30838403 comparative-analysis-of-mutual-funds

A
REPORT ON

“COMPARITIVE ANALYSIS OF
MUTUAL FUNDS”

WITH SPECIAL REFERENCE
TO

SBI MUTUAL FUND

MRINAL MANISH

ENR. NO.:4108078078

2008 – 2010
COMPANY GUIDE: MR. KAPIL MALIK
(H.O.D.- RETAIL)
A report submitted in partial fulfilment for the requirement of MBF program

ACKNOWL
EDGEMENT

In pursuit of an MBA degree, summer internship is a critical component of the entire
process. ‘SBI FUNDS MANAGEMENT PVT. LTD.’ has given me the opportunity to
gain invaluable experience under the guidance of Mr. Gaurav Vatsayan (V.P.-Sales,
Delhi Region) & Mr. Kapil Mallik (Head- Retail channel). Their continuous support
and valuable in hand experience provided me with the conceptual understanding and
practical approach needed to work efficiently for this project. The entire SBI Mutual
Fund’s staff is praiseworthy.

I would like to pay my regards and sincere thanks to my in charge Mr. Sumit Mahajan
for
Stimulating suggestions and encouragement helped me in all the time of my internship.

Last but not the least; I also would like to thank the entire staff of SBI Mutual Fund and
all my friends and colleagues who helped whenever I faced any difficult situation.

I hope this report, reflecting my learning in the past fourteen weeks, is as beneficial to
the organization as it had been to me.

Again, I sincerely thank all of them.

MRINAL MANISH (4108078078)

INDIAN INSTITUTE OF FINANCE Page 2

- MRINAL MANISH

ENR. NO.-
4108078078

CERTIFICATE

This is to certify that the project on “Comparative Analysis of Mutual Funds
with special refernce to SBI Mutual Fund ” has been done by Mr. Mrinal
Manish with Reference to SBI Mutual Fund, Ashoka Estate, New Delhi as a
part of the requirement of the Management of Business Finance (MBF)
summer training program. This study is being submitted for approval to Indian
Institute of Finance.

I declare that the form and contents of the above mentioned project are
original and have not been submitted in part or full, for any other degree or
diploma of this or any other Organization / Institute/ University.

Signature: --------------------

Name: Mrinal Manish

Enrollment No. 4108078078

MBF (2008-2010)

Indian Institute of Finance



PREFACE

Finance & its functions are the part of economic activity. Finance is very essentially
needed for all types of organizations viz; small, medium, large-scale industries &
service sector. Hence the role of finance manager & the subject finance accounting
gained maximum importance. Liberalization, globalization & privatization created new
challengers to entrepreneur & corporate in carrying they’re day to day activities. So,
“finance is regarded as the life blood of a business organization.”

Master of business administrator is professional course which develop a new body of
knowledge & skill set & make as available for those seeking challenging carriers in the
of liberalization & globalization.

The goal of the Summer Training is to give a corporate exposure to the students as well
as to give them an opportunity to apply theory into the practice. The real business
problems are drastically different from class-room case solving. Summer Project aims to
providing little insight into working of an organization to a management trainee.

Among every stage of knowledge being inculcated in students, practical training in the
corporate world plays a significant role in exhibiting and pruning their capabilities.



The purpose behind writing a report is to put in to works the practical
training that is imparted into me that gives a better and a clear understanding of the
experience I got.

“COMPARATIVE ANALYSIS OF MUTUAL FUNDS WITH SPECIAL
REFERENCE TO SBI MUTUAL FUND”

being a very important aspect of SBI Mutual Fund Pvt. Ltd., I have tried to explore
many areas of the subject in my project report.

While preparing this project report I got the knowledge about various aspects regarding
financial decisions made in organisation like “SBI Mutual Fund Pvt. Ltd.” the business
world.

My project is divided into 5 chapters & they are given as under.

1. Chapter 1 is an introduction of the mutual fund industry and the company.
2. Chapter 2 deals with review of literature.
3. Chapter 3 states the methodology being used in the project.
4. Chapter 4 basically states the Analysis of the Mutual Funds
5. Chapter 5 deals with the use of findings, conclusion. suggestions and limitations.



CONTENTS
Chapter Page no.

I. INTRODUCTION…………………………………………………………
15-62
1. WHY COMPARATIVE ANALYSIS OF MUTUAL FUNDS?............15
2. INTRODUCTION TO MUTUAL FUNDS…………………………….17
3. INDUSTRY PROFILE…………………………………………………40
4. COMPANY PROFILE………………………………………………....46
5. NEW FUND OFFER (SBI GETS)...................................................61
6. OTHER WORK EXPERIENCE AND LEARNINGS DURING THE
PROJECT
....................................................................................................62

II. REVIEW OF LITERATURE…………..………………………………..64-
74

III. RESEARCH METHODOLOGY.......................................................75-119
1. NEED OF THE STUDY…………………………........................78

2. TERMINOLOGY……………………………………………….....79



3. DATA COLLECTION METHOD…….
…………........................85

4. ANALYSIS OF THE INDIVIDUAL INVESTOR…….………….86

5. MOST POPULAR FUNDS OF SBI MUTUAL FUND................100

6. INVESTMENT BEHAVIOUR……….……………………..........102

 FACTOR ANALYSIS...................................................107

 DISCRIMINANT ANALYSIS.......................................109

7. MOST POPULAR FUND HOUSE IN TERMS OF HIGHEST
INVESTMENT........................................................................119

IV. COMAPARRATIVE ANALYSIS……..………………………….........121-
176

1. INTRODUCTION....................................................................122

• NAV..............................................................122

• BETA.......................................................124

• STANDARD DEVIATION.........................124

• SHARPE RATIO.......................................125

• TREYNOR RATIO....................................125

2. INTER FIRM COMPARISION....................................127

• EQUITY DIVERSIFIED FUNDS................129



• EQUITY LINKED SAVING SCHEMES.....138

• EQUITY LARGE CAP FUNDS..................147

• EQUITY SMALL AND MID CAP FUNDS.155

• EQUITY THEMATIC FUNDS...................165

V. EXPECTATION OF THE INDUSTRY FROM BUDGET 2009-10....176

SWOT ANALYSIS............................................................................181

CONCLUSIONS………………………………………………………......184

SUGGESTIONS AND RECOMMENDATIONS.……………........186

LIMITATIONS………………………………………………….………...192

GLOSSARY……………………………………………..........................103

REFERENCES..................................................................................205

ANNEXURE......................................................................................207

TABLE INDEX

Table Name Page no.

1. BOARD OF DIRECTORS OF SBI MUTUAL FUND......................................53

2. NATIONAL DISTRIBUTORS..........................................................................59

3. ANALYSIS OF FUNDS ON THE BASIS OF VARIOUS RATIOS................81

4. ANALYSIS ACCORDING TO SAVINGS FROM INCOME..........................88

5. DESCRIPTIVE WEIGHTED FACTOR COUNTING METHOD...................105



6. FACTOR ANALYSIS.......................................................................................106

7. FUNDS RETURN OF EQUITY DIVERSIFIED FUNDS...............................129

8. RISK PROFILE OF EQUITY DIVERSIFIED FUNDS....................................130

9. PORTFOLIO ANALYSIS OF EQUITY DIVERSIFIED FUNDS....................133

10. NAV DETAILS OF EQUITY DIVERSIFIED FUNDS...................................135

11. FUNDS RETURN OF ELSS.............................................................................138

12. RISK PROFILE OF ELSS.................................................................................140

13. PORTFOLIO ANALYSIS OF ELSS.................................................................142

14. NAV DETAILS OF ELSS..................................................................................144

15. FUNDS RETURN OF EQUITY LARGE CAP.................................................147

16. RISK PROFILE OF EQUITY LARGE CAP.....................................................149

17. PORTFOLIO ANALYSIS OF EQUITY LARGE CAP.....................................151

18. NAV DETAILS OF EQUITY LARGE CAP.....................................................153

19. FUNDS RETURN OF SMALL AND MID CAP.............................156

20. RISK PROFILE OF SMALL AND MID CAP.................................158

21. PORTFOLIO ANALYSIS OF SMALL AND MID CAP.................160

22. NAV DETAILS OF SMALL AND MID CAP..................................162

23. FUNDS RETURN OF EQUITY THEMATIC..................................165

24. RISK PROFILE OF EQUITY THEMATIC .....................................167

25. PORTFOLIO ANALYSIS OF EQUITY THEMATIC......................169

26. NAV DETAILS OF EQUITY THEMATIC.......................................171



27. COMPARISION OF MUTUAL FUNDS AGAINST OTHER INVESTMENT
AVENUES................................................................................................173

CHART INDEX
Chart name Page no.

1. PRODUCT PORTFOLIO.............................................................57

2. ANALYSIS OF THE PREFERENCES OF THE RESPONDENT.......86

3. ANALYSIS ACCORDING TO AGE...............................................87

4. ANALYSIS ACCORDING TO OCCUPATION................................89

5. ANALYSIS ON THE BASIS OF PURCHASE OF INVESTMENT....93

6. INVESTMENT OBJECTIVES........................................................94

7. RISK PREFERENCES...................................................................94



8. PREFERABLE ROUTE TO INVESTING IN MUTUAL
FUND........96

9. SATISFACTION LEVEL WITH SBI..............................................100

10. DEMOGRAPHIC FACTORS..........................................................109

11. MOST POPULAR FUND HOUSE..................................................119

12. FUND RETURNS OF EQUITY DIVERSIFIED FUNDS .................129

13. RISK PROFILE OF EQUITY DIVERSIFIED FUNDS......................131

14. PORTFOLI ANALYSIS OF EQUITY DIVERSIFIED FUNDS..........133

15. NAV DETAILS OF EQUITY DIVERSIFIED FUNDS......................135

16. FUND RETURNS OF ELSS...........................................................139

17. RISK PROFILE OF ELSS..............................................................140

18. PORTFOLIO ANALYSIS OF ELSS...............................................143

19. NAV DETAILS OF ELSS..............................................................145

20. FUND RETURNS OF EQUITY LARGE CAP.........................147

21. RISK PROFILE OF EQUITY LARGE CAP...........................149

22. PORTFOLIO ANALYSIS OF LARGE CAP..........................151

23. NAV DETAILS OF LARGE CAP.........................................154

24. FUND RETURNS OF EQUITY SMALL AND MID CAP.......156

25. RISK PROFILE OF EQUITY SMALL AND MID CAP...........158

26. PORTFOLIO ANALYSIS OF EQUITY SMALL AND MID CAP

.................................................................................................160



27. NAV DETAILS OF EQUITY SMALL AND MID
CAP...........162

28. FUND RETURNS OF EQUITY THEMATIC..........................165

29. RISK PROFILE OF EQUITY THEMATIC.............................167

30. PORTFOLIO ANALYSIS OF EQUITY THEMATIC...............169

31. NAV DETAILS OF EQUITY THEMATIC..............................171

EXECUTIVE SUMMARY

OBJECTIVE:

 To know the awareness of mutual funds among people.
 To see the interest of people in investing in mutual funds.



 To know the investment behaviour of investors in mutual fund
according to different age group.
 To ascertain the percentage of income the investors invest in mutual fund.
 To know the different attitudes of people regarding risk, rate of return, period of
investment.
 To know the investors preferred financial product for investment.

SCOPE:

There are four divisions in SBI MF for the purpose of marketing and sales. They give
special attention for the retention of customers i.e. investors, distributors and brokers.
Four divisions are:
1. National distributors.
2. Banking.
3. Individual financial advisors.
4. FII’s.

FII’s are taking care by head office in MUMBAI. I am under section of National
distributors and Individual financial advisors. To maintain relationships with them and
make them aware about the new offerings and sort out their existing problems. My area
of scope is DELHI region. There are around 250 ND’s and IFA’s in this region.

METHODOLOGY FOLLOWED:

Methodology basically means the selection of the various methods and techniques in the
research-conducted. The various steps includes: -
1. Selection of a representative sample from the general population, which depicts the
characteristics of the complete
population.



2. Application of various tools and techniques to obtain relevant
information related to a case.
3. Collection of relevant data.
4. Analysis and interpretation of the data.
5. Generation of a final report.

RESEARCH DESIGN

There are 34 fund houses currently operating in India of which four have been in
existence for less than three years. Whereas till 2004, hardly a few equity schemes were
launched each year, that number has grown by 8-10 times now.
For the purpose of the research, I have selected 5 fund houses as mentioned under:
 SBI Mutual Fund
 Birla
 Reliance
 Prudential ICICI
 Franklin Templeton

The following methodology is adopted for Comparison
Step1: Selection of few well-performing Funds of Big Fund Houses of India.
Step2: Collection of data (against various parameters) for comparison of Funds.
Step3: Analyses of the parameters and their relevance in comparing the funds.
Step4: Comparing and Ranking these funds on the basis of inputs from executives and
the
rating agencies.
Step5: Generation of a project report.

DATA COLLECTION



The primary data collection was the most important part of the project.
This includes collecting the information through field research. For collecting
information, a personal interview was conducted with the help of questionnaire and the
required information was collected for the respondents.

DATA ANALYSIS

After collecting the data, data is to be analyzed. The findings and the analysis have been
mentioned further in the report.

1. INTRODUCTION

WHY COMAPARATIVE ANALYSIS OF MUTUAL FUNDS?



All over the world, mutual fund is one of the most popular instruments for
investment. Its popularity with consumer has dramatically increased over the last couple
of years worldwide; the mutual fund has a long and successful history. The popularity of
mutual fund has increased manifold. In developed financial market like United States,
mutual has almost overtaken bank deposits and total assets of insurance funds.

The mutual fund industry in India is regulated by Association of Mutual Funds in India
(AMFI). The mutual fund industry in India is of 493,287 crores approx. SBI Mutual
Fund is India’s largest bank sponsored mutual fund and has an enviable track record in
judicious investments and consistent wealth creation.
The fund traces its lineage to SBI - India’s largest banking enterprise. The institution has
grown immensely since its inception and today it is India's largest bank, patronized by
over 80% of the top corporate houses of the country.
SBI Mutual Fund is a joint venture between the State Bank of India and Société
Générale Asset Management, one of the world’s leading fund management
companies that manages over US$ 500 Billion worldwide.
In twenty years of operation, the fund has launched 38 schemes and successfully
redeemed fifteen of them. In the process it has rewarded its investors handsomely with
consistently high returns.
A total of over 4.6 million investors have reposed their faith in the wealth generation
expertise of the Mutual Fund.
Schemes of the Mutual fund have consistently outperformed benchmark indices and
have emerged as the preferred investment for millions of investors and HNI’s.
Today, the fund manages over Rs. 28500 crores of assets and has a diverse profile of
investors actively parking their investments across 36 active schemes.
The fund serves this vast family of investors by reaching out to them through network of
over 130 points of acceptance, 28 investor service centers, 46 investor service desks and
56 district organizers.
SBI Mutual is the first bank-sponsored fund to launch an offshore fund – Resurgent
India Opportunities Fund.



Growth through innovation and stable investment policies is the SBI MF
credo
State Bank of India was born on 1st July,1955 based on the recommendations of All
India Rural Credit Survey Committee(1954) headed by Shri A.D Gorwala, through an
Act of Parliament. The main objective of SBI is “Extension of Banking facilities on a
large scale, more particularly in rural and semi-urban areas, and for diverse other public
purposes and to transfer to it the undertaking of the Imperial Bank of India and provide
for other matters connected thereto or incidental thereto.”SBI is the oldest, the largest
and the highest profit making bank in India. Its evolution is not only intimately
interwoven with the economic development of modern India but also with our nation
building process to an extent perhaps unparalleled in the world. Moving like colossuses
on the Indian financial turf, it has become a symbol of national pride and economic
development.

SBI with its extensive network of over 9000 branches has vast clientele and extends
service not only on commercial basis but also on the basis of social considerations. The
Bank is also on its way to introduce and absorb technology extensively at a rapid speed
not only to remain customer-friendly and efficient for existing business but also to
manage new business and services in an increasingly dynamic and global environment.

The project entitled “Comparison of Mutual Fund with special reference to SBI
Mutual Fund” gives me an opportunity to enhance my knowledge of mutual funds
industry and gives me an insight of business processes of different types of client.

INTRODUCTION TO MUTUAL FUNDS



Mutual fund is a buzz in the market these days. The mutual fund industry
is burgeoning, it is completely untapped market. Only 5% of total potential of this
industry has been grabbed. Hence this industry has a lot of opportunities in it. That’s
why it is so much interactive.

As Indian economy is growing at the rate of 8% per annum, we can see its effect in all
areas. The Indian stock market and companies have become lucrative for foreign
investors. More and more fund is pouring in our country. This is increasing liquidity in
the market and hence increasing the money in the hands of people and thus investment.
As the future prospects for Indian companies are bright, they have lots of opportunities
to expand their business worldwide, the investment in Indian companies.

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 investible 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 mutual fund is the answer to all these situations. It appoints professionally qualified
and experienced staff that manages each of these functions on a full time basis. The
large pool of money collected in the fund allows it to hire such staff at a very low cost to
each investor. In effect, the mutual fund vehicle exploits economies of scale in all three
areas - research, investments and transaction processing. While the concept of
individuals coming together to invest money collectively is not new, the mutual fund in
its present form is a 20th century phenomenon. In fact, mutual funds gained popularity
only after the Second World War. Globally, there are thousands of firms offering tens of
thousands of mutual funds with different investment objectives. Today, mutual funds
collectively manage almost as much as or more money as compared to banks.

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.

Future Scenario

The asset base will continue to grow at an annual rate of about 30 to 35 % over the next
few years as investor’s shift their assets from banks and other traditional avenues. Some
of the older public and private sector players will either close shop or be taken over.

Out of ten public sector players five will sell out, close down or merge with stronger
players in three to four years. In the private sector this trend has already started with two
mergers and one takeover. Here too some of them will down their shutters in the near
future to come.

But this does not mean there is no room for other players. The market will witness a
flurry of new players entering the arena. There will be a large number of offers from
various asset management companies in the time to come. Some big names like Fidelity,
Principal, and Old Mutual etc. are looking at Indian market seriously. One important
reason for it is that most major players already have presence here and hence these big
names would hardly like to get left behind.

The mutual fund industry is awaiting the introduction of derivatives in India as this
would enable it to hedge its risk and this in turn would be reflected in it’s Net Asset
Value (NAV).

SEBI is working out the norms for enabling the existing mutual fund schemes to trade in
derivatives. Importantly, many market players have called on the Regulator to initiate



the process immediately, so that the mutual funds can implement the
changes that are required to trade in Derivatives.

Market Trends

A lone UTI with just one scheme in 1964 now competes with as many as 400 odd
products and 34 players in the market. In spite of the stiff competition and losing market
share, UTI still remains a formidable force to reckon with.

Last six years have been the most turbulent as well as exiting ones for the industry. New
players have come in, while others have decided to close shop by either selling off or
merging with others. Product innovation is now passé with the game shifting to
performance delivery in fund management as well as service. Those directly associated
with the fund management industry like distributors, registrars and transfer agents, and
even the regulators have become more mature and responsible.

The industry is also having a profound impact on financial markets. While UTI has
always been a dominant player on the bourses as well as the debt markets, the new
generations of private funds which have gained substantial mass are now seen flexing
their muscles. Fund managers, by their selection criteria for stocks have forced corporate
governance on the industry. By rewarding honest and transparent management with
higher valuations, a system of risk-reward has been created where the corporate sector is
more transparent then before.

Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG
and technology sector. Funds performances are improving. Funds collection, which
averaged at less than Rs100bn per annum over five-year period spanning 1993-98
doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceeded
Rs300bn. Total collection for the current financial year ending March 2000 is expected
to reach Rs450bn.

What is particularly noteworthy is that bulk of the mobilization has been by the private
sector mutual funds rather than public sector mutual fundsMutual funds are now also


competing with commercial banks in the race for retail investor’s savings
and corporate float money. The power shift towards mutual funds has become obvious.
The coming few years will show that the traditional saving avenues are losing out in the
current scenario. Many investors are realizing that investments in savings accounts are
as good as locking up their deposits in a closet. The fund mobilization trend by mutual
funds in the current year indicates that money is going to mutual funds in a big way.

India is at the first stage of a revolution that has already peaked in the U.S. The U.S.
boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund
assets are not even 10% of the bank deposits, but this trend is beginning to change.
Recent figures indicate that in the first quarter of the current fiscal year mutual fund
assets went up by 115% whereas bank deposits rose by only 17%. (Source: Think-tank,
the Financial Express September, 99) This is forcing a large number of banks to adopt
the concept of narrow banking wherein the deposits are kept in Gilts and some other
assets which improves liquidity and reduces risk. The basic fact lies that banks cannot
be ignored and they will not close down completely. Their role as intermediaries cannot
be ignored. It is just that Mutual Funds are going to change the way banks do business in
the future.

WHAT IS A MUTUAL FUND?

common financial goal. It offers an opportunity to invest in a diversified, professionally
managed basket of securities at a relatively low cost. The flow chart below describes
broadly the working of a mutual fund:

Pool their money with

Investors Fund managers

Invest in
Passed back to

Returns Securities

“Mutual Funds are popular among all income levels. With a mutual fund, we get a
diversified basket of stocks managed by professionals”

These Trusts are run by experienced Investment Managers who use their knowledge and
expertise to select individual securities, which are classified to form portfolios that meet
predetermined objectives and criteria.
These portfolios are then sold to the public. They offer the investors the following main
services:

 Portfolio Diversification
 Marketability: A new financial asset is created that may be more easily
marketable than the underlying securities in the portfolio.

Organization of a Mutual Fund

A mutual fund is set up in the form of a trust, which has sponsor, trustees,
asset management company (AMC) and custodian. The trust is established by a sponsor
or more than one sponsor who is like promoter of a company. The trustees of the mutual
fund hold its property for the benefit of the unit holders. Asset Management Company
(AMC) approved by SEBI manages the funds by making investments in various types of
securities. Custodian, who is registered with SEBI, holds the securities of various
schemes of the fund in its custody. The trustees are vested with the general power of


superintendence and direction over AMC. They monitor the performance
and compliance of SEBI Regulations by the mutual fund.

TYPES OF MUTUAL FUND SCHEMES

Mutual fund schemes may be classified on the basis of its structure and its investment
objective.

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

By Investment Objective

Growth Funds:

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
proved 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 Funds:

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 Fund:
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.

MoneyMarketFunds:

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.

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.

Special Schemes

• 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 sector. This could be an
industry or a group of industries or various segments such as 'A' Group shares or initial
public offerings

BENEFITS OF MUTUAL FUNDS

Diversification

Professional management Tax benefits



Affordability Transparency

Professional Management

Mutual Funds provide the services of experienced and skilled professionals, backed by a
dedicated investment research team that analyses the performance and prospects of
companies and selects suitable investments to achieve the objectives of the scheme.

Diversification

Mutual Funds invest in a number of companies across a broad cross – section of
industries and sectors. This diversification reduces the risk because seldom do all stocks
decline at the same time and in the same proportion. You achieve this diversification
through a Mutual Fund with far less money than you can do on your own.

Affordability

A mutual fund invests in a portfolio of assets, i.e. bonds, shares etc. depending upon the
investment objective of the scheme. An investor can buy into a portfolio of equities,
which would otherwise be extremely expensive.

Tax Benefits

Any income distributed after March 31, 2002 will be subject to tax in the assessment of
all unit-holders. However, as a measure of concession to Unit holders of open – ended
and equity – oriented funds, income distributions for the year ending March 31, 2003,
will be taxed at a concessional rate of 10%.



Return Potential

Over a medium to long – term, mutual funds have the potential to provide a higher
return as they invest in a diversified basket of selected securities.

Low Costs

Investing in the capital markets because the benefits of scale in brokerage, mutual funds
are a relatively less expensive way to invest compared to directly custodial and other
fees translate into lower costs for investors.

Liquidity

In open – ended schemes, the investor gets the money back promptly at MAV related
prices from the mutual fund. In closed – ended schemes, the units can be sold on a stock
exchange at the prevailing market price or the investor can avail of the facility of direct
repurchase at NAV related prices by the mutual fund.

Transparency

You get regular information on the value of your investment in addition to disclosure on
the specific investments made by your scheme, the proportion invested in each class of
assets and the fund manager’s investment strategy and outlook.

Flexibility

Through features such as regular investment plans, regular withdrawal plans and
dividend reinvestment plans, you can systematically invest or withdraw funds according
to your needs and convenience.



Well Regulated

All mutual funds are registered with SEBI and they function within the provisions of
strict regulations designed to protect the interests of investors.

Tax breaks

Last but not the least, mutual funds offer significant tax advantages. Dividends
distributed by them are tax-free in the hands of the investor.

They also give you the advantages of capital gains taxation. If you hold units beyond
one year, you get the benefits of indexation. Simply put, indexation benefits increase
your purchase cost by a certain portion, depending upon the yearly cost-inflation index
(which is calculated to account for rising inflation), thereby reducing the gap between
your actual purchase cost and selling price. This reduces your tax liability.

What’s more, tax-saving schemes and pension schemes give you the added advantage of
benefits under Section 88. You can avail of a 20 per cent tax exemption on an
investment of up to Rs 10,000 in the scheme in a year

No assured returns and no protection of capital

If you are planning to go with a mutual fund, this must be your mantra: mutual funds do
not offer assured returns and carry risk. For instance, unlike bank deposits, your
investment in a mutual fund can fall in value. In addition, mutual funds are not insured
or guaranteed by any government body (unlike a bank deposit, where up to Rs 1 lakh



per bank is insured by the Deposit and Credit Insurance Corporation, a
subsidiary of the Reserve Bank of India).

There are strict norms for any fund that assures returns and it is now compulsory for
funds to establish that they have resources to back such assurances. This is because most
closed-end funds that assured returns in the early-nineties failed to stick to their
assurances made at the time of launch, resulting in losses to investors.

Restrictive gains

Diversification helps, if risk minimization is your objective. However, the lack of
investment focus also means you gain less than if you had invested directly in a single
security.

In our earlier example, say, Reliance appreciated 50 per cent. A direct investment in the
stock would appreciate by 50 per cent. But your investment in the mutual fund, which
had invested 10 per cent of its corpus in Reliance, will see only a 5 per cent
appreciation.

RISK ASSOCIATED WITH MUTUAL FUNDS

Credit Political inflation

RISKS

Liquidity Market


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. 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 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 the risk.

Credit Risk

The debt servicing ability 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. A ‘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



Inflation is the loss of purchasing power over a 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. 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 and not impossible to predict.
Changes in interest rates affect the prices of bonds as well as equities. If interest rates
rise, the prices of bonds will 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 Risk

Changes in government policy and political decision can change the investment
environment. They can create a favourable environment for investment or vice versa.

Liquidity Risk

Liquidity risk arises when it becomes difficult to sell the securities that one has
purchased. It can be partly mitigated by diversification, staggering of maturities as well
as internal risk controls that lean towards purchase of liquid securities. It simply means
that you must spread your investment across different securities (stocks, bonds, money
market instruments, real estate, fixed deposits etc.). This kind of a diversification may
add to the stability of your returns, for example, during one period of time equities
might under perform but bonds and money market instruments might do well enough to
offset the effect of a slump in the equity
Markets.



DISADVANTAGES OF MUTUAL FUNDS

There are certainly some benefits to mutual fund investing, but you should also be aware
of the drawbacks associated with mutual funds.

1. No Insurance: Mutual funds, although regulated by the government, are not
insured against losses. The Federal Deposit Insurance Corporation (FDIC) only
insures against certain losses at banks, credit unions, and savings and loans, not
mutual funds. That means that despite the risk-reducing diversification benefits
provided by mutual funds, losses can occur, and it is possible (although
extremely unlikely) that you could even lose your entire investment.

2. Dilution: Although diversification reduces the amount of risk involved in
investing in mutual funds, it can also be a disadvantage due to dilution. For
example, if a single security held by a mutual fund doubles in value, the mutual
fund itself would not double in value because that security is only one small part
of the fund's holdings. By holding a large number of different investments,
mutual funds tend to do neither exceptionally well nor exceptionally poorly.

3. Fees and Expenses: Most mutual funds charge management and operating fees
that pay for the fund's management expenses (usually around 1.0% to 1.5% per
year). In addition, some mutual funds charge high sales commissions, 12b-1
fees, and redemption fees. And some funds buy and trade shares so often that the
transaction costs add up significantly. Some of these expenses are charged on an


ongoing basis, unlike stock investments, for which a commission is
paid only when you buy and sell .
4. Poor Performance: Returns on a mutual fund are by no means guaranteed. In
fact, on average, around 75% of all mutual funds fail to beat the major market
indexes, like the S&P 500, and a growing number of critics now question
whether or not professional money managers have better stock-picking
capabilities than the average investor.

5. Loss of Control: The managers of mutual funds make all of the decisions about
which securities to buy and sell and when to do so. This can make it
difficult for you when trying to manage your portfolio. For example, the tax
consequences of a decision by the manager to buy or sell an asset at a certain
time might not be optimal for you. You also should remember that you are
trusting someone else with your money when you invest in a mutual fund.
6. Trading Limitations: Although mutual funds are highly liquid in general, most
mutual funds (called open-ended funds) cannot be bought or sold in the middle
of the trading day. You can only buy and sell them at the end of the day, after
they've calculated the current value of their holdings.

7. Size: Some mutual funds are too big to find enough good investments. This is
especially true of funds that focus on small companies, given that there are strict
rules about how much of a single company a fund may own. If a mutual fund has
$5 billion to invest and is only able to invest an average of $50 million in each,
then it needs to find at least 100 such companies to invest in; as a result, the fund
might be forced to lower its standards when selecting companies to invest in.



8. Inefficiency of Cash Reserves: Mutual funds usually maintain
large cash reserves as protection against a large number of simultaneous
withdrawals. Although this provides investors with liquidity, it means that some
of the fund's money is invested in cash instead of assets, which tends to lower the
investor's potential return.

Different Types: The advantages and disadvantages listed above apply to mutual funds
in general. However, there are over 10,000 mutual funds in operation, and these funds
vary greatly according to investment objective, size, strategy, and style. Mutual funds
are available for virtually every investment strategy (e.g. value, growth), every sector
(e.g. biotech, internet), and every country or region of the world. So even the process of
selecting a fund can be tedious.

Net Asset Value (NAV)Open-end mutual funds price their shares in terms of a Net
Asset Value (NAV) (note that you can calculate NAV for a closed-end fund too, but it
will not necessarily be the price at which you buy or sell closed-end shares). NAV is
calculated by adding up the market value of all the fund's underlying securities,
subtracting all of the fund's liabilities, and then dividing by the number of outstanding
shares in the fund. The resulting NAV per share is the price at which shares in the fund
are bought and sold (plus or minus any sales fees). Mutual funds only calculate their
NAVs once per trading day, at the close of the trading session.

HISTORY OF MUTUAL FUND IN INDIA

HISTORY – The Landmarks

1963: UTI is India’s first mutual fund.



1964: UTI launches US-64.

1971: UTI’s ULIP (Unit-Linked Insurance Plan) is second scheme to be Launched.

1986: UTI Master share, India’s first true ‘mutual fund’ scheme, launched.

1987: PSU banks and insurers allowed floating mutual funds; State Bank of India (SBI)
first off the blocks.

1992: The Harshad Mehta-fuelled bull market arouses middle-class interest in shares
and mutual funds.

1993: Private sector and foreign players allowed; Kothari Pioneer first private fund
house to start operations; SEBI set up to regulate industry.

1994: Morgan Stanley is the first foreign player.

1996: Sebi’s mutual fund rules and regulations, which forms the basis of most current
laws, come into force.

1998: UTI Master Index Fund is the country’s first index fund.

1999: The takeover of 20th Century AMC by Zurich Mutual Fund is the first acquisition
in the mutual fund industry.

2000: The industry’s assets under management crosses Rs 1, 00,000 crore.

2001: US-64 scam leads to UTI overhaul.

2002: UTI bifurcated, comes under SEBI purview; mutual fund distributors banned from
giving commissions to investors; floating rate funds and Foreign debt funds debut.


2003: AMFI certification made compulsory for new agents; fund of funds launched.

The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank. The 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 the
management.

SECOND PHASE: 1987 – 1993 (Entry of Public Sector Funds)

1987 marked the entry of non – UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation
of India (GIC). SBI Mutual Fund was the first non – UTI Mutual Fund established in
June1987 followed by Can 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 established its mutual fund in June 1989 while GIC
had set up its mutual fund in December 1990. At the end of 1993, the mutual fund
industry had assets under management of Rs.47, 004 crores.

THIRD PHASE: 1993 – 2003 (Entry of Private Sector Funds)


With the entry of private sector funds in 1993, a new era started in the Indian mutual
fund industry, giving the Indian investors a wider choice of fund families. Also, 1993
was the year in which the first Mutual Fund came into being, under which all mutual
funds, except UTI, were to be registered and governed. The erstwhile Kothari Pioneer
(now merged with Franklin Templeton) was the first private sector mutual fund
registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive
and revised Mutual Fund Regulations in 1996.
The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The
number of mutual fund houses went on increasing, with many foreign mutual funds
setting up funds in India and also the industry has witnessed several mergers and
acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets
of Rs.1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under
management was way ahead of other mutual funds.

FOURTH PHASE: since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust
of India with assets under management of Rs.29,835 crores as at the end of January
2003, representing broadly, the assets of US 64 scheme, assured return and certain other
schemes. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and
LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With
the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000
crores of assets under management and with the setting up of a UTI Mutual Fund,
conforming to the SEBI Mutual
Fund Regulations, and with recent mergers taking place among different private sector
funds, the mutual fund industry has entered its current phase of consolidation and
growth



INDUSTRY PROFILE:



Growth of asset under management from March-1965 to March-2009

STRUCTURE OF MUTUAL FUNDS IN INDIA



Like other countries, India has a legal framework within which mutual funds must be
constituted. In India, open and close – end funds operate under the same regulatory
structure, i.e. in India, all mutual funds are constituted along one unique structure – as
unit trust. A mutual fund in India is allowed to issue open – end and close – end
schemes under a common legal structure. The structure, which is required to be
followed by mutual funds in India, laid down under SEBI (Mutual Fund) Regulations,
1996.

The Fund Sponsor

‘Sponsor’ is defined under SEBI Regulations as any person who, acting alone or in
combination with another body corporate establishes a mutual fund. The sponsor of a
fund is akin to the promoter of companies he gets the fund registered with SEBI. The



sponsor will form a Trust and appoint a Board of Trustees. All these
appointments are made in accordance with the SEBI Regulations. As per the existing
SEBI Regulations, for a person to qualify as a sponsor, must contribute at least 40% of
the net worth of the AMC and issues a sound financial track over five years prior to
registration.

Mutual Funds as Trusts

Mutual Fund in India is constituted in the form of a Public Trust under the Indian Trust
Act 1882. The fund invites investors to contribute their money in the common pool by
subscribing to units issued by various schemes established by the Trust as evidence of
their beneficial interest in the fund. The Trust or Fund has no legal capacity itself rather
it is the Trustee(s) who have legal capacity and therefore the trustees take all acts in
relation to the Trust itself.

Trustees

A Board of Trustees – a body of individuals, or a trust company – a corporate body, may
manage the Trust. Board of Trustees manages most of the funds in India. The Trust is
created through a document called the Trust Deed that is executed by the Fund Sponsor
in favors of the trustees. They are the primary guardian of the unit holder’s funds and
assets. They ensure that AMC’s operations are along professional lines.

Right of Trustees

a) Appoint the AMC with the prior approval of SEBI
b) Approve each of the schemes floated by the AMC
c) Have the right to request any necessary information from the AMC concerning
the operations of various schemes managed by the AMC

Obligations of the AMC and its Directors


They must ensure that:
a) Investment of funds is in accordance with SEBI Regulations and the Trust Deed
b) Take responsibility for the act of its employees and others whose services it has
procured
c) Do not undertake any other activity conflicting with managing the fund

Asset Management Company

The role of an Asset Management Company (AMC) is to act as the investment manager
of the trust under the Board supervision.

Transfer Agents

Transfer Agents are responsible for issuing and redeeming units of the mutual fund and
provide other related services such as preparation of transfer documents updating
investor’s records. A fund may choose to opt this activity in-house or by an outside
transfer agent.

Distributors

AMCs usually appoint distributors or brokers, who sell units on behalf of the fund.
Some funds require that all transactions to be routed through such brokers.

Bankers

A fund’s activities involved dealing with the money on a continuous basis primarily
with respect to buying and selling units, paying for investment made, receiving the
proceeds from sale of investment and discharging its obligations towards operative
expenses. A fund’s banker therefore plays a crucial role with respect to its financial
dealings.


Custodian and Depository

The custodian is appointed by the Board of Trustees for safekeeping of securities in
terms of physical delivery and eventual safe keeping or participating in the clearing
system through approved depository companies.

ASSOCIATION OF MUTUAL FUNDS IN INDIA

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 organisation. Association of Mutual
Funds in India (AMFI) was incorporated on 22nd August, 1995.

AMFI is a apex body of all Asset Management Companies (AMC) which has been
registered with SEBI. Till date all the AMCs are that have launched mutual fund
schemes are its members. It functions under the supervision and guidelines of its Board
of Directors.

Association of Mutual Funds India 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 interests of
mutual funds as well as their unit holder.

The objectives of Association of Mutual Funds in India

The Association of Mutual Funds of India works with 30 registered AMCs of the
country. It has certain defined objectives which juxtaposes the guidelines of its Board of
Directors. The objectives are as follows:



 This mutual fund association of India maintains high professional and
ethical standards in all areas of operation of the industry.
 It also recommends and promotes the top class business practices and code of
conduct which is followed by members and related people engaged in the activities
of mutual fund and asset management. The agencies who are by any means
connected or involved in the field of capital markets and financial services also
involved in this code of conduct of the association.
 AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual
fund industry.
 Association of Mutual Fund in India does represent the Government of India, the
Reserve Bank of India and other related bodies on matters relating to the Mutual
Fund Industry.
 It develops a team of well qualified and trained Agent distributors. It implements a
program of training and certification for all intermediaries and other engaged in the
mutual fund industry.
 AMFI undertakes all India awareness programmed for investor’s in order to promote
proper understanding of the concept and working of mutual funds.
 At last but not the least association of mutual fund of India also disseminate
information’s on Mutual Fund Industry and undertakes studies and research either
directly or in association with other bodies



COMPANY PROFILE

ABOUT THE ORGANIZATION:

SBI Mutual Fund is India’s largest bank sponsored mutual fund. The fund traces its
lineage to SBI - India’s largest banking enterprise. The institution has grown immensely
since its inception and today it is India's largest bank, patronized by over 80% of the top
corporate houses of the country. SBI Mutual Fund is a joint venture between the
State Bank of India and Société Générale Asset Management, one of the world’s
leading fund management companies that manages over US$ 500 Billion worldwide. In
twenty years of operation, the fund has launched 38 schemes and successfully redeemed
fifteen of them.

A total of over 4.6 million investors have reposed their faith in the wealth generation
expertise of the Mutual Fund. The fund serves this vast family of investors by reaching
out to them through network of over 130 points of acceptance, 28 investor service
centers, 46 investor service desks and 56 district organizers. Today, the fund manages
over Rs. 28500crores of assets and has a diverse profile of investors actively parking
their investments across 36 active schemes. SBI Mutual is the first bank-sponsored fund
to launch an offshore fund – Resurgent India Opportunities Fund. Growth through
innovation and stable investment policies is the SBI MF credo.

GUIDING PRINCIPLES OF SBI MUTUAL FUND:



Consistency

Value oriented investment philosophy is designed to produce consistent results aiming
to beat
the benchmark at all times.

Flexibility

Offers investors a broad range of managed investment products in various asset classes
and risk parameters, within the at most operational flexibility to suit their investment
needs.

Stability

Our commitment to the highest quality of service and integrity are the foundation upon
which clients can build their trust with us

Origin

The origin of the Indian mutual funds industry dates back to 1963 when the Unit Trust
of India (UTI) came into existence at the initiative of the Government of India and the
Reserve Bank of India. Since then the mutual funds sector remained the sole fiefdom of
UTI till 1987 when a slew of non-UTI, public sector mutual funds were set up by
nationalized banks and life insurance companies.
The year 1993 saw sweeping changes being introduced in the mutual fund industry with
private sector fund houses making their debut and the laying down of comprehensive
mutual fund regulations. Over the years, the Indian mutual funds industry has witnessed



an exponential growth riding piggyback on a booming economy and the
arrival of a horde of international fund houses.

Concept

“Mutual fund is vehicle that enables a number of investors to pool their money and
have it jointly managed by a professional money manager.”
A Mutual Fund is a pool of money, collected from investors, and is invested according
to certain investment objectives.

common financial goal.

The money thus collected is then invested in capital market instruments such as shares,
debentures and other securities.

The income earned through these investments and the capital appreciation realised are
shared by its unit holders in proportion to the number of units owned by them.

Mutual Fund companies are known as asset management companies. They offer a
variety of diversified schemes. Mutual Fund acts as investment companies. They pool
the savings of investors and invest them in a well-diversified portfolio of sound
investments.

Mutual funds can be broken down into two basic categories: equity and bond funds.

Equity funds invest primarily in common stocks, while bond funds invest mainly in
various debt instruments.

Within each of these sectors, investors have a myriad of choices to consider, including:
international or domestic, active or indexed, and value or growth, just to name a few.



I will cover these topics shortly. First, however, I am going to focus my
attention on the “nuts and bolts” of how mutual funds operate.

Mutual Fund Operation Flow Chart



ORGANIZATION

Organization of a Mutual Fund

Mutual funds

Mutual fund is vehicle that enables a number of investors to pool their money and have
it jointly managed by a professional money manager

Sponsor

Sponsor is the person who acting alone or in combination with another body corporate
establishes a mutual fund. The Sponsor is not responsible or liable for any loss or


shortfall resulting from the operation of the Schemes beyond the initial
contribution made by it towards setting up of the Mutual Fund.

Trustee

Trustee is usually a company (corporate body) or a Board of Trustees (body of
individuals). The main responsibility of the Trustee is to safeguard the interest of the
unit holders and ensure that the AMC functions in the interest of investors and in
accordance with the Securities and Exchange Board of India (Mutual Funds)
Regulations, 1996.

Asset Management Company (AMC)

The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund.
At least 50% of the directors of the AMC are independent directors who are not
associated with the Sponsor in any manner. The AMC must have a net worth of at least
10 crores at all times.

Transfer Agent

The AMC if so authorised by the Trust Deed appoints the Registrar and Transfer Agent
to the Mutual Fund. The Registrar processes the application form, redemption requests
and dispatches account statements to the unit holders. The Registrar and Transfer agent
also handles communications with investors and updates investor records.



SBI Mutual Fund is India’s largest bank sponsored mutual fund and
has an enviable track record in judicious investments and consistent wealth
creation. The fund traces its lineage to SBI - India’s largest banking enterprise.
The institution has grown immensely since its inception and today it is India's
largest bank, patronized by over 80% of the top corporate houses of the country.
SBI Mutual Fund is a joint venture between the State Bank of India and Société
Générale Asset Management, one of the world’s leading fund management
companies that manages over US$ 330 Billion worldwide. At SBI Mutual Fund,
resources are considerably devoted to gain, maintain and sustain profitable
insights into market movements. The trust reposed on SBI-MF by over 2 million
investors is a genuine tribute to its expertise in Fund Management. SBI Mutual
Fund is India’s largest bank sponsored mutual fund and has an enviable track
record in judicious investments and consistent wealth creation.

Thus SBI-MF believes in
• Proven Skills in Wealth Generation

• Exploiting expertise, compounding growth

OPERATION

In eighteen years of operation, the fund has launched thirty-two schemes and
successfully redeemed fifteen of them. In the process it has rewarded its investors
handsomely with consistently high returns. A total of over 20, 00,000 investors have
reposed their faith in the wealth generation expertise of the Mutual Fund. Schemes of
the Mutual fund have consistently outperformed benchmark indices and have emerged
as the preferred investment for millions of investors and HNI’s. Today, the fund
manages over Rs. 13,000 crores of assets and has a diverse profile of investors actively
parking their investments across 28 active schemes. The fund serves this vast family of
investors by reaching out to them through network of 82 collection branches, 26 investor
service centers, 21 investor service desks and 21 district organizers.


BOARD OF DIRECTORS

Mr. Achal K. Gupta Mr. C A Santosh
Managing Director & Chief Chief Manager - Customer Service.
Executive Office

Mr. Didier Turpin Ms. Aparna Nirgude
Dy. Chief Executive Officer Chief Risk Officer

Mr. Ashwini Kumar Jain Mr. Ashutosh P Vaidya
Chief Operating Officer Company Secretary & Compliance Officer

Mr. Navneet Munot Mr. Parijat Agrawal
Chief Investment Officer Head – Fixed Income

Mr. R. S. Srinivas Jain
Chief Marketing Officer



INVESTMENT TEAM
Chief Investment Officer :

SanjaySinha

Mr. Sanjay Sinha has taken over as Chief Investment Officer with effect from June
1, 2007. Mr. Sinha joined SBI Mutual Fund as the Head of Equities in November
2005 and has managed the largest number of funds in SBI MF covering the entire
spectrum of equity funds – from index funds, diversified equity funds to sector
funds.

He has over 18 years of experience in the Mutual Fund Industry. Prior to joining
SBI MF, Mr. Sinha worked as Senior Fund Manager with UTI Mutual Fund and
was managing a corpus of over Rs 28 billion (over US$600 million). A Post
Graduate from IIM Kolkatta, Mr. Sanjay Sinha has a rich experience in managing
funds.

Vice President - Investment Department :

ThierryNardozi

Thierry graduated from University of Glamorgan with a BA (Hons) in Business
studies. He started his career with Irish Life in Dublin before moving to Societe
Generale Asset Management. Thierry has an experience of 14 years within the
asset management industry and has been involved in fund management for 10
years. Prior to joining SBI Funds Management Pvt. Ltd. in October 2007, he was
handling institutional and mutual funds invested in European equities. Thierry is
also a post-graduate of SFAF (European Federation of Financial Analysts



Societies).

Head Portfolio Management Services / Fund Manager :

NipaLadiwala

After obtaining a post graduate degree in Business Management and Law, Nipa
worked as an equity analyst, and dealer for the offshore Funds of UTI.
Subsequently she was appointed as Fund Manager for India Growth Fund, which
was listed on NYSE. She was head of Research at UTI Securities before joining
SBI Funds Management Pvt. Ltd. as Head of PMS. Nipa has 6 years experience as
Fund Manager. She has a total of 15 years experience and has been with SBI Funds
Management Pvt. Ltd since October 2005.

Equity :

Aashish Wakankar(Vice President & Fund Manager)

Aashish Wakankar is a Bachelor of Science from University of Mumbai and holds
Post Graduate Diploma in Management Studies from Jamnalal Bajaj Institute of
Management Studies, University of Mumbai. He has more than 12 years of
experience in capital markets ranging from institutional equities, equity research
and fund management. He is associated with SBI Funds Management from
December 2005.

Prior to joining SBI Funds Management, he has worked with Kotak Mahindra
Asset Management, Deutsche Asset Management - part of Deutsche Bank Group,
and TATA TD Waterhouse Securities - a joint venture between the TATA Group,
India and TD Bank Financial Group, Canada. At Deutsche Asset Management, he
was responsible for advising the offshore fund Deutsche India Equity Fund, Japan
and MetLife Insurance.



Debt / Fixed Income:

Parijat Agrawal (Head–Fixed Income)

Parijat has done his B.E (ECE) and PGDM (IIM Bangalore). He has got 12 years
experience in capital markets in areas like research, dealing and fund management.
Parijat is associated with SBI Funds Management Pvt. Ltd. since July 2006.

Prior to joining SBI Funds Management Pvt. Ltd., he was with State Bank of
Mauritius Limited, Mumbai as Head – Treasury.

Ganti N. Murthy (Asst.Vice President & Fund Manager)

Mr. Murthy did his B.Sc (Hons) from Osmania University and his Masters in
Financial Management from Jamnalal Bajaj Institute of Management Studies,
Mumbai. He has over 12 years experience in the Mutual Fund Industry, 9 years in
Unit Trust of India and 3 years in Cholamandalam AMC Ltd. Prior to joining SBI
Funds Management Pvt. Ltd., he was with Cholamandalam Mutual Fund as Fund
Manager – Debt.

OffshoreFunds

Anand Gupta

Anand holds charter from CFA Institute, USA and Institute of Chartered
Accountants of India. Before joining SBI Funds Management in October 2005,
Anand has worked with HSBC securities and domestic brokerage house as equity
research analyst for 3 years. Anand has 5 years of experience in capital markets
and 3 years of experience in Audit & Business consulting.



PRODUCT PORTFOLIO



Distribution channel in SBIMF

SBI asset management company mainly emphasize on relationship building with its
customers like distributors, Banks, individual investors etc. The distribution channel of
SBIMF is as follows

Overview of Retail channel

The alternative distribution channels that are available are selling, or using lead
managers and brokers along with sub-brokers, for selling units. To be successful in this
mission, the industry will have to ensure that only those agents that have conviction
about mutual funds being the most versatile and an ideal investment vehicle for
investors are encouraged. This is because, there is a sense of loyalty amongst agents, in


anticipation of getting continuous business throughout the year, and the
trust and credibility that has been generated or will be generated by being loyal to one
institution. Savings in advertisement and publicity expenses is also affected, as the target
of communication is restricted to a few groups of individuals, since the agent will
function as a facilitator, informer and educator. The reduced cost benefit will ultimately
accrue to the investor in the form of higher returns.

In such a system, one achieves brand loyalty through continuous interaction between
agents and investors. Building a team of agents and other distribution network such as
distribution and collecting agents and franchise offices, will provide the investor the
opportunity of having continuous interaction and contact with the mutual fund.

Therefore, retail distribution through the agents is a preferred alternative for distributing
mutual fund products.

As my vertical in the company is retail which includes IFA’s (Individual financial
advisors) and National Distributors. The retail channel is subdivided into 5 regions.

National Distributors Nitin Kumar

West & Central Delhi Yogesh Kumar & Sumit

East Delhi Suyash

South Delhi Amit Srivastava

North Delhi Abhishek Singh

Meerut Ajay Chauhan

Agra Jitin & Amir Raza



Relationship building with active and inactive distributors (IFAs)

During my internship tenure of more than 8 weeks with SBIMF, the main task that has
been assigned to me was relationship building, for which I have personally visited both
active and inactive distributors. AMC have around 2000 distributors in Delhi-NCR
region which is sub divided into 5 regions namely:-
1) North Delhi
2) South Delhi
3) East Delhi
4) West Delhi
5) Central Delhi
I have covered some areas of East, West and Central Delhi. The purpose behind these
visits was to build a relation with the distributors on the behalf of AMC which in turn
help in generating more investment. In case of inactive distributors the motive was to
find out the reasons for which they stopped dealing with SBIMF. In this cumbersome
exercise of relationship building I made several observations from the feedback which I
got from the distributors and are highlighted below.

NEW FUND OFFER (SBI GETS)
SBI Mutual Fund had launched a New Fund Offer of the SBI Gold Exchange Traded
Scheme (SBI GETS). The scheme helped investors to invest in gold through the
convenience of their demat account.They could invest in as low as one gram of gold,
since one unit of SBI GETS would track the price of even one gram of gold. Post-NFO,
SBI GETS would be listed on the National Stock Exchange. The investors could be able
to easily trade the units of the scheme, just like an equity stock, through an NSE Broker
or their online trading account. The NFO of SBI GETS was open till 28th April, 2009.



OTHER WORK EXPERIENCE AT SBI MUTUAL FUND

INFORMATION SHARING:

• Apart from meeting the distributors the other way to keep in touch with them is
to keep updating them about the latest information like NAVs, new products,
best performing funds, initiatives like organizing Refresher Courses etc. All this
information sharing is done by calling them personally.

OPERATIONAL SERVICE:

• All AMCs in India uses CAMS a software package to provide services to its
customers.

COMPUTER AGE MANAGEMENT SERVICES PVT. LTD. (CAMS) offers a
comprehensive package of Transaction Processing and Customer Care services to the
Mutual Fund industry, and has been constantly raising the bar in customer service since
1995. Setup in 1988 as a Software Developer, CAMS moved from Capital Market
Transaction Processing (processing Equity IPOs) to Customer Care and Transaction



Processing for Mutual Funds. CAMS today has the most appropriate and
advanced technology employed, with the best network for service delivery through its
network of Service Centers in all major cities in India. At SBIMF we have learnt the
software and worked on it, the major things that we have done using this software are

1) Mailing statements to the clients/investors.
2) Finding out the AUM of distributors.
3) Verification of dividend payment.
4) Brokerage payments.

• Recording and updating: After meeting the distributors I use to update their
records in our database like changing of address, telephone no. etc.

LEARNING’S DURING THE PROJECT:

During this internship of three months, apart from project I have learnt several important
skills and gained knowledge which is very important, and according to me is the best
learning during the Summer Internship Project, some of them are covered below:

1) INTERPERSONAL SKILLS:

While visiting the distributors with I have learnt the way of pitching a customer,
how to represent the funds, how to handle various queries from them and several
others.

2) COMMUNICATION SKILLS:

During this tenure of three months they have provided me various opportunities to
improve my communications skills. It includes presentations on various topics like
BUDGET’ 08-09, ADR & GDR etc. and group discussions.

3) KNOWLEDGE ENHANCEMENT:

With practices like NEWS submission on regular basis, assignments and daily
sensex watch helped me to improve my knowledge regarding both stock market and
economic development of the country.

4) TEAM BUILDING:



While working with retail team in SBIMF I have learnt the art of
team building and working in a group, the way they work and move ahead as a team
helps them in increasing the AUM of the company and achieving their targets.

5) APPLICATION OF KNOWLEDGE:

Another important skill that I have learnt during the project is application of
knowledge to real life situations such as handling the investors who have
knowledge about the industry, use of EXCEL to make SIP calculators and NAV
trackers to attract the customers.

2.REVIEW OF LITERATURE

June 2009
This was one of the best months for stocks and commodities in a
long time. Sensex posted a gain of 28% as both foreign and domestic
investors poured money. It is up a whopping 79% from the low
witnessed on March 9 this year. The scale and speed of stock market
gain has taken most investors by surprise and ‘left out feeling’ is
leading to massive buying in high-beta names. Markets caught fire
after the announcement of election results and further fuel was added by positive
news flow from global markets.

The barrage of liquidity is finally finding its way into riskier assets across markets.
Credit spreads collapsed, high yield currencies gained against safe heavens and bond
yields rose as investors migrate from defensives to risk-assets. Volatility and risk


premiums are touching multi-month low as confidence is coming back into financial
markets. Incremental economic data is less negative, pile of cash is humongous and
policy remains extremely supportive. As we have been writing that the scale,
magnitude and synchronized nature of policy response this time is simply
unprecedented in history. Fundamental problems of global imbalances that led to this
crisis can’t get resolved so easily and one might argue that the policy response so far
is something like treating a ‘hangover’ with more alcohol. But the fact remains, that
in the short term, the sheer power of liquidity can take prices of risk assets to levels
far beyond what fundamentals may justify.

Commodity prices have also shot up with Reuters CRB index posting one of the
biggest monthly gain since 1974. Normally, commodities perform during the late
stage of the bull market, however, investors seem to be playing a paper currency
debasement play through investment in real assets. While central bankers are still
maintaining probably the most accommodative policy ever to combat deflation,
market wisdom as reflected in prices seem to be getting worried about onset of
inflation.

Indian equities were one of the best performing market this month as investors
jumped in after the decisive verdict in favor of UPA government. Foreign
Institutional Investors invested over $ 4 billion in the month of May and their year-
to-date investment has also crossed $ 4 billion. Investors draw comfort from the fact
that a major victory for UPA means greater ability to carry out critical reforms.
Immediate priority for the government would be to provide adequate fiscal stimulus
in order to cushion the economy against headwinds from the global downturn. The
finance minister would have to balance between keeping the fiscal deficit under
control and providing more fiscal stimulus. The government must show a roadmap to
bring down fiscal deficit over the medium term. Some of the long pending reforms
related to FDI in sectors like insurance and retail, rationalization of subsidies,
introduction of GST from 2010-11, continued thrust on agriculture and rural sector
and restarting disinvestment programme should be on the agenda. Apart from the


physical infrastructure, there should be equal focus on building the social
infrastructure and higher outlays on education and healthcare which would go a long
way in building a solid foundation for sustained economic growth. The other point we
would like to highlight is that the focus for the government this time should be on
outcome, not outlays; execution, not just big bang announcements.

This election is a game changer. At a time when the global economy is faced with
severe challenges, the world is looking for new engines of economic growth. India
with its demographic advantage, high savings rate and a domestic consumption and
investment oriented economy has the potential to de-couple from the rest of the world
and deliver higher growth rate on a sustained basis. At this time, we needed a pro-
reforms and stable government which can push structural reforms to unleash the full
potential of Indian economy and corporate sector. People of India have delivered that
decisive mandate.

Our sectoral bets and stock picks in equity funds are rightly positioned to take
advantage of the upturn in equity market. We have been focussing on investing in
companies leveraged on domestic consumption and infrastructure build up. While one
can expect liquidity inflows from domestic and foreign investors, several corporates
are likely to use the opportunity to raise equity. We will continue to keep a close
watch on evolving economic scenario, policy announcements and valuation.

Bond yields moved up on fears of higher government borrowing. Run up in
commodity prices and increase in bond yields globally have also weighed on the
sentiments. Interest rates are likely to be range-bound for some time and will offer
more trading opportunities.

Over the last several months, we have consistently been advising investors to focus
on long term growth potential of Indian economy and take advantage of the downturn
to build exposure to equities. The recent rally in equity markets further highlights the
importance of discipline in asset allocation in investor’s portfolios.



Regards,

Navneet Munot
Chief Investment Officer
SBI Funds Management Pvt. Ltd

ABSTRACT (1)

Investments goals vary from person to person. While somebody wants security, others might
give more weightage to returns alone. Somebody else might want to plan for his child's
education while somebody might be saving for the proverbial rainy day or even life after
retirement. With objectives defying any range, it is obvious that the products required will
vary as well.

Indian Mutual Funds industry offers a plethora of schemes and serves broadly all types of
investors. The range of products includes equity funds, debt, liquid, gilt and balanced funds.
There are also funds meant exclusively for young and old, small and large investors.
Moreover, the setup of a legal structure, which has enough teeth to safeguard investors’
interests, ensures that the investors are not cheated out of their hard earned money. All in all,
benefits provided by them cut across the boundaries of investor category and thus create for


them, a universal appeal.

Investors of all categories could choose to invest on their own in multiple options but opt for
Mutual Funds for the sole reason that all benefits come in a package. The Mutual Fund
industry is having its hands full to cater to various needs of the investors by coming up with
new plans, schemes and options with respect to rate of returns, dividend frequency and
liquidity.

In view of the growing competition in the Mutual Funds industry, it was felt necessary to
understand the working of mutual funds industry in India, its merits and demerits, various
types of schemes available in the Indian market and the investor’s orientation towards Mutual
Funds i.e. their pattern of risk appetite and preferences in various schemes and plans. Apart
from this the report also includes the details of the work that I have learnt during the project,
which according to me is the best part of the project as it provided me a practical exposure to
the Mutual fund industry and the working of an AMC.

ABSTRACT (2)

Antonella Basso and Stefania Funari of Dipartimento di Matematica Applicata “B.
de Finetti”, Università di Trieste, Piazzale Europa, 1, 34127 Trieste, Italy and Dipartimento di
Matematica Applicata, Università Ca' Foscari di Venezia, Dorsoduro 3825/E, 30123 Venezia,
Italy respectively discussed in this paper about “A data envelopment analysis approach to
measure the mutual fund performance.” In this paper they present a model which can be
used to evaluate the performance of mutual funds. This model applies an operational research
methodology, called data envelopment analysis (DEA), which allows to measure the relative
efficiency of decision making units. This approach allows to define mutual fund performance
indexes that can take into account several inputs and thus consider different risk measures
and, above all, the investment costs (subscription costs and redemption fees). Moreover, the
DEA approach can naturally envisage other output indicators, in addition to the mean return
considered by the traditional indexes. Therefore, a generalized version of the DEA mutual



fund performance indexes is defined, too, which includes among the outputs a stochastic
dominance indicator that reflects both the investors' preference structure and the time
occurrence of the returns. In addition, the procedure allows to identify, for each mutual fund,
a composite portfolio which can be considered as a particular benchmark. The performance
indexes proposed are tested on empirical data.

ABSTRACT (3)

Peter Tufano and Mathew Sevick of Harvard Business School, Boston and Monitor
Company, Inc., Cambridge respectively discussed in this paper about “Board structure and
fee-setting in the U.S. mutual fund industry”. This study uses a new database to describe
the composition and compensation of boards of directors of U.S. open-end mutual funds.
They use these data to examine the relation between board structure and the fees charged by a
fund to its shareholders. They find that shareholder fees are lower when fund boards are
smaller, have a greater fraction of independent directors, and are composed of directors who
sit on a large fraction of the fund sponsor's other boards. They find some evidence that funds
whose independent directors are paid relatively higher directors' fees approve higher
shareholder fees.



ABSTRACT (4)



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ABSTRACT (8)



3. RESEARCH METHODOLOGY



30838403 comparative-analysis-of-mutual-funds

30838403 comparative-analysis-of-mutual-funds

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