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1. 1
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)
www.arni.in
Submitted By: PARVINDER KUMAR SAHOTRA
(AEMB0046A/10)
MBA -3RD 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
ACKNOWLEDGEMENTS
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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-3rd
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DECLARATION
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
on ____ and the suggestions as approved by the faculty were
duly incorporated.
Presentation
Signature of the Candidate In charge
(Faculty)
Countersigned
Director/Dean/Coordinator
(PARVINDER KUMAR SAHOTRA)
Contents
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Certificate by guide
Acknowledgement
Declaration
Abstract
Objective of the study
1. Company profile (4)
2. Mutual Fund History (21)
3. Mutual fund Industry (24)
4. Mutual Funds an introduction (30)
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
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.
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.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.
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
COMPANY PROFILE
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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 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
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• Making innovations, accessions, value-additions, a constant process
• Providing customers with solutions for tomorrow which will keep them
above the curve, today
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 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
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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 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
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Ensure creation of the desired value for our customers, employees and
associates, through constant improvement, innovation and commitment to service &
quality. To provide 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
Mr. Neeraj Choksi
Jt Managing Directors
Mr. Jignesh Desai
Sales Team:
Name Category
Mr. Misbah Baxamusa National Head
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Mr. Kulbhushan Nandwani
A.V.P
Mr. Prashant Kakkad
Mr. Anil Taliaya
Mr. Manish Gadhvi
Zonal Manager
Mr. Sarfaraz Patel
Mr. Tushar Bhajantri
Executive Team:
Name Department Head
Mr. Shirish Patel Information Technology
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
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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:
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 lives.
COMPREHENSIVE, ACCURATE COMMUNICATIONS USING LEADING-EDGE
TECHNOLOGIES
We employ new technologies to set industry standards in reporting and client
communications.
• professional ethics
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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 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.
• 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.
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• 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
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
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Year 2003:
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 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.
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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 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
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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
Chapter 2
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:
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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), 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 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.
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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
Chapter 3
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
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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.
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.
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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.
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 %.
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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
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
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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.
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.
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Chapter 4
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 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
29. 29
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.
•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
TYPES OF MUTUAL FUNDS
Mutual fund schemes may be classified on the basis of its structure and its
investment objective.
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A. By Structure:
Open-ended Funds
An open-end fund is one that is available for subscription all through the year.
These do not have a fixed maturity. Investors can conveniently buy and sell units at
Net Asset Value ("NAV") related prices. The key feature of open-end schemes is
liquidity.
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
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.
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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 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
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
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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
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.
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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.
COMPARISON OF MUTUAL FUNDS
Mutual
Objective Risk Investment Who should Investment
funds portfolio invest horizon
Equity Long-term
capital High risk Stock &share Aggressive 3 years +
funds investors , long
appreciation term
investment
Balanced
Growth & Capital market Balanced ratio Moderate & 2 years +
funds regular income risk & interest of equity aggressive
risk &debt funds to investors
ensure higher
return at low
risk
Index
To generate NAV varies Portfolio Aggressive 3 years +
funds returns that with index indices like investors
commensurate performance BSE, NIFTY
with returns of etc.
respective indices
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
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Money Liquidity + Negligible Treasury Bills, Park funds in 2 Days to 3
market Moderate Income Certificates of current A/c s weeks
+ Reservation of Deposits , or short term
Income commercial Bank Deposits
papers, Call
money
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 Provide stable but low level of return
MARKET FUND
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.
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.
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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
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.
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6. Non-availability of loans
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 through this channel.
This includes monthly a/c statement, processing of transaction, and 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 played 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 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 investment 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
37. 37
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).
4. The corporate channel
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
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
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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 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.
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FACTORS AFFECTING MUTUAL FUND
Governmental Influences
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 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
40. 40
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
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
41. 41
obligation of MFs, about inspection, audit etc. 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:
Organizational Setup of a Mutual Fund
• SPONSOR
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,
42. 42
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 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
43. 43
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
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.
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.
44. 44
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.
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.
45. 45
• 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
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.
REFERENCES & BIBLIOGRAPHY
Websites:
• www.google.com
• www.njfundz.com
• www.amfiindia.com
• www.mutualfundsindia.com
Books:
• C.R.Kothari,Research methodology, new Delhi: new age international
publishers.
46. 46
• Text book for AMFI Exam.
Magazines:
• Business India
• Opportunity (by NJ)
• Business Today