Project report a study of sbi mutual funds up


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Project report a study of sbi mutual funds up

  1. 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 ofBachelor 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 1
  2. 2. ACKNOWLEDGEMENTThe opportunity to get practical training in a reputed organization fulfills the felt gapbetween the theory and practical. In the case of a student of finance & control, thisaspect assumes an additional dimension.I hereby acknowledge SBI mutual funds providing the constant guidance forencouragement which helped me a lot to be successful in my efforts. This formalacknowledgement will hardly be sufficient to express my deep sense of gratitude toall of them. It was a memorable experience while doing my winter training project ona study of SBI Mutual Funds.I would also like to thanks Dr. D.Y.PATIL director of BVIMED,NAVI MUMBAIand PROF.G.SHINDE my faculty guide without whom this project report could notbe successfully completed.Above all, I would like to thank almighty God, who helped me in successfullycompleting my winter training project. SNEHAL CHAVAN 2
  3. 3. DECLARATIONThis 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 ofdegree Bachelor of Business Administration (BBA), at BHARTI VIDYAPEETHINSTITUTION OF ENTERPRENURSHIP DEVELOPMENT, NAVI MUMBAIcomprises only my original work and due acknowledgement has been made in thetext to all other material used. Snehal chavan 3
  4. 4. EXECUTIVE SUMMARYIn few years Mutual Fund has emerged as a tool for ensuring one’s financial wellbeing. Mutual Funds have not only contributed to the India growth story but have alsohelped families tap into the success of Indian Industry. As information and awarenessis 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 ninein ten people with incomes in India do not know that mutual funds exist. But oncepeople are aware of mutual fund investment opportunities, the number who decide toinvest in mutual funds increases to as many as one in five people. The trick forconverting a person with no knowledge of mutual funds to a new Mutual Fundcustomer is to understand which of the potential investors are more likely to buymutual funds and to use the right arguments in the sales process that customers willaccept as important and relevant to their decision.This Project gave me a great learning experience and at the same time it gave meenough scope to implement my analytical ability. The analysis and advice presented inthis Project Report is based on market research on the saving and investment practicesof the investors and preferences of the investors for investment in Mutual Funds. ThisReport will help to know about the investors’ Preferences in Mutual Fund means Arethey prefer any particular Asset Management Company (AMC), Which type ofProduct they prefer, Which Option (Growth or Dividend) they prefer or WhichInvestment Strategy they follow (Systematic Investment Plan or One time Plan). ThisProject as a whole can be divided into two parts. 4
  5. 5. The first part gives an insight about Mutual Fund and its various aspects, theCompany Profile, Objectives of the study, Research Methodology. One can have abrief knowledge about Mutual Fund and its basics through the Project.The second part of the Project consists of data and its analysis collected throughsurvey done on 200 people. For the collection of Primary data I made a questionnaireand surveyed of 200 people. I also taken interview of many People those who werecoming at the SBI Branch where I done my Project. I visited other AMCs in Mumbaito get some knowledge related to my topic. I studied about the products andstrategies of other AMCs in mumbai to know why people prefer to invest in thoseAMCs. This Project covers the topic “A STUDY OF PREFERENCES OF THEINVESTERS FOR THE INVESTMENT IN MUTUAL FUND.” The data collectedhas been well organized and presented. I hope the research findings and conclusionwill be of use. 5
  8. 8. INTRODUCTION TO MUTUAL FUNDA Mutual Fund is a trust that pools the savings of a number of investors who share acommon financial goal. The money thus collected is invested by the fund manager indifferent types of securities depending upon the objective of the scheme.These couldrange from shares to debentures to money market instruments. The income earned inthese investments and the capital appreciation realized by the scheme is shared by itsunit holders in proportion to the number of units owned by them. Thus a Mutual Fundis the most suitable investment for the common man as it offers an opportunity toinvest 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 MutualFunds. Each Mutual Fund scheme has a defined investment objective and strategy.A mutual fund is the ideal investment vehicle for today’s complex and modernfinancial scenario. Markets for equity shares, bonds and other fixed incomeinstruments, real estate, derivatives and other assets have become mature andinformation driven. Price changes in these assets are driven by global eventsoccurring in faraway places. A typical individual is unlikely to have the knowledge, 8
  9. 9. skills, inclination and time to keep track of events, understand their implications andact speedily.A mutual fund is answer to all these situations. It appoints professionally qualifiedand experienced staff that manages each of these functions on a fulltime basis. Thelarge pool of money collected in the fund allows it to hire such staff at a very low costto each investor. In fact, the mutual fund vehicle exploits economies of scale in allthree 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, thecost involved in the process and the broad rules for entry into and exit from the fundand other areas of operation. In India, as in most countries, these sponsors needapproval from a regulator, SEBI in our case. SEBI looks at track records of thesponsor and its financial strength in granting approval to the fund for commencingoperations.A sponsor then hires an asset management company to invest the funds according tothe investment objective. It also hires another entity to be the custodian of the assetsof the fund and perhaps a third one to handle registry work for the unit holders of thefund.In the Indian context, the sponsors promote the Asset Management Companyalso,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 thesponsor of the Birla Sun Life Asset Management Company Ltd., which has floateddifferent mutual funds schemes and also acts as an asset manager for the fundscollected under the schemes.As per SEBI regulations, mutual funds can offer guaranteed returns for a maximumperiod of one year. In case returns are guaranteed, the name of the guarantor and howthe guarantee would be honored is required to be disclosed in the offer document. 9
  10. 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 assetswhich are specifically permitted by its stated investment objective. Thus, an equityfund would buy equity assets – ordinary shares, preference shares, warrants etc. A 10
  11. 11. bond fund would buy debt instruments such as debentures, bonds or governmentsecurities. It is these assets which are owned by the investors in the same proportion astheir contribution bears to the total contributions of all investors put together. Any change in the value of the investments made into capital marketinstruments (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 schemes assetsnet of its liabilities. NAV of a scheme is calculated by dividing the market value ofschemes 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. 11
  12. 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 whoshare a common financial goal. The money thus collected is then invested in capitalmarket instruments such as shares, debentures and other securities. The income earnedthrough these investments and the capital appreciation realized is shared by its unitholders in proportion to the number of units owned by them. Thus Mutual fund is most 12
  13. 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. 13
  14. 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 Scheme1.5 HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY 14
  15. 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 – 1964-87Unit Trust of India (UTI) was established on 1963 by an Act of Parliament by the ReserveBank of India and functioned under the Regulatory and administrative control of theReserve Bank of India. In 1978 UTI was de-linked from the RBI and the IndustrialDevelopment Bank of India (IDBI) took over the regulatory and administrative control inplace of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of1988 UTI had Rs.6,700 crores of assets under management.Second Phase – 1987-1993 (Entry of Public Sector Funds) 15
  16. 16. 1987 marked the entry of non- UTI, public sector mutual funds set up by public sectorbanks and Life Insurance Corporation of India (LIC) and General Insurance Corporationof India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June1987 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 BarodaMutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set upits mutual fund in December 1990.At the end of 1993, the mutual fund industry had assetsunder 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, underwhich all mutual funds, except UTI were to be registered and governed. The erstwhileKothari Pioneer (now merged with Franklin Templeton) was the first private sectormutual fund registered in July 1993.The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensiveand revised Mutual Fund Regulations in 1996. The industry now functions under theSEBI (Mutual Fund) Regulations 1996. As at the end of January 2003, there were 33mutual funds with total assets of Rs. 1,21,805 crores.Fourth Phase – since February 2003In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI wasbifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust ofIndia with assets under management of Rs.29,835 crores as at the end of January 2003, 16
  17. 17. representing broadly, the assets of US 64 scheme, assured return and certain otherschemesThe second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It isregistered with SEBI and functions under the Mutual Fund Regulations. consolidation andgrowth. As at the end of September, 2004, there were 29 funds, which manage assets ofRs.153108 crores under 421 schemes. 1.6 CATEGORIES OF MUTUAL FUND: 17
  18. 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 18
  19. 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. 19
  20. 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 forinvestors averse to idea of taking risk associated with equities. Therefore, they investexclusively in fixed-income instruments like bonds, debentures, Government of Indiasecurities; and money market instruments such as certificates of deposit (CD),commercial paper (CP) and call money. Put your money into any of these debt fundsdepending 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. 20
  21. 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 STRATEGIES1. Systematic Investment Plan: under this a fixed sum is invested each month on afixed date of a month. Payment is made through post dated cheques or direct debit 21
  22. 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 investmenthas to be judged on the yardstick of return, liquidity and safety. Convenience and taxefficiency are the other benchmarks relevant in mutual fund investment. In the wonderfulgame of financial safety and returns are the tows opposite goals and investors cannot benearer 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:- 22
  23. 23. Mutual funds face risks based on the investments they hold. For example, a bondfund faces interest rate risk and income risk. Bond values are inversely related tointerest rates. If interest rates go up, bond values will go down and vice versa. Bondincome is also affected by the changes in interest rates. Bond yields are directly relatedto 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 todevelopments in its industry. A stock fund that invests across many industries is moresheltered from this risk defined as industry risk. Followings are glossary of some risks to consider when investing in mutualfunds:-COUNTRY RISK :-The possibility that political events (a war, national election), financial problems(rising inflation, government default), or natural disasters will weaken a country’seconomy 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’seconomy and cause investments in that country to decline.MARKET RISK :-The possibility that stock fund or bond fund prices overall will decline over short oreven extended periods. Stock and bond markets tend to move in cycles, with periodswhen prices rise and other periods when prices fall. GRAPH 1.3:- RISK RETURN REWRAD IN MUTUAL FUND 23
  24. 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 directrelationship between risks and return, i.e. schemes with higher risk also have potential toprovide higher returns. 24
  25. 25. Chapter - 3Objectives and scope 25
  26. 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 studyA big boom has been witnessed in Mutual Fund Industry in resent times. A large numberof new players have entered the market and trying to gain market share in this rapidlyimproving 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 reportmay help the company to make further planning and strategy. 26
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