs in an exceptional way. In our efforts to consistently deliver the best service possible to our customers, all employees of NJ make every effort to:

Think of the customer first, take responsibility, and make prompt service to the customer a priority. Deliver upon the commitments & promises made, on time. Anticipate, visualize, understand, meet and exceed our customer's needs.

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Bring energy, passion & excellence in everything we do.

Be honest and ethical, in action & attitude, and keep the

customer’s interest supreme. Strengthen customer relationships by providing service in a thoughtful & proactive manner and meet the expectations, effectively.

Investing Philosophy:

We aim to provide need-based solutions for long-term wealth creation we aim to provide all the customers of NJ, directly or indirectly, with true, unbiased, need-based solutions and advice that best meet their stated & un-stated needs. In our efforts to provide quality financial & investment advice, we believe that.

Clients want need-based solutions, which fits them. Long-term wealth creation is simple and straight. Asset-Allocation is the ideal & the best way for long-term wealth creation. Educating and disclosing all the important facets, which the customer needs to be aware of, is important. The solutions must be unbiased, feasible, practical, executable, measurable and flexible. Constant monitoring and proper after-sales service is critical to complete the on-going process.

At

NJ,

our

aim

is

to

earn

the

trust

and

respect

of

the

employees, customers, partners, regulators, industry members and the community at large, by following our service and investing philosophy with commitment.

360° advisory platform

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NJ believes in “360° – Advisory Platform” philosophy …With this

philosophy, we try to offer all possible products, services and support which an Advisor would need in his business. The support

functions are generally in the following areas … • Business Planning and Strategy • Training and Development – Self and of employees • Products and Service Offerings • Business Branding • Marketing • Sales and Development • Technology • Advisors Resources - Tools, Calculators, etc .. • Research

With this comprehensive supporting platform, the NJ Fundz Partners stays ahead of the curve in each respect compared to other Advisors/competitors in the market

4. AWARDS & RECOGNITIONS

Some of the awards & recognitions that we have received in the

past …

Year 2000:

For Outstanding Performance presented by Chairman, Prudential Plc. at London

Year 2002:

For Outstanding Performance presented by Group Chief Executive, Prudential Plc. at London

Year 2003:

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For Outstanding Performance presented by Group Chief

Executive, Prudential Plc. at London

Year 2004:

Among Most Valued Business Associates presented by HDFC

Standard Life at Edinburgh, Scotland

Year 2004:

For Outstanding Performance by Deputy CEO, Prudential Singapore at Malaysia

Year 2006:

Award for mobilising the Highest Number of SIPs at National Level by Fidelity Mutual Fund Plc at Mumbai

Year 2006:

Award Vietnam

5. PEOPLE & CULTURE:

For any service oriented organization like NJ, its employees are perhaps the best asset. People at NJ serve clients with vibrant energy and enthusiasm. 'Serving with Smile' is the motto adopted by people at NJ. People here are well inclined towards their roles & responsibilities and are given complete freedom to do justice with their roles. We believe in continuous enhancement and growth of our human capital through on going process of training & development. At NJ, we encourage innovative ideas and suggestions from employees and value their contributions. Team NJ works towards common goal of 'Client Esteem' and in process

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of deriving this goal people at NJ keep learning, evolving and developing every day.

People:

Enthusiasm, Enterprise, Education and Ethics form the four pillars at NJ. At NJ, one can witness the vibrant energy, enthusiasm and the enterprising drive to excel, flowing freely throughout the organization. Here, one can also experience the creativity, one-to-one responsiveness, collaborative approach and passion for delivering value.

At NJ, people evolve to be more effective, efficient, and result oriented. Knowledge is inherent due to the education-centric approach and the experience in handling different client groups across diverse product profiles.

NJ understands that the people are the most important assets

of the company and it is not the company that grows but the people. It, hence, undertakes rigorous training and educational activities for enhancing the entire team at NJ. It also believes in

the ‘Learning through Responsibility’ concept for its employees.

For people at NJ, success is not a new word, but is a regular stepping-stone to realizing the common vision that everyone shares.

Culture:

At NJ we believe in transforming the lives of our customers. We exist to create a difference a change towards a better life. The

culture here

reflects

this

responsibility,

this

dream

of

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transforming lives. And we, at NJ are always excited and enthused in doing so.

We believe in keeping ‘Customer First’, providing you with the products and services that meet your stated and unstated needs. Client satisfaction and client service is the Mantra we constantly recite. This service oriented philosophy runs throughout the organization, from the top to the bottom.

Employees are given ample freedom in their work. The objective is to keep an open, healthy environment with ample scope for enterprise, improvement, innovations and out-of-the box solutions.

Our efforts are constantly engaged in improving our existing services, offering new and innovative solutions that go beyond expectations. This focus has made us one of the most respected and preferred service providers, especially in the mutual fund industry.

6. PRODUCTS

NJ offers

advisory and

distribution

services on

the following

products.

  • 1. Mutual funds covering all AMCs & all schemes,

  • 2. Fixed deposits (fixed maturity plan) of companies,

  • 3. Government/RBI bonds,

  • 4. Infrastructure Bonds

  • 5. Insurance (Life & Health)

  • 7. ADVANTAGES WITH NJ

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All Mutual Fund Schemes under one roof.

Regular training support to develop Mutual fund business

Dedicated customer care (toll free) for query resolution

Desiccated online partner desk for managing your business

Daily updation of client portfolio online

Marketing support for branding and business development

Dedicated relationship manager to train & develop business

online mutual fund transaction facility for clients

  • 8. NJ INDIA INVEST - INVESTMENT PORTFOLIO

DSP Merrill Lynch Mutual Fund Birla Mutual Fund Alliance Capital Mutual Fund ING Vysya Mutual Fund Cholamandalam Mutual Fund Deutsche Mutual Fund ABN - AMRO Mutual Fund HDFC Mutual Fund Franklin Templeton Mutual Fund Reliance Mutual Fund HSBC Mutual Fund

Unit Trust Of India Prudential ICICI Mutual Fund Kotak Mutual Fund Standard Chartered Mutual Fund SBI Mutual Principal Mutual Fund Tata Mutual JM Financial Mutual Fund LIC Mutual Fund Sahara Mutual Fund Sundaram Mutual Fund

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Chapter 2

- 27 -

HISTORY OF MUTUAL FUNDS

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. Though the growth was slow, but it accelerated form the year 1987 when non-UTI players entered in the industry. In the past decade INDIAN Mutual Fund industry had seen a dramatic improvement quality wise as well as quantity wise. 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)

Entry of non-UTI mutual funds.SBI Mutual Fund was the first followed by Canra bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89),

- 28 -

Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92).LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47, 004 as assets under management.

Third Phase - 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds.

Fourth Phase - since February 2003

This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835 crores (as on January

- 29 -

2003). The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of AUM and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.1, 53,108 crores under 421 schemes.

GROWTH IN ASSETS UNDER MANAGEMENT

- 29 - 2003). The Specified Undertaking of Unit Trust of India, functioning under an administrator

Chapter 3

- 30 -

MUTUAL FUND INDUSTRY

The Indian Mutual fund industry has witnessed considerable growth since its inception in 1963. The assets under management (AUM) have surged to Rs 4,173 bn in Mar-09 from just Rs 250 mn in Mar-65. In a span of 10 years (from 1999 to 2009), the industry has registered a CAGR of 22.3%, albeit encompassing some shortfalls in AUM due to business cycles.

The impressive growth

in

the Indian

Mutual fund

industry in

recent years can largely be attributed to various factors such as

  • rising household savings,

  • comprehensive regulatory framework,

  • Favourable tax policies,

  • Introduction of several new products

  • Investor education campaign and role of distributors.

In the last few years, household’s income levels have grown significantly, leading to commensurate increase in household’s

savings.Towards the huge market potential of the Mutual fund industry in India.

Besides, SEBI has introduced various regulatory measures in order to protect the interest of small investors that augurs well for the long term growth of the industry.The tax benefits allowed on mutual fund schemes.

- 31 -

Besides, the Indian Mutual fund industry has introduced an array of products such as liquid/money market funds, sector- specific funds, index funds, gilt funds, capital protection oriented schemes, special category funds, insurance linked funds, exchange traded funds, etc. It also has introduced Gold ETF fund in 2007 with an aim to allow mutual funds to invest in gold or gold related instruments. Further, the industry has launched special schemes to invest in foreign securities. The wide variety of schemes offered by the Indian Mutual fund industry provides multiple options of investment to common man.

- 31 - Besides, the Indian Mutual fund industry has introduced an array of products such

- 32 -

- 32 - FUTURE OF MUTUAL FUNDS IN INDIA The Future of Mutual Funds In India

FUTURE OF MUTUAL FUNDS IN INDIA

The Future of Mutual Funds In India suggests that the industry has got huge scopes of development in the times to come.

The Future of Mutual Funds In India is quite bright. Mutual Funds are one of the most popular forms of investments as these funds are diversification, professional management, and liquidity. In the year 2004, the mutual fund industry in India was worth Rs 1, 50,537 crores. The mutual fund industry is expected to grow at a rate of 13.4% over the next 10 years.

- 33 -

Mutual Fund Assets under Management (MF AUM)-Growth

a)

In March 1998, the MF AUM was ` 68984 crores.

b)

In March 2000, the MF AUM was ` 93717 crores and the percentage growth was 26 %.

c)

In March 2001, the MF AUM was ` 83131 crores and the percentage growth was 13 %.

d)

In March 2002, the MF AUM was ` 94017 crores and the percentage growth was 12 %.

e)

In March 2003, the MF AUM was ` 75306 crores and the percentage growth was 25 %.

f)

In March 2004, the MF AUM was ` 137626 crores and the percentage growth was 45 %.

g)

In September 2004, the MF AUM was ` 151141 crores and the percentage growth was 9 % in 6 months time.

h)

In December 2004, the MF AUM was ` 149300 crores and the percentage growth was 1 % in 2 months time.

i)

Future of Mutual Funds In India-Facts on growth

Important aspects related to the future of mutual funds in India are -

a)

The growth rate was 100 % in 6 previous years.

b)

The saving rate in India is 23 %.

c)

There is a huge scope in the future for the expansion of the mutual funds industry.

d)

A number of foreign based assets management companies are venturing into Indian markets.

MAJOR PLAYERS IN INDUSTRY

- 34 -

List of Asset Management Companies in India

Bank Sponsored

  • I. Bank of Baroda Asset Management Co. Ltd.

II. Canbank Investment Management Services Ltd. III. PNB Asset Management Ltd. IV. UTI Asset Management Company (P) Ltd.

Institutions

  • I. GIC Asset Management Co. Ltd.

II. Jeevan Bima Sahayog Asset Management Co. Ltd.

Private Sector

INDIAN

  • I. Benchmark Asset Management Co. Ltd.

II. Cholamandalam Asset Management Co. Ltd.

III. Escorts Asset Management IV. J.M. Capital Management Ltd.

  • V. Kotak Mahindra Asset Management Co. Ltd.

VI. Sundaram Asset Management Co.

VII. Reliance Capital Asset Management Ltd.

FOREIGN

  • I. Principal Asset Management Co. Ltd.

Joint Ventures Predominantly Indian

  • I. Birla Sun Life Asset Management Pvt. Co. Ltd. II. Credit Capital Asset Management Co. Ltd.

III. DSP Merrill Lynch Fund Managers Ltd. IV. First India Asset Management Pvt. Ltd.

  • V. HDFC Asset Management Co. Ltd.

VI. Tata TD Waterhouse Asset Management Pvt. Ltd.

- 35 -

Joint Ventures Predominantly Foreign

  • I. Alliance Capital Asset Management (India) Pvt. Ltd.

II. Deutsche Asset Management (India) Pvt. Ltd.

III. HSBC Asset Management (India) Pvt. Ltd. IV. ING Investment Management (India) Pvt. Ltd.

  • V. Prudential ICICI Management Co. Ltd.

Chapter 4

- 36 -

MUTUAL FUND (AN INTRODUCTION)

Definition:-Mutual Fund is the pool of money from investors to invest in different securities according to certain objectives.

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 appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them (pro rata). 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. Anybody with an inventible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy

A Mutual fund is the ideal investment vehicle for today’s complex

and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also

- 37 -

finds

it

difficult

to

keep

track

of

ownership

of

his

assets,

investments, brokerage dues and bank transactions etc.

A draft offer document is to be prepared at the time of launching the fund. Typically, 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). E.g. Birla Global Finance is the sponsor of the Birla Sun Life Asset Management Company Ltd., which has floated different mutual funds schemes and also acts as an asset manager for the funds collected under the schemes.

CHARACTERISTICS OF MUTUAL FUNDS

•The ownership is in the hands of the investors who have pooled in their funds.

• It is managed by a team of investment professionals and other

service providers.

- 38 -

•The pool of funds is invested in a portfolio of marketable

investments.

•The investors share is denominated by ‘units’ whose value is

called as Net Asset Value (NAV) which changes everyday.

•The investment portfolio is created according to the stated

investment objectives of the fund.

MUTUAL FUND OPERATION

- 38 - •The pool of funds is invested in a portfolio of marketable investments. •The

TYPES OF MUTUAL FUNDS

Mutual fund schemes may be classified structure and its investment objective.

on

the

basis

of

its

  • A. By Structure:

  • Open-ended Funds

- 39 -

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.

  • 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.

  • Interval Funds

Interval funds combine the features of open-ended and close- ended schemes. They are open for sale or redemption during pre- determined intervals at NAV related prices.

  • B. By Investment Objective:

  • Growth/Equity oriented schemes

- 40 -

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time.

  • Income/Debt oriented schemes

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income.

  • 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.

  • Money Market/liquid fund

The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon

- 41 -

the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods.

  • Gilt Fund

These funds

invest

exclusively

in

government

securities.

Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other

economic factors as is the case with income or debt oriented schemes.

  • Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index,S&P NSE 50 index (Nifty), etc, these schemes invest in the securities in the same weightage comprising of an index. NAV’s of such sche- mes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.

  • 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

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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

C. other schemes:

  • Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds.

  • Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc.

  • Index Schemes

Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50

  • Sectoral Schemes

- 43 -

Sectoral Funds are those, which invest exclusively in a specified industry or a group of industries or various segments such as 'A' Group shares or initial public offerings.

NET ASSET VALUE

Net Asset Value (NAV)

Definition of NAV Net Asset Value, or NAV, is the sum total of the market value of all the shares held in the portfolio including cash, less the liabilities, divided by the total number of units outstanding. Thus, NAV of a mutual fund unit is nothing but the book value.

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.

An example will make it clear that returns are independent of the NAV. Say; you have Rs 10,000 to invest. You have two options, wherein the funds are same as far as the portfolio is concerned. But say one Fund X has an NAV of Rs 10 and another Fund Y has NAV of Rs 50. You will get 1000 units of Fund X or 200 units of Fund Y. After one year, both funds would have grown equally as their portfolio is same, say by25%. Then NAV after one year would be Rs 12.50 for Fund X and Rs 62.50 for Fund Y. The value of your investment would be 1000*12.50 = Rs 12,500 for Fund X and 200*62.5= Rs 12,500 for Fund Y. Thus your returns would be same irrespective of the NAV.It is quality of fund, which would make a difference to your returns.

- 44 -

COMPARISON OF MUTUAL FUNDS

Mutual

Objective

Risk

Investment

Who

should

Investment

 

portfolio

invest

horizon

funds

 

Equity

Long-term

High risk

Stock &share

Aggressive

3

years +

capital

investors

,

 

funds

long

term

appreciation

investment

Balanced

Growth

&

Capital

Balanced

Moderate

&

2

years +

regular income

market risk &

ratio

of

aggressive

 

funds

interest risk

equity &debt

investors

funds

to

ensure higher return at low risk

Index

To

generate

NAV

varies

Portfolio

Aggressive

3

years +

returns

that

with

index

indices

like

investors

 

funds

commensurate

indices

performance

BSE,

NIFTY

with returns of

etc.

respective

Gilt funds

Securities

&

Interest

rate

Government

Salaried

&

 

12

months +

Income

risk

Securities

conservative

 

Investors

Bond

Regular Income

Credit Risk &

Debentures

Salaried

&

 

12

months +

funds

Interest rate

,Govt.

conservative

 

risk

securities

,

Investors

corporate

Bonds

Money

Liquidity

+

Negligible

Treasury

Park funds in

2

Days

to

3

market

Moderate

Bills,

current A/c s

weeks

Income

+

Certificates

or short term

 

Reservation

of

of

Deposits ,

Bank

Income

commercial

Deposits

papers,

Call

money

- 45 -

HOW MUTUAL FUND DIFFER IN TERMS OF RISK PROFILE?

EQUITY FUNDS

High level of return, but has a high level of risk too (no fixed return)

DEBT,s FUND

Return comparatively less than equity funds

LIQUID AND MONEY MARKET FUND

Provide stable but low level of return

ADVANTAGES OF MUTUAL FUND

Mutual Funds offer several benefits to an investor that are unmatched by the other investment options.

1. Affordability: Small investors with low investment fund are unable to invest in high-grade or blue chip stocks. An investor through Mutual Funds can be benefited from a portfolio including of high priced stock.

  • 2. Risk Diversification: Investors investment is spread across

different securities (stocks, bonds, money market, real estate, fixed deposits etc.) and different sectors (auto, textile, IT etc.). This kind of a diversification add to the stability of returns, reduces the risk for example during one period of time equities might under perform but bonds and money market instruments might do well do well and may protect principal investment as well as help to meet return objectives.

- 46 -

  • 3. Variety: Mutual funds offer a tremendous variety of schemes.

This variety is beneficial in two ways: first, it offers different types of schemes to investors

  • 4. Professional Management: Mutual Funds employ the services

of experienced and skilled professionals and dedicated investment research team. The whole team analyses the performance and balance sheet of companies and selects them to

achieve the objectives of the scheme.

  • 5. Tax Benefits: Depending on the scheme of mutual funds, tax

shelter is also available. As per the Union Budget-99, income

earned through dividends from mutual funds is 100% tax free. Under ELSS of open-ended equity-oriented funds an exemption is provided up to Rs. 100,000/- under section 80C.

  • 6. Regulation: 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.

  • 7. Liquidity: Investment in MUTUAL FUND can be redeemed at

any time.

  • 8. Flexibility: Investment in MUTUAL FUND is flexible because an

investor can switch easily in schemes.

  • 9. High Return: Mutual Fund may generate high return in long run

(beyond 5 year).

DISADVANTAGES OF MUTUAL FUND

- 47 -

The following are the disadvantages of investing through mutual fund:

  • 1. No Guarantees

No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through

mutual fund runs the risk of losing the money.

  • 2. No control over cost

Since investors do not directly monitor the fund’s operations, they

cannot control the costs effectively. Regulators therefore usually limit the expenses of mutual funds.

  • 3. No tailor-made portfolio

Mutual fund portfolios are created and marketed by AMCs, into

which

investors

invest.

They

cannot

made tailor made

portfolio.Projectsformba.blogspot.com

  • 4. Managing a portfolio of funds

As the number of funds increase, in order to tailor a portfolio for himself, an investor may be holding portfolio funds, with the costs of monitoring them and using hem, being incurred by him.

5. Delay in Redemption

The redemption of the funds though has liquidity in 24- hours to 3 days takes formal application as well as needs time for redemption. This becomes cumbersome for the investors.

6. Non-availability of loans

- 48 -

Mutual funds are not accepted as security against loan. The investor cannot deposit the mutual funds against taking any kind of bank loans though they may be his assets.

DISTRIBUTION CHANNELS OF THE MUTUAL FUND

In India, AMCs work with five distinct distribution channels those are direct, banking, retail, corporate and individual financial adviser.

1.

The Direct Channels:

 

In the direct channel, customers invest in the schemes directly through AMC. In most cases, the company does not provide any investment advice, so these investors have to carry out their own

research

and

 

select

schemes

themselves.The

fund companies provide several tools to investors who invest thro

ugh this

 

channel.

This includes monthly a/c statement, processing of transaction, an

d maintaince of records. In this channel most investors can invest

through

websites,

or

receive

information

through

telephonic

services provided by the company. About 10-20% of the total sales of an AMC come through this direct channel

2.

The banking channel:

 

The large customer base of banks,in developed countries, have pl ayed an important role in the selling MFs. In the recent years, this channel has also opened up in India. Banks operating in India , including public sector, private and foreign banks have established

- 49 -

tie-up with various fund companies for providing distribution and

servicing. The banking channel is likely to develop as the most vital distribution channel for fund companies there are several reasons for the same. Customers remain invested in banks for long periods of time and therefore banks maintain a relationship

of trust

with

their

customers.

Customers

are

rely

on

advice

provided

to

them

by bankers as they are always on the look out for better investme

nt avenues. Managers are guiding to customers about various funds.

An additional advantage that banks provide is that the concerned

customer becomes a permanent

contact

of

the

banks

and

therefore can be reached during launch of (new fund offer) NFO

or new schemes any time in the future.

  • 3. The retail channel:

A customer can deal with directly with a sub broker belonging to a distribution company, instead of taking trouble of dealing with several agents. Distribution companies sell the schemes of several fund houses simultaneously and brokerage is paid by the AMC whose funds they sell. The retail channel offers the benefits of specialist knowledge and established client contact and, therefore private fund houses are generally prefer this channel. Some of the major players in India in this in this channel are national players like Karvey, Birla sunlife IL&FS and cholamandalam. The key factor for this channel to sell a company’s fund used to be the brokerage paid. The banking and retail channel generally contribute to about 50-70% of the total Asset under Management (AUM).

- 50 -

The corporate channel includes a variety of institutions that invest

in

shares

on

the company’s name.

These are businesses, trust, and even state and local governments. For institutional investors, fund managers prefer to create special funds and share classes. Corporate can either invest directly in mutual funds or through an intermediary such as a distribution house or a bank. Corporate exhibit varying degrees ‘of awareness of mutual fund products.Most of the established corporate, such as the TVS industries in Hyderabad, are well- versed with the performance and composition of various funds. The smaller companies and start-up firms, however, need to be educating on several aspects of mutual funds. In order to provide information to such clients, fund companies usually organize presentation for these companies or set-up meetings with the finance managers.

5. Individual financial advisors (ifa) or agents:

The IFA channel is the oldest channel for distribution and was

widely

employed

at the time when UTI monopoly in the market. In recent times with the emergence significantly decreased. An agent who basically acts as an interface between the customer and the fund house there is a unique systems in place in India , wherein several sub-brokers are working under one main

broker. The huge network of sub-brokers, thus ensure larger market penetration and geographic coverage. As per AMFI, over one lakh agents are registered to sell mutual funds and other financial products such as insurance across the country.

RISK INVOLVED IN MUTUAL FUND

  • THE RISK-RETURN TRADE-OFF

- 51 -

The most important relationship to understand is the risk- return trade-off. Higher the risk greater the returns/loss and lower the risk lesser the returns/loss

Hence it is up to you, the investor to decide how much risk you are willing to take. In order to do this you must first be aware of the different types of risks involved with your investment decision.

  • 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. A Systematic Investment

Plan (“SIP”) that works on the concept of Rupee Cost Averaging (“RCA”) might help mitigate this risk

  • CREDIT RISK

The debt servicing ability (May it be interest payments or

repayment of principal) of a company through its cash flows determines the Credit Risk faced by you. This credit risk is measured by independent rating agencies like CRISIL who rate

companies and their paper. An ‘AAA’ rating is considered the

safest whereas a ‘D’ rating is considered poor credit quality. A

well-diversified portfolio might help mitigate this risk.

  • INFLATION RISK

Things you hear people talk about: “Rs. 100 today is worth more than Rs. 100 tomorrow.” “Remember the time when a bus ride

- 52 -

costed 50 paisa?” “Mehangai Ka Jamana Hai.” The root

cause,Inflation. 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 investment. This happens when inflation grows faster than the return on your investment. A well-diversified portfolio with some investment in equities might help mitigate this 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 raise the prices of bonds

fall and vice versa. Equity might be negatively affected as well in a rising interest rate environment. A well-diversified portfolio might help mitigate this risk

  • POLITICAL/GOVERNMENT POLICY RISK

Changes in government policy and political decision can change

the investment environment. They can create a favorable environment for investment or vice versa.

  • LIQUIDITY RISK

Liquidity risk arises when it becomes difficult to sell the securities that one has purchased. Liquidity Risk can be partly mitigated by

diversification, staggering of maturities as well as internal risk controls that lean towards purchase of liquid securities.

FACTORS AFFECTING MUTUAL FUND

  • Governmental Influences

- 53 -

Mutual fund business is a highly regulated business throughout the world as it seeks to ensure that quality and fairly priced schemes are available. Governmental intervention thus in mutual fund market usually is most needed to ensure that insurers are reliable

  • Taxation Policy

Social equity being one of the motives behind tax collections,

government gives certain exemptions from such levying. One such exemption is deduction incurred by tax payer s towards investment in mutual fund coverage. Similarly, capital invested in infrastructure bonds etc is offered with certain concession under tax laws.

  • National Income

The relative importance of the mutual fund Market within a country will also be dependent upon economic development. With greater rates of economic growth, consumption of investment should increase as a result of increased income, and an increased stock of assets requiring mutual fund.

  • Employment

The effect of employment on mutual fund industry is as direct as that on economic development of any country. With the rising

levels of employment the effect on mutual fund industry is positive.

  • Money supply

The central banks has indicated that credit growth and money supply number are likely to be above its prosecution for the

current fiscal year, the statement “to consider promptly all possible measures as appropriate to the evolving global and domestics situation “is indicative of phased increase in FII limits

- 54 -

for gilt investment could help in depending the securities market and is part of the road map towards fuller convertibility.

  • Interest

Interest is major factor for investment when a person find less

return from investment tool than people move towards the higher returns tool of investment.

  • Risk factor

All investments in Mutual Fund and securities are subject to market risks and the NAV of the fund may go up or down depending on the factors and forces affecting the security market.

There can be no assurance that the fund’s objective will be

achieved. Past performance of the sponsors/Mutual fund/schemes/AMC is not necessarily indicative of the future results. The name of the schemes does not in any manner indicate their quality, their future prospects or returns. The specific risk

would be credit, market, illiquidity, judgmental error, interest rate, swaps and forward rates.

  • Demographic environment

The demographic environment significantly affects the demand for the mutual fund industry. Factors like the average age of the

population, levels of education, household structures income distribution, life style and the extent of industrialization.

  • Education

Education is major factor of demand for mutual fund product. If the education levels is higher than the people know the benefits

of mutual fund the use mutual fund as investment tool and also take raise capital growth

REGULATORY FREAMWORK FOR MUTUAL FUND

- 55 -

For the smooth functioning of mutual funds in INDIA followings are the watchdogs

1. 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 22 nd 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 board of directors. AMFI has brought down the Indian 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 interest of mutual funds as well as their unit holders.

2. SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS) REGULATIONS, 1996

The fast growing industry is regulated by Securities and Exchange

Board of India (SEBI) since inception of SEBI as a statutory body. SEBI initially formulated “SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS) REGULATIONS, 1993” providing detailed

procedure for establishment, registration, constitution, management of trustees, asset management company, about schemes/products to be designed, about investment of funds collected, general obligation of MFs, about inspection, audit etc.

- 56 -

based on experience gained and feedback received from the

market SEBI revised the guidelines of 1993 and issued fresh

guidelines in 1996 titled “SECURITIES AND EXCHANGE BOARD OF

INDIA (MUTUAL FUNDS) REGULATIONS, 1996”. The said regulations as amended from time to time are in force even today.

STRUCTURE OF MUTUAL FUNDS

The mutual fund industry is governed by the Securities and Exchange Board of India (Mutual Fund) Regulations, 1996, which lays the norms for the structure and the operation of a mutual fund in India. The diagram below illustrates the organizational set up of a mutual fund:

- 56 - based on experience gained and feedback received from the market SEBI revised the

Organizational Setup of a Mutual Fund

SPONSOR

- 57 -

A “sponsor” is a person who, acting alone or in combination with

another corporate body, establishes a Mutual Fund. In order to register with SEBI as a Mutual Fund, the sponsor should have a sound financial track record of over five years and general reputation of fairness and integrity in all his business transactions. Following its registration with SEBI, the sponsor forms a trust, appoints a Board of Trustees and an Asset Management Company (AMC) as a fund manager. The sponsor should contribute at least 40% of the net worth of the AMC.

SEBI

The regulation of mutual funds operating in India falls under the preview of authority of the Securities and Exchange Board of India (SEBI). Any person proposing to set up a mutual fund in India is required under the SEBI (Mutual Funds) Regulations, 1996 to be registered with the SEBI.

MUTUAL FUND

A Mutual Fund is established in the form of a trust under the Indian Trusts Act, 1882. The investor subscribes to the units issued by the Mutual Funds. The resources raised are pooled under various schemes established by the trust.

TRUSTEES

The

Mutual

Fund

can

either

be

managed

by

the

Board

of

Trustees, which is a body of individuals, or by a trust company, which is a corporate body. Most of the funds in India are managed

- 58 -

by the Board of Trustees. The Trustees are appointed with the approval of the SEBI. Two thirds of the Trustees are independent persons and are not associated with the sponsors. The Trustees, however, do not manage the portfolio of Mutual Fund. It is managed by the AMC.

UNIT HOLDERS

They are the parties to whom the mutual fund is sold. They are ultimate beneficiary of the income earned by the mutual funds.

ASSET MANAGEMENT COMPANY (AMC)

The AMC,appointed by the sponsors or the Trustees and approved by SEBI, acts like an investment manager of the Trust.

The AMC should have a net worth of at least Rs.10 crores. It functions under the supervision of its Board of Directors, Trustees and the SEBI. In the name of the Trust, AMC floats and manages different investment schemes as per the SEBI regulations. Apart from these, a Mutual Fund has some other constituents, such as, custodians and depositories, banks, transfer agents and distributors. A custodian is appointed for safe keeping the securities and participating in the clearing system through approved depository. The bankers handle the financial dealings of the fund. Transfer agents are responsible for issue and redemption of the ‘units’. The AMC appoints distributors or brokers to sell ‘units’ on behalf of the fund.

CUSTODIAN

- 59 -

The mutual fund is required, under the Mutual Fund Regulations, to appoint a custodian to carry out the custodial services for the schemes of the fund. Only institutions with substantial organizational strength, service capability in terms of computerization and other infrastructure facilities are approved to act as custodians. The custodian must be totally delinked from the AMC and must be registered with SEBI.

Chapter 5

- 60 -

RESEARCH METHODOLOGY

Research can simply be defined as search for knowledge; it is an art of scientific investigation. In this report a research has been conducted to know Investors and Advisors perception about Mutual Funds.

OBJECTIVES:

To study about the mutual funds and MF industry.

 

To

know

the

perception

of

Investors

and

Advisors

towards mutual funds.

SCOPE OF THE STUDY:

Study covers mutual fund Company (NJ India invest), mutual fund industry, investors and advisors behaviour towards mutual funds. People of age between 20 to 60 years Area covered Panchkula, manimajra, pinjor, kalka, parwanoo and Zirakpur.

RESEARCH PROCESS

1. Define research problem and objective: - first of all we need to define research problem with out which we can not proceed. In our study our research problem and Objectives are

- 61 -

To know about the mutual funds industry.

 

To

study

the

perception

of

Investors

and

Advisors

towards mutual funds.

2. Define the information needed: - here we need to define the information actually required for our study. In this case we require information about the approach of

investors and advisors about mutual funds e.g. what point’s

investors consider before investing in mutual fund, attitude of insurance advisors who are not selling mutual funds and

are not AMFI certified. So, the information sought and information generated is only possible after defining the information needed.

3. Research design: - A research design is a framework or conceptual structure with in which research would be conducted and also helps us to collect maximum information with minimal expenditure of effort, time and money. In this project Descriptive Research (in which researcher has no control over variables) is designed.

4. Determine sample design and sample size:-

Sample design

is

a

definite plan

for obtaining a sample

from given population and is determined before data collection.

Our study uses convenient sampling technique.

Sample Is the part

of

totality on

the basis

of

which

a

judgment about the totality is made. This study consists of near about 170 respondents

- 62 -

Population All the investors and advisors from panchkula, manimajra,pinjor, kalka, parwanoo and zirakpur from 20 July to 11august 2011.

  • 5. Collection of data: - Both primary and secondary data

have been used for the purpose of the data collection. Primary data was collected by a structured questionnaire.

And the secondary data was collected from company’s

books and data source.

Chapter 6

- 63 -

DATA INTERPRETATION AND ANALYSIS

After

collection

of

data

analysis

is

done

to

make

it

understandable and to draw a conclusion.

In the present work sample size is 170 which is taken from panchkula, manimajra,pinjor, kalka, parwanoo and zirakpur

Q1. Are you a wealth Advisor?

Yes

No

Total

170

0

170

No

0%

No 0% Yes 100%

Yes

100%

- 64 -

The table and diagram shows that there are 170 wealth advisors in my sample size.

sex

frmale

30% male

30%

male

70%

Above diagram shows that, there are 30% females and 70% males working as a wealth advisors in my sample size.

Q2. How long have you been working as a wealth advisor?

Years

No of persons

percentage

1-5

  • 40 23.52%

 

5-10

  • 75 44.11%

 

More than 10

  • 55 32.35%

 

- 65 -

no of persons

 

more than

1 to 5 years

10 years

32%

10 years 32% 5 to 10

5 to 10

24%

 

years

44%

The above diagram shows that there are 24% means 40 advisors out of 170 who are working as wealth advisors from 1-5 years. There are 44% means 75 advisors working from 5-10 years and 32% means 55 advisors working from more than 10 years as wealth advisor.

Q3. With which organization you are working?

Organizations

No of persons

%

LIC

80

47

Post office

56

32.94

New India insurance

2

1.76

Oriental insurance

30

17.64

National insurance

2

1.76

- 66 -

National insurance, 1% Oriental insurance, 18% New India, 1% LIC, 47% Post office, 33%
National
insurance,
1%
Oriental
insurance,
18%
New India,
1%
LIC, 47%
Post office,
33%

Above data shows 47% advisors work with LIC, 33% work with post office, about 1% works with new India, 18% advisors work with Oriental insurance and 1% with National Insurance

Q4.Do you invest in mutual fund?

Response

Respondents

%

Yes

38

22.35

No

132

77.64

- 66 - National insurance, 1% Oriental insurance, 18% New India, 1% LIC, 47% Post office,

- 67 -

Respondents

 

Yes

No
No

22%

78%

When question asked to advisors that do they invest in mutual fund 38 advisors means 22% say yes they do and 78% advisors do not invest in mutual fund.

(a). If yes, what factors do you keep in mind before investing in mutual fund?

Response

Respondents

%

Safety

18

47.36

Good return

12

31.57

Liquidity

8

21.05

- 68 -

 

Respondents

Liquidity

21%

21%
 

Safety

47%

Good return

32%

It shows majority of investors i.e. 47% wants safety, 32%want good return and 21%investors want liquidity before investing in mutual fund.

Q5. Do you sell MUTUAL FUND?

Response

Respondents

%

Yes

25

14.70

No

145

85.30

- 69 -

 

Respondents

Yes

Yes

 

15%

 
Respondents Yes 15% No 85%
No

No

85%

There are 15% advisors who sell Mutual Funds and 85 % advisors

don’t deal in mutual fund

Q6.

(a) Are you AMFI certified?

Response

Respondents

%

Yes

7

4.11

No

163

95.88

- 70 -

 

Respondents

 
Yes

Yes

 

4%

 
Yes
  • Yes

  • No

No

No

96%

In the above diagram there are only 4% advisors are AMFI certified and 96% are not AMFI certified.

(b) If yes, do you want to associate with NJ India Invest?

Response

Respondents

%

No

3

42.85

Already with NJ

4

57.14

- 71 -

 

Respondents

No

No

Already with

43%

NJ

57%

Above data shows that out of 7 AMFI certified advisors there are 57% advisors who are working with NJ India Invest, 43% advisors

don’t want to associate with due to less brokerage at NJ.

Q7.Do you want to be an AMFI certified Advisor?

Response

Respondents

%

Yes

8

4.90

No

155

95.09

- 72 -

 

Respondents

 
 
Yes

Yes

 

5%

 
Yes
  • Yes

  • No

No

No

95%

out of 163 advisors there are 5% means 8 advisors want to be AMFI certified and 95% rwe not interested to be AMFI certified.

- 73 -

LIMITATIONS OF THE STUDY

Research has made many achievements and thus simplified human life. Whatever we are enjoying today is due to research.

Every research has its own advantages, disadvantages and limitations and my present research work is no exception to this general rule.

Limitations of the study are as under:·

  • In this research Interview method was followed which is very much time consuming and very expensive method, especially when spread geographic sample is taken.

  • Questionnaire

method

can

be

used

only

for

those

respondents who are literate and co-operative.

  • In this research work Sample size was 170 which is not enough to study the awareness of mutual fund and on the basis of this sample we can not make a judgment.

Sampling

techniques

used

in

the study is convenient

sampling so it may result in personal bias. Even respondent

give bias answers.

  • Time is main constraint of the research as we have very less time.

- 74 -

FINDING AND SUGESSIONS

During my summer training program at panchkula in NJ India invest I found that a large number of wealth Advisors were working with insurance companies (LIC, new India, oriental insurance, National insurance) and post offices or with both.

Most of investors and advisors have a little knowledge about mutual fund.

FINDINGS

Highest

number

of

investors

comes

from

the

salaried

class(having age group 25-40) and have been investing in mutual funds for last 5-7 years. Most of the advisors have been working with insurance

companies and post offices. Brokerage in mutual funds is very low as compare to insurance. Mutual fund investments are subject to market risk therefore people don’t want to talk about them. Advisors don’t want to be AMFI certified because they have

to study and they think fee at NJ is more as compare to LIC.

Some advisors were dealing in mutual fund with out any

AMFI certification with RR chd. Majority of people were not aware about NJ India Invest so they should launch Brand awareness programme periodically.

ARN holders who are working independently don’t want to

associate with NJ due to less brokerage at NJ. Some people want to earn high return, some want safety, some want tax benefit and some want liquidity.

- 75 -

SUGGESTIONS

NJ should decrease charges upon AMFI test. NJ should launch awareness program about mutual fund for general public to get direct clients and for brand building. Brokerage of the financial advisor’s should be improved.

Give more importance to safety and return attributes because Independent Financial Advisors are more concern about safety and of giving more benefit of the investments to their clients. By providing better service NJ India Invest should try to attract the Independent Financial Advisors to join with them. Tax benefit should be highlighted to attract public sector employees for investment in mutual fund.

CONCLUSION

- 76 -

On the Basis of above research we can say that mutual fund industry is growing with a great speed and investment in mutual fund provides a good return in long run i.e. beyond 5 years.

Today each and

every person

is

fully aware of

every kind

of

investment proposal. Everybody wants to invest money, which entitled of low risk, high returns and easy redemption.

Though a mutual fund provides a good return but it also has risk involved in it. Investor should have a good knowledge about working of mutual fund and market before investment. In my opinion before investing in mutual funds, one should be fully aware of each and everything.

- 77 -

REFERENCES & BIBLIOGRAPHY

Websites:

Books:

C.R.Kothari,Research methodology, new Delhi: new age international publishers. Text book for AMFI Exam.

Magazines:

Business India

Opportunity (by NJ)

Business Today

Questionnaire

Q1. Are you a wealth Advisor?

o

o

Yes

No

- 78 -

Q2. How long have you been working as a wealth advisor? o 0-5years o 5-10years o More than 10 years

Q3. With which organization you are working? o A………………………………… o B………………………………… o C………………………………… o D………………………………… o E…………………………………

Q4.Do you invest in mutual fund?

o

o

Yes

No

(a). If yes, what factors do you keep in mind before investing in mutual fund? o Safety o Return o Liquidity

Q5. Do you sell MUTUAL FUND?

o

o

Yes

No

Q6.

(a) Are you AMFI certified? Yes No

o

o

- 79 -

(b) If yes, do you want to associate with NJ India Invest?

Yes o No o Already with NJ

o

Q7.Do you want to be an AMFI certified Advisor?

o

o

Yes

No

Name: - Mail Id: - Contact No: - Office Address: -

…………………………………………………….

…………………………………………………….

…………………………………………………….

……………………………………………………

Thanks for your Co-operation