1. A
PROJECT REPORT
ON
“A STUDY OF SBI MUTUAL FUNDS”
A detailed study done in
SBI
Submitted in partial fulfillment of the requirement for the award of degree of
Bachelor in Business Administration (BBA) under Bharati Vidyapeeth University-
Pune
Submitted by
SNEHALCHAVAN
ROLL NO: 10
BATCH: 2007-2010
Under the guidance of
DR. GOVIND P. SHINDE
Bharati Vidyapeeth’s Institute of Management & Entrepreneurship
Development, Sector 8, CBD-Belapur, Navi Mumbai –400614
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2. ACKNOWLEDGEMENT
The opportunity to get practical training in a reputed organization fulfills the felt gap
between the theory and practical. In the case of a student of finance & control, this
aspect assumes an additional dimension.
I hereby acknowledge SBI mutual funds providing the constant guidance for
encouragement which helped me a lot to be successful in my efforts. This formal
acknowledgement will hardly be sufficient to express my deep sense of gratitude to
all of them. It was a memorable experience while doing my winter training project on
a study of SBI Mutual Funds.
I would also like to thanks Dr. D.Y.PATIL director of BVIMED,NAVI MUMBAI
and PROF.G.SHINDE my faculty guide without whom this project report could not
be successfully completed.
Above all, I would like to thank almighty God, who helped me in successfully
completing my winter training project.
SNEHAL CHAVAN
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3. DECLARATION
This is to certify that Winter Training Report entitled “A Study of SBI Mutual Fund”.
Which is submitted by me in partial fulfillment of the requirement for the award of
degree Bachelor of Business Administration (BBA), at BHARTI VIDYAPEETH
INSTITUTION OF ENTERPRENURSHIP DEVELOPMENT, NAVI MUMBAI
comprises only my original work and due acknowledgement has been made in the
text to all other material used.
Snehal chavan
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4. EXECUTIVE SUMMARY
In few years Mutual Fund has emerged as a tool for ensuring one’s financial well
being. Mutual Funds have not only contributed to the India growth story but have also
helped families tap into the success of Indian Industry. As information and awareness
is rising more and more people are enjoying the benefits of investing in mutual funds.
The main reason the number of retail mutual fund investors remains small is that nine
in ten people with incomes in India do not know that mutual funds exist. But once
people are aware of mutual fund investment opportunities, the number who decide to
invest in mutual funds increases to as many as one in five people. The trick for
converting a person with no knowledge of mutual funds to a new Mutual Fund
customer is to understand which of the potential investors are more likely to buy
mutual funds and to use the right arguments in the sales process that customers will
accept as important and relevant to their decision.
This Project gave me a great learning experience and at the same time it gave me
enough scope to implement my analytical ability. The analysis and advice presented in
this Project Report is based on market research on the saving and investment practices
of the investors and preferences of the investors for investment in Mutual Funds. This
Report will help to know about the investors’ Preferences in Mutual Fund means Are
they prefer any particular Asset Management Company (AMC), Which type of
Product they prefer, Which Option (Growth or Dividend) they prefer or Which
Investment Strategy they follow (Systematic Investment Plan or One time Plan). This
Project as a whole can be divided into two parts.
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5. The first part gives an insight about Mutual Fund and its various aspects, the
Company Profile, Objectives of the study, Research Methodology. One can have a
brief knowledge about Mutual Fund and its basics through the Project.
The second part of the Project consists of data and its analysis collected through
survey done on 200 people. For the collection of Primary data I made a questionnaire
and surveyed of 200 people. I also taken interview of many People those who were
coming at the SBI Branch where I done my Project. I visited other AMCs in Mumbai
to get some knowledge related to my topic. I studied about the products and
strategies of other AMCs in mumbai to know why people prefer to invest in those
AMCs. This Project covers the topic “A STUDY OF PREFERENCES OF THE
INVESTERS FOR THE INVESTMENT IN MUTUAL FUND.” The data collected
has been well organized and presented. I hope the research findings and conclusion
will be of use.
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6. CONTENTS
Acknowledgement
Declaration
Executive Summary
Chapter - 1 INTRODUCTION
Chapter - 2 COMPANY PROFILE
Chapter - 3 OBJECTIVES AND SCOPE
Chapter - 4 RESEARCH METHODOLOGY
Chapter - 5 DATA ANALYSIS AND INTERPRETATION
Chapter - 6 FINDINGS AND CONCLUSIONS
Chapter - 7 SUGGESTIONS & RECOMMENDATIONS
ANNEXURE BIBLIOGRAPHY
QUESTIONNAIRE
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7. CHAPTER- 1
INTRODUCTION
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8. INTRODUCTION TO MUTUAL FUND
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is invested by the fund manager in
different types of securities depending upon the objective of the scheme.These could
range from shares to debentures to money market instruments. The income earned in
these investments and the capital appreciation realized by the scheme is shared by its
unit holders in proportion to the number of units owned by them. Thus a Mutual Fund
is the most suitable investment for the common man as it offers an opportunity to
invest in a diversified, professionally managed portfolio at a relatively low cost.
Anybody with an invest able surplus of 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,
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9. skills, inclination and time to keep track of events, understand their implications and
act speedily.
A mutual fund is answer to all these situations. It appoints professionally qualified
and experienced staff that manages each of these functions on a fulltime 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 fact, the mutual fund vehicle exploits economies of scale in all
three areas –research, investment and transaction processing.
A draft offer document is to be prepared at the time of launching the fund. Typically,
it pre specifies the investment objective of the fund, the risk associated, the
cost 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 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 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.
As per SEBI regulations, mutual funds can offer guaranteed returns for a maximum
period of one year. In case returns are guaranteed, the name of the guarantor and how
the guarantee would be honored is required to be disclosed in the offer document.
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10. Investments in securities are spread across a wide cross-section of industries and
sectors and thus the risk is reduced. Diversification reduces the risk because all stocks
may not move in the same direction in the same proportion at the same time. Mutual
fund issues units to the investors in accordance with quantum of money invested by
them. Investors of mutual funds are known as unit holders.
1.1 THE CONCEPT OF MUTUAL FUND IN DETAIL
A mutual fund uses the money collected from investors to buy those assets
which are specifically permitted by its stated investment objective. Thus, an equity
fund would buy equity assets – ordinary shares, preference shares, warrants etc. A
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11. bond fund would buy debt instruments such as debentures, bonds or government
securities. It is these assets which are owned by the investors in the same proportion as
their contribution bears to the total contributions of all investors put together.
Any change in the value of the investments made into capital market
instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV)
of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets
net of its liabilities. NAV of a scheme is calculated by dividing the market value of
scheme's assets by the total number of units issued to the investors.
A Mutual Fund is an investment tool that allows small investors access to a
well-diversified portfolio of equities, bonds and other securities. Each shareholder
participates in the gain or loss of the fund. Units are issued and can be redeemed as
needed. The funds Net Asset value (NAV) is determined each day.
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12. When an investor subscribes to a mutual fund, he or she buys a part of the
assets or the pool of funds that are outstanding at that time. It is no different from
buying “shares” of joint stock Company, in which case the purchase makes the
investor a part owner of the company and its assets. However, whether the investor
gets fund shares or units is only a matter of legal distinction.
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 then invested in capital
market instruments such as shares, debentures and other securities. The income earned
through these investments and the capital appreciation realized is shared by its unit
holders in proportion to the number of units owned by them. Thus Mutual fund is most
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13. suitable investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low cost.
1.1 MUTUAL FUND OPERATION FLOW CHART
CHART 1.2
From the above chart , it can be observed that how the money from the
investors flow and they get returns out of it. With a small amount of fund, investors
pool their money with the funds managers. Taking into consideration the market
strategy the funds managers invest this pool of money into reliable securities. With ups
and downs in market returns are generated and they are passed on to the investors. The
above cycle should be very clear and also effective.
The fund manager while investing on behalf of investors takes into
consideration various factors like time, risk, return, etc. so that he can make proper
investment decision.
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14. 1.4 Advantages and disadvantages of mutual funds :
ADVANTAGES OF MUTUAL FUND
Professional management
Portfolio Divercification
Reduction / Diversification of Risk
Liquidity
Flexibility & Convenience
Reduction in Transaction cost
Safety of regulated environment
Choice of schemes
Transparency
DISADVANTAGE OF MUTUAL FUND
No control over Cost in the Hands of an Investor
No tailor-made Portfolios
Managing a Portfolio Funds
Difficulty in selecting a Suitable Fund Scheme
1.5 HISTORY OF THE INDIAN MUTUAL FUND
INDUSTRY
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15. 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 from the year 1987 when non-UTI players entered the
Industry.
In the past decade, Indian mutual fund industry had seen a dramatic improvement, both
qualities wise as well as quantity wise. Before, the monopoly of the market had seen an
ending phase; the Assets Under Management (AUM) was Rs67 billion. The private
sector entry to the fund family raised the Aum to Rs. 470 billion in March 1993 and till
April 2004; it reached the height if Rs. 1540 billion.
The Mutual Fund Industry is obviously growing at a tremendous space with the mutual
fund industry can be broadly put into four phases according to the development of the
sector. Each phase is briefly described as under.
First Phase – 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament 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)
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16. 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation
of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June
1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund
(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda
Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up
its mutual fund in December 1990.At the end of 1993, the mutual fund industry had assets
under management of Rs.47,004 crores.
Third Phase – 1993-2003 (Entry of Private Sector Funds)
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. As at the end of January 2003, there were 33
mutual funds with total assets of Rs. 1,21,805 crores.
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,
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17. 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. consolidation and
growth. As at the end of September, 2004, there were 29 funds, which manage assets of
Rs.153108 crores under 421 schemes.
1.6 CATEGORIES OF MUTUAL FUND:
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18. Mutual funds can be classified as follow:
 Based on their structure:
Open-ended funds: Investors can buy and sell the units from the fund, at any point of
time.
Close-ended funds: These funds raise money from investors only once. Therefore,
after the offer period, fresh investments can not be made into the fund. If the fund is
listed on a stocks exchange the units can be traded like stocks (E.g., Morgan Stanley
Growth Fund). Recently, most of the New Fund Offers of close-ended funds provided
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19. liquidity window on a periodic basis such as monthly or weekly. Redemption of units
can be made during specified intervals. Therefore, such funds have relatively low
liquidity.
 Based on their investment objective:
A) Equity funds: These funds invest in equities and equity related instruments.
With fluctuating share prices, such funds show volatile performance, even losses.
However, short term fluctuations in the market, generally smoothens out in the long
term, thereby offering higher returns at relatively lower volatility. At the same time,
such funds can yield great capital appreciation as, historically, equities have
outperformed all asset classes in the long term. Hence, investment in equity funds
should be considered for a period of at least 3-5 years. It can be further classified as:
i) Index funds- In this case a key stock market index, like BSE Sensex or
Nifty is tracked. Their portfolio mirrors the benchmark index both in terms
of composition and individual stock weightages.
ii) Equity diversified funds- 100% of the capital is invested in equities
spreading across different sectors and stocks.
iii|) Dividend yield funds- it is similar to the equity diversified funds except
that they invest in companies offering high dividend yields.
iv) Thematic funds- Invest 100% of the assets in sectors which are related
through some theme.
e.g. -An infrastructure fund invests in power, construction, cements sectors etc.
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20. v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A
banking sector fund will invest in banking stocks.
vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.
B) Balanced fund: Their investment portfolio includes both debt and equity. As a
result, on the risk-return ladder, they fall between equity and debt funds. Balanced
funds are the ideal mutual funds vehicle for investors who prefer spreading their risk
across various instruments. Following are balanced funds classes:
i) Debt-oriented funds -Investment below 65% in equities.
ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.
C) Debt fund: They invest only in debt instruments, and are a good option for
investors averse to idea of taking risk associated with equities. Therefore, they invest
exclusively in fixed-income instruments like bonds, debentures, Government of India
securities; and money market instruments such as certificates of deposit (CD),
commercial paper (CP) and call money. Put your money into any of these debt funds
depending on your investment horizon and needs.
i) Liquid funds- These funds invest 100% in money market instruments, a
large portion being invested in call money market.
ii) Gilt funds ST- They invest 100% of their portfolio in government
securities of and T-bills.
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21. iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in
debt instruments which have variable coupon rate.
iv) Arbitrage fund- They generate income through arbitrage opportunities due
to mis-pricing between cash market and derivatives market. Funds are
allocated to equities, derivatives and money markets. Higher proportion
(around 75%) is put in money markets, in the absence of arbitrage
opportunities.
v) Gilt funds LT- They invest 100% of their portfolio in long-term
government securities.
vi) Income funds LT- Typically, such funds invest a major portion of the
portfolio in long-term debt papers.
vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and
an exposure of 10%-30% to equities.
viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in line
with that of the fund.
1.7 INVESTMENT STRATEGIES
1. Systematic Investment Plan: under this a fixed sum is invested each month on a
fixed date of a month. Payment is made through post dated cheques or direct debit
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22. facilities. The investor gets fewer units when the NAV is high and more units when
the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA)
2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and
give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the
same mutual fund.
3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund
then he can withdraw a fixed amount each month.
1.8WHY INVESTOR NEEDS MUTUAL FUND :-
Mutual funds offer benefits, which are too significant to miss out. Any investment
has to be judged on the yardstick of return, liquidity and safety. Convenience and tax
efficiency are the other benchmarks relevant in mutual fund investment. In the wonderful
game of financial safety and returns are the tows opposite goals and investors cannot be
nearer to both at the same time. The crux of mutual fund investing is averaging the risk.
Many investors possibly don’t know that considering returns alone, many mutual
funds have outperformed a host of other investment products. Mutual funds have
historically delivered yields averaging between 9% to 25% over a medium to long time
frame. The duration is important because like wise, mutual funds return taste bitter
with the passage of time. Investors should be prepared to lock in their investments
preferably for 3 years in an income fund and 5 years in an equity funds. Liquid funds
of course, generate returns even in a short term.
MUTUAL FUND RISK:-
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23. Mutual funds face risks based on the investments they hold. For example, a bond
fund faces interest rate risk and income risk. Bond values are inversely related to
interest rates. If interest rates go up, bond values will go down and vice versa. Bond
income is also affected by the changes in interest rates. Bond yields are directly related
to interest rates falling as interest rates fall and rising as interest rates.
Similarly, a sector stock fund is at risk that its price will decline due to
developments in its industry. A stock fund that invests across many industries is more
sheltered from this risk defined as industry risk.
Followings are glossary of some risks to consider when investing in mutual
funds:-
COUNTRY RISK :-
The possibility that political events (a war, national election), financial problems
(rising inflation, government default), or natural disasters will weaken a country’s
economy and cause investments in that country to decline.
INCOME RISK :-
The possibility that political events (a war, national election), financial problems
(rising inflation, government default), or natural disasters will weaken a country’s
economy and cause investments in that country to decline.
MARKET RISK :-
The possibility that stock fund or bond fund prices overall will decline over short or
even extended periods. Stock and bond markets tend to move in cycles, with periods
when prices rise and other periods when prices fall.
GRAPH 1.3:- RISK RETURN REWRAD IN MUTUAL FUND
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24. Equity Fund
Balance Fund
MIP
Income Fund
Short Term
Fund
Liquid Fund
This graph shows risk and return impact on various mutual funds. There is a direct
relationship between risks and return, i.e. schemes with higher risk also have potential to
provide higher returns.
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25. Chapter - 3
Objectives and scope
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26. 1.1 OBJECTIVES OF THE STUDY
a. To find out the Preference of the investors for Asset Management of company.
b. To know the preference of the portfolios.
c. To know why one has invested in SBI Mutual Funds.
d. To find out the most preference channel.
e. To find out what should do to boost Mutual F und Industry.
1.2 Scope of the study
A big boom has been witnessed in Mutual Fund Industry in resent times. A large number
of new players have entered the market and trying to gain market share in this rapidly
improving market.
The study will help to know the preferences of the customers, which company, portfolio,
mode of investment, option for getting return and so on they prefer. This project report
may help the company to make further planning and strategy.
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