1 A PROJECT REPORT ON STUDY OF INVESTORS AND ADVISORS PERCEPTION ABOUT MUTUAL FUND Submitted in partial fulfillment of the requirements of the award of degree of MASTER OF BUSINESS ADMINISTRATION FROM ARNI SCHOOL OF BUSINESS MANAGEMENT AUGUST 2011Submitted to: Mr. ASHISH PARASHAR (Astt. Prof.) ASBM, ARNI UNIVERSITY KATHGARH (INDORA), KANGRA (H.P) www.arni.inSubmitted By: PARVINDER KUMAR SAHOTRA (AEMB0046A/10) MBA -3RD sem.
2 CERTIFICATE BY THE GUIDEThis is to certify that Parvinder Kumar Sahotra, student of M.B.A.3rd semester at ARNI UNIVERSITY has completed his projectentitled “STUDY OF INVESTORS AND ADVISORS PERCEPTIONABOUT MUTUAL FUND” Under my supervision. To the best of myknowledge and belief, this is his original work and this wholly orpartly has not been submitted for any degree of this or any otheruniversity. I appreciate his efforts during his project and wish himBest of Luck for the future. The contents of this report have beenverified and up to date. Mr. ASHISH PRASHAR PROJECT GUIDE ACKNOWLEDGEMENTS
3 I am really happy and exiled in representing this summer trainingproject report before you. I must express my gratitude towards NJ FUNDS NETWORK for givingme opportunity to work on this project, Especially Mr.Amit Patial(Sr.Executive sales) without whose able guidance this would neverhave been possible. He’s been the sincere advisor and inspiring forcebehind the outcome of this project. And off course I am very much thankful to Mr. RAVIKANT SWAMI(Dean ASBM) and Astt. Prof. Mr. ASHISH PRASHAR (Project Guide)for giving me his guidance and help through out preparing this Report.He has also provided me valuable suggestion about this training whichproved very helpful to me to utilize my theoretical knowledge inpractice field. At last but not least I am also thankful to my family and friends whohave given me their constructive advice, educative suggestions,encouragement, co-operation & motivation to prepare this report (PARVINDER KUMAR SAHOTRA) AEMB0046A/10 MBA-3rd
4 DECLARATIONI,Parvinder Kumar Sahotra Roll No/ID _AEMB0046A/10 M.B.A.Final year (III semester) of Arni School of Business Managementhereby declare that the Summer Training Report entitled STUDYOF INVESTORS AND ADVISORS PERCEPTION ABOUT MUTUALFUND is an original work and the same has not been submitted toany other University/Organization for the award of any otherdegree. A seminar presentation of the Training Report was madeon ____ and the suggestions as approved by the faculty wereduly incorporated. PresentationSignature of the Candidate In charge (Faculty)CountersignedDirector/Dean/Coordinator (PARVINDER KUMAR SAHOTRA) Contents
5Certificate by guideAcknowledgementDeclarationAbstractObjective of the study 1. Company profile (4) 2. Mutual Fund History (21) 3. Mutual fund Industry (24) 4. Mutual Funds an introduction (30) o Types of mutual funds (32) o Net Asset Value (37) o Comparison of mutual fund (38) o Advantages of mutual fund (39) o Disadvantages of mutual fund (41) o Distribution channels of mutual fund (42) o Risk in mutual fund (45) o Factors affecting mutual fund (46) o Regulatory framework for mutual fund (49) o Structure of mutual fund (50) 5. Research methodology (54) 6. Data interpretation and analysis (57) o Limitation of study (67) o Findings and suggestions (68) o conclusion (70) References and bibliography (71) Questionnaire (72)
6 ABSTRCT The project includes a brief description of MUTUAL FUND Industry and perceptionof investors and advisors about mutual fund. A mutual fund is a scheme in which several people invest their money for a commonfinancial cause. The collected money invests in the capital market and the money, whichthey earned, is divided based on the number of units, which they hold. The mutual fundindustry started in India in a small way with the UTI Act creating what was effectively asmall savings division within the RBI. Over a period of 25 years this grew fairlysuccessfully and gave investors a good return, and therefore in 1989, as the next logicalstep, public sector banks and financial institutions were allowed to float mutual fundsand their success emboldened the government to allow the private sector to foray into thisarea. A survey was conducted to get the primary data to judge the factors that investor andadvisor keep in mind before dealing in mutual fund i.e.
7 .Safety .Return .flexibility .Liquidity .Schemes At present there are many Schemes being offered by various MUTUAL FUNDcompanies. Each AMCs is competing with each other by Launching new products orrelaunching old ones. MUTUAL FUND industry today is facing a huge competition not only from with inthe industry but also from other financial products like Insurance Policies. In the project I tried my best to study things which I observed during my trainingperiod .My analysis and conclusion is based on actual research of the Topic.
8 OBJECTIVES OF THE STUDYThe project was conducted for the following objective:- • To gain knowledge and understanding of Mutual Funds as an Investment tool. • To study the product profile of the company. • To study the perception of investors and advisors about mutual fund. • To know about the performance of Mutual Fund of different companies. • To know about the factors which affect mutual funds. • To know about the distribution channels of mutual fund. • To study the diversification of mutual fund. • To know the different Asset management companies involve in mutual fund.] Chapter 1 COMPANY PROFILE
91. ABOUT NJ Doing the right thing is a virtue most desirable. The difference betweensuccess and failure is often, not dictated by knowledge or expertise, but by its actualapplication and perseverance. When it comes to successful wealth creation forcustomers, it is something that we believe in & practice. For us it is more than amission; it is what defines our lives and our actions at NJ India Invest. With this passion, we continue to evolve and make the right productaccessions and service innovations in our offerings. To the advisors, we offer a 360°comprehensive business platform with unmatched IT solutions, empowering themto set the best practice standards and deliver real value to their customers. Over theyears, our passion has seen us grow from strength to strength and expand rapidly,setting new benchmarks in the process. But to us, what really matters the most is thenumber of lives we have managed to transform and we still have a long way to go... NJ India Invest Pvt. Ltd. is one of the leading advisors and distributors offinancial products and services in India. Established in year 1994, NJ has over adecade of rich exposure in financial investments space and portfolio advisoryservices. From a humble beginning, NJ, over the years has evolved out to be aprofessionally managed, quality conscious and customer focused financial /investment advisory & distribution firm. We are headquartered in Surat, India, and have more than INR 10,000Crore plus of mutual fund assets under advice, with a wide presence at over 104locations in 21 states in India. The numbers are reflections of the trust, commitmentand value that NJ shares with 11 Lac plus customer base with over 14000+Advisors. NJ prides in being a professionally managed, quality focused and customercentric organization. The strength of NJ lies in the strong domain knowledge ininvestment consultancy and the delivery of sustainable value to clients with supportfrom cutting-edge technology platform, developed in-house by NJ.At NJ, we believe in.. • Having single window, multiple solutions that are integrated for simplicity and sapience
10 • Making innovations, accessions, value-additions, a constant process • Providing customers with solutions for tomorrow which will keep them above the curve, todayTechnology has traditionally been NJs key strength. Our offering on thetechnological front is unmatched, vibrant, and comprehensive in nature. Our focus& commitment on technology can be gauged from the fact that we have set-updistinct entity with a very strong, talented work-force for the sole purpose ofproviding the best to NJ in terms of technology and support. Finlogic Technologies(India) Pvt. Ltd. does all the development & support work in-house on a continuousbasis. It has successfully developed & implemented a powerful support system forthe mutual fund distribution business at NJ with a provision for integrating thesame with other investment products as well as the financial accounting system.Today Fin logic Technologies has more than 100 employees for its IT developmentOur Divisions • NJ Fundz Network NJ Fundz Network has been playing a pioneering role in India in providingindependent advisors / advisory firms with integrated, comprehensive and practicalbusiness solutions for ensuring continuous growth & continuity of business. Itprovides the financial advisors and the institutions that serve them with insights,strategies and tools to help them significantly grow their businesses. How do we doit? That’s because we understand how financial & wealth management businesseswork and what is needed to manage, monitor and grow the practice... With the 360° Advisory platform, NJ has managed to successfully transform thebusiness of many advisory / distribution houses, bringing them on equal footing oreven better than the toughest competitors in the industry in the concerned domain.With a vast experience & strong delivery mechanism, we at NJ Fundz Network,help & ensure transformation and the exploitation of the opportunities available.First in the Indian Mutual Fund Industry to offer a Complete Business Platform toAdvisors • NJ Realty Services This is an integrated service model offering solutions for meeting the diversereal-estate needs of corporates & retail customers in transacting properties. Finding the right property at the right value and the best buyer for a property isthe crux of any realty solution. At NJ India Realty we value this critical element ofretailing and aim to provide the customer with an integrated service model that not
11only focuses on him meeting his desired needs but also on enhancing the overallexperience of the transaction. The scope of properties embraces both commercial & residential projects /properties. The integrated value-added services ensure that the solutions arefeasible, authentic, secure & profitable. Leveraging upon the strengths of the parent company NJ, NJ India Realty aimsto offer attractive options and operational guidance to satisfactorily realize thecustomer’s realty dreams. Today NJ Realty Services has tied up with over 40 developers with over 150projects across India. • NJ Gurukul (CFP) by Making people benefit from the growing economy is possible byattracting them to participate in Equity for long term, to make their money workfor itself and create wealth. For this to happen, a huge force of effective FinancialAdvisors is needed. Visualizing this need and with a view to bridge the gap, NJ IndiaInvest Pvt. Ltd. has set up NJ Gurukul to offer different training programs atmoderate costs. NJ Gurukul seeks to help people become better professionals / businesspersonalities & achieve success in their own endeavors. For businesses, as a people partner, NJ Gurukul seeks to groom employees &management so that they deliver upon their expectations & responsibilities,successfully. NJ Gurukul is authorized to give training for Certified FinancialPlanner FBSB India. Today NJ Gurukul has offered over 1200 trainingprogrammes with over 20000 candidates.Vision & mission of NJ India InvestVision•To be the leader in our field of business through,• Total Customer Satisfaction• Commitment to Excellence• Determination to Succeed with strict adherence to compliance• Successful Wealth Creation of our CustomersMission
12 Ensure creation of the desired value for our customers, employees andassociates, through constant improvement, innovation and commitment to service &quality. To provide solutions which meet expectations and maintain highprofessional & ethical standards along with the adherence to the servicecommitments?2. MANAGEMENT The management at NJ brings together a team of people with wideexperience and knowledge in the financialServices domain.The management provides direction and guidance to the wholeorganization. The management has strong visions for NJ as a globally respectedcompany providing comprehensive services in financial sector.The ‘Customer First’philosophy in deeply ingrained in the management at NJ. The aim of themanagement is to bring the best to the customers in terms of• Range of products and services offered• Quality Customer ServiceProjectsformba.blogspot.com All the key members of the organization put in great focus on the processes& systems under the diverse functions of business. The management also focuses onutilizing technology as the key enabler for all the activities and to leverage thetechnology for enhancing overall customer experience.The key members of the management are:Our ManagementMr. Neeraj Choksi Jt Managing DirectorsMr. Jignesh DesaiSales Team:Name CategoryMr. Misbah Baxamusa National Head
13Mr. Kulbhushan Nandwani A.V.PMr. Prashant KakkadMr. Anil TaliayaMr. Manish Gadhvi Zonal ManagerMr. Sarfaraz PatelMr. Tushar BhajantriExecutive Team:Name Department HeadMr. Shirish Patel Information TechnologyMr. Vinayak Rajput Operations & Customer CareMr. Tejas Soni FinanceMr. Abhishek Dubey Business Process ManagementMr. Samanvay Maniar MarketingMr. Jigesh Desai Real EstateMr. Viral Shah ResearchMr. Dhaval Desai Human ResourcesMr. Kalpesh Mehta Alternate Channel
143. OUR CORE VALUES (A) Our values While we constantly look for new ideas and changes that cause positivedifference to our clients, we remain true to the values upon which NJ India Investwas found: • High-level of expertise: Being a growing organization, we strive to constantly evolve by providing thehighest level of expertise to our client, continuously, • integrity & transparency: We believe in doing business with a high standard of honesty & integrity.Creating long term trustworthy relationships with our clients is at the core of ourbusiness model. We strive to maintain the highest level of transparency and areopen to discussions when serving our advisors and investors. • performance: Our drive for performance is distinguished by consistent and meaningfulmeasurement. At NJ, we are passionate about our customers wealth creation. Theentire NJ team exudes confidence and spreads positive vibes around. Team NJ iswell inclined towards its roles & responsibilities and is eager to learn to serve thecustomer better. We believe in continuous enhancement and growth of our humancapital and people at NJ start each day afresh with an eagerness to learn and apassion to win • strong relationships Strong relationships grounded in trust and mutual respect over the long-termallow us to successfully serve clients through the various phases of their lives.COMPREHENSIVE, ACCURATE COMMUNICATIONS USING LEADING-EDGETECHNOLOGIESWe employ new technologies to set industry standards in reporting and clientcommunications. • professional ethics
15 Our top priority is meeting the needs of our clients, and we unequivocally take full responsibility for the work we do. At NJ, we follow a strong process oriented approach in everything we do. We are firm believers of “Follow the process, Results will come” mantra. We have detailed processes related to sales, administration and client servicing, which help us evaluate our performance better and improve upon the shortcomings identified in the system. • striving excellence in servicing: There is no substitute to quality service and advice. We accept this fact at NJthrough our commitment to quality client servicing. We work on the latesttechnologies, solutions and products for our clients to ensure they stay ahead of thecompetition and make their business run in quick, efficient and the best way.(B) Philosophy At NJ, our Service and Investing philosophy inspire and shape the thoughts,beliefs, attitude, actions and decisions of our employees. Our philosophy is the spiritwhich drives our body called NJ. • Service Philosophy: Our primary measure of success is customer satisfaction. We are committed toprovide our customers with continuous, long-term improvements and value-additions, to meet the needs in an exceptional way. In our efforts to consistentlydeliver the best service possible to our customers, all employees of NJ make everyeffort to: • Think of the customer first, take responsibility, and make prompt service to the customer a priority. • Deliver upon the commitments & promises made, on time. • Anticipate, visualize, understand, meet and exceed our customers needs. • Bring energy, passion & excellence in everything we do. • Be honest and ethical, in action & attitude, and keep the customer’s interest supreme. • Strengthen customer relationships by providing service in a thoughtful & proactive manner and meet the expectations, effectively. • Investing Philosophy: We aim to provide need-based solutions for long-term wealth creation we aim toprovide all the customers of NJ, directly or indirectly, with true, unbiased, need-based solutions and advice that best meet their stated & un-stated needs. In ourefforts to provide quality financial & investment advice, we believe that.
16 • Clients want need-based solutions, which fits them. • Long-term wealth creation is simple and straight. • Asset-Allocation is the ideal & the best way for long-term wealth creation. • Educating and disclosing all the important facets, which the customer needs to be aware of, is important. • The solutions must be unbiased, feasible, practical, executable, measurable and flexible. • Constant monitoring and proper after-sales service is critical to complete the on-going process. At NJ, our aim is to earn the trust and respect of the employees, customers,partners, regulators, industry members and the community at large, by followingour service and investing philosophy with commitment. • 360° – advisory platform NJ believes in “360° – Advisory Platform” philosophy …With this philosophy, wetry to offer all possible products, services and support which an Advisor would needin his business. The support functions are generally in the following areas …• Business Planning and Strategy • Training and Development – Self and of employees • Products and Service Offerings • Business Branding • Marketing • Sales and Development • Technology• Advisors Resources - Tools, Calculators, etc.. • ResearchWith this comprehensive supporting platform, the NJ Fundz Partners stays aheadof the curve in each respect compared to other Advisors/competitors in the market4. AWARDS & RECOGNITIONSSome of the awards & recognitions that we have received in the past …Year 2000:For Outstanding Performance presented by Chairman, Prudential Plc. at LondonYear 2002:For Outstanding Performance presented by Group Chief Executive, Prudential Plc.at London
17Year 2003:For Outstanding Performance presented by Group Chief Executive, Prudential Plc.at LondonYear 2004:Among Most Valued Business Associates presented by HDFC Standard Life atEdinburgh, ScotlandYear 2004:For Outstanding Performance by Deputy CEO, Prudential Singapore at MalaysiaYear 2006:Award for mobilising the Highest Number of SIPs at National Level by FidelityMutual Fund Plc at MumbaiYear 2006:Award – Vietnam5. PEOPLE & CULTURE: For any service oriented organization like NJ, its employees are perhaps the bestasset. People at NJ serve clients with vibrant energy and enthusiasm. Serving withSmile is the motto adopted by people at NJ. People here are well inclined towardstheir roles & responsibilities and are given complete freedom to do justice with theirroles. We believe in continuous enhancement and growth of our human capitalthrough on going process of training & development. At NJ, we encourageinnovative ideas and suggestions from employees and value their contributions.Team NJ works towards common goal of Client Esteem and in process of derivingthis goal people at NJ keep learning, evolving and developing every day. • People: Enthusiasm, Enterprise, Education and Ethics form the four pillars at NJ. AtNJ, one can witness the vibrant energy, enthusiasm and the enterprising drive toexcel, flowing freely throughout the organization. Here, one can also experience thecreativity, one-to-one responsiveness, collaborative approach and passion fordelivering value. At NJ, people evolve to be more effective, efficient, and result oriented.Knowledge is inherent due to the education-centric approach and the experience inhandling different client groups across diverse product profiles.
18 NJ understands that the people are the most important assets of the companyand it is not the company that grows but the people. It, hence, undertakes rigoroustraining and educational activities for enhancing the entire team at NJ. It alsobelieves in the ‘Learning through Responsibility’ concept for its employees. For people at NJ, success is not a new word, but is a regular stepping-stone torealizing the common vision that everyone shares. • Culture: At NJ we believe in transforming the lives of our customers. We exist to create adifference – a change towards a better life. The culture here reflects thisresponsibility, this dream of transforming lives. And we, at NJ are always excitedand enthused in doing so. We believe in keeping ‘Customer First’, providing you with the products andservices that meet your stated and unstated needs. Client satisfaction and clientservice is the Mantra we constantly recite. This service oriented philosophy runsthroughout the organization, from the top to the bottom. Employees are given ample freedom in their work. The objective is to keep anopen, healthy environment with ample scope for enterprise, improvement,innovations and out-of-the box solutions. Our efforts are constantly engaged in improving our existing services, offeringnew and innovative solutions that go beyond expectations. This focus has made usone of the most respected and preferred service providers, especially in the mutualfund industry.6. PRODUCTSNJ offers advisory and distribution services on the following products. 1. Mutual funds – covering all AMCs & all schemes, 2. Fixed deposits (fixed maturity plan) of companies, 3. Government/RBI bonds, 4. Infrastructure Bonds 5. Insurance (Life & Health)7. ADVANTAGES WITH NJ
19 • All Mutual Fund Schemes under one roof. • Regular training support to develop Mutual fund business • Dedicated customer care (toll free) for query resolution • Desiccated online partner desk for managing your business • Daily updation of client portfolio online • Marketing support for branding and business development • Dedicated relationship manager to train & develop business • online mutual fund transaction facility for clients8. NJ INDIA INVEST - INVESTMENT PORTFOLIODSP Merrill Lynch Mutual FundBirla Mutual FundAlliance Capital Mutual FundING Vysya Mutual FundCholamandalam Mutual FundDeutsche Mutual FundABN - AMRO Mutual FundHDFC Mutual FundFranklin Templeton Mutual FundReliance Mutual FundHSBC Mutual FundUnit Trust Of IndiaPrudential ICICI Mutual Fund
20Kotak Mutual FundStandard Chartered Mutual FundSBI MutualPrincipal Mutual FundTata MutualJM Financial Mutual FundLIC Mutual FundSahara Mutual FundSundaram Mutual Fund Chapter 2 HISTORY OF MUTUAL FUNDS The mutual fund industry in India started in 1963 with the formation of UnitTrust of India, at the initiative of the Government of India and Reserve Bank.Though the growth was slow, but it accelerated form the year 1987 when non-UTIplayers entered in the industry.In the past decade INDIAN Mutual Fund industry had seen a dramaticimprovement quality wise as well as quantity wise. The history of mutual funds inIndia can be broadly divided into four distinct phases:
21First Phase - 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. Itwas set up by the Reserve Bank of India and functioned under the Regulatory andadministrative control of the Reserve Bank of India. In 1978 UTI was de-linkedfrom the RBI and the Industrial Development Bank of India (IDBI) took over theregulatory and administrative control in place of RBI. The first scheme launched byUTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assetsunder management.Second Phase - 1987-1993 (Entry of Public Sector Funds) Entry of non-UTI mutual funds.SBI Mutual Fund was the first followed byCanra 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 BarodaMutual Fund (Oct 92).LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets under management.Third Phase - 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in theIndian mutual fund industry, giving the Indian investors a wider choice of fundfamilies. Also, 1993 was the year in which the first Mutual Fund Regulations cameinto being, under which all mutual funds, except UTI were to be registered andgoverned. 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 morecomprehensive and revised Mutual Fund Regulations in 1996. The industry nowfunctions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreignmutual funds setting up funds in India and also the industry has witnessed severalmergers and acquisitions. As at the end of January 2003, there were 33 mutualfunds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.Fourth Phase - since February 2003 This phase had bitter experience for UTI. It was bifurcated into two separateentities. One is the Specified Undertaking of the Unit Trust of India with AUM ofRs.29,835 crores (as on January 2003). The Specified Undertaking of Unit Trust ofIndia, functioning under an administrator and under the rules framed byGovernment of India and does not come under the purview of the Mutual FundRegulations.
22 The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB andLIC. 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 thanRs.76, 000 crores of AUM and with the setting up of a UTI Mutual Fund,conforming to the SEBI Mutual Fund Regulations, and with recent mergers takingplace among different private sector funds, the mutual fund industry has entered itscurrent phase of consolidation and growth. As at the end of September, 2004, therewere 29 funds, which manage assets of Rs.1, 53,108 crores under 421 schemes. GROWTH IN ASSETS UNDER MANAGEMENT Chapter 3 MUTUAL FUND INDUSTRY The Indian Mutual fund industry has witnessed considerable growth since itsinception in 1963. The assets under management (AUM) have surged to Rs 4,173 bnin Mar-09 from just Rs 250 mn in Mar-65. In a span of 10 years (from 1999 to 2009),the industry has registered a CAGR of 22.3%, albeit encompassing some shortfallsin AUM due to business cycles.The impressive growth in the Indian Mutual fund industry in recent years canlargely be attributed to various factors such as
23 rising household savings, comprehensive regulatory framework, Favourable tax policies, Introduction of several new products Investor education campaign and role of distributors. In the last few years, household’s income levels have grown significantly, leadingto commensurate increase in household’s savings.Towards the huge marketpotential of the Mutual fund industry in India. Besides, SEBI has introduced various regulatory measures in order to protectthe interest of small investors that augurs well for the long term growth of theindustry.The tax benefits allowed on mutual fund schemes. Besides, the Indian Mutual fund industry has introduced an array of productssuch as liquid/money market funds, sector-specific funds, index funds, gilt funds,capital protection oriented schemes, special category funds, insurance linked funds,exchange traded funds, etc. It also has introduced Gold ETF fund in 2007 with anaim to allow mutual funds to invest in gold or gold related instruments. Further, theindustry has launched special schemes to invest in foreign securities. The widevariety of schemes offered by the Indian Mutual fund industry provides multipleoptions of investment to common man.
25FUTURE OF MUTUAL FUNDS IN INDIAThe Future of Mutual Funds In India suggests that the industry has got huge scopesof development in the times to come.The Future of Mutual Funds In India is quite bright. Mutual Funds are one of themost popular forms of investments as these funds are diversification, professionalmanagement, and liquidity. In the year 2004, the mutual fund industry in India wasworth Rs 1, 50,537 crores. The mutual fund industry is expected to grow at a rate of13.4% over the next 10 years.Mutual Fund Assets under Management (MF AUM)-Growth a) In March 1998, the MF AUM was ` 68984 crores. b) In March 2000, the MF AUM was ` 93717 crores and the percentage growth was 26 %.
26 c) In March 2001, the MF AUM was ` 83131 crores and the percentage growth was 13 %. d) In March 2002, the MF AUM was ` 94017 crores and the percentage growth was 12 %. e) In March 2003, the MF AUM was ` 75306 crores and the percentage growth was 25 %. f) In March 2004, the MF AUM was ` 137626 crores and the percentage growth was 45 %. g) In September 2004, the MF AUM was ` 151141 crores and the percentage growth was 9 % in 6 months time. h) In December 2004, the MF AUM was ` 149300 crores and the percentage growth was 1 % in 2 months time. i)Future of Mutual Funds In India-Facts on growthImportant aspects related to the future of mutual funds in India are - a) The growth rate was 100 % in 6 previous years. b) The saving rate in India is 23 %. c) There is a huge scope in the future for the expansion of the mutual funds industry. d) A number of foreign based assets management companies are venturing into Indian markets.MAJOR PLAYERS IN INDUSTRYList of Asset Management Companies in IndiaBank Sponsored I. Bank of Baroda Asset Management Co. Ltd. II. Canbank Investment Management Services Ltd. III. PNB Asset Management Ltd. IV. UTI Asset Management Company (P) Ltd.Institutions I. GIC Asset Management Co. Ltd. II. Jeevan Bima Sahayog Asset Management Co. Ltd.Private Sector INDIAN I. Benchmark Asset Management Co. Ltd. II. Cholamandalam Asset Management Co. Ltd. III. Escorts Asset Management
27 IV. J.M. Capital Management Ltd. V. Kotak Mahindra Asset Management Co. Ltd. VI. Sundaram Asset Management Co. VII. Reliance Capital Asset Management Ltd. FOREIGN I. Principal Asset Management Co. Ltd.Joint Ventures – Predominantly Indian I. Birla Sun Life Asset Management Pvt. Co. Ltd. II. Credit Capital Asset Management Co. Ltd. III. DSP Merrill Lynch Fund Managers Ltd. IV. First India Asset Management Pvt. Ltd. V. HDFC Asset Management Co. Ltd. VI. Tata TD Waterhouse Asset Management Pvt. Ltd.Joint Ventures – Predominantly Foreign I. Alliance Capital Asset Management (India) Pvt. Ltd. II. Deutsche Asset Management (India) Pvt. Ltd. III. HSBC Asset Management (India) Pvt. Ltd. IV. ING Investment Management (India) Pvt. Ltd. V. Prudential ICICI Management Co. Ltd.
28 Chapter 4 MUTUAL FUND (AN INTRODUCTION)Definition:-Mutual Fund is the pool of money from investors to invest in differentsecurities according to certain objectives.A Mutual Fund is a trust that pools the savings of a number of investors who sharea common financial goal. The money thus collected is invested by the fund managerin different types of securities depending upon the objective of the scheme. Thesecould range from shares to debentures to money market instruments. The incomeearned through these investments and the capital appreciations realized by thescheme are shared by its unit holders in proportion to the number of units owned bythem (pro rata). Thus a Mutual Fund is the most suitable investment for thecommon man as it offers an opportunity to invest in a diversified, professionallymanaged portfolio at a relatively low cost. Anybody with an inventible surplus of aslittle as a few thousand rupees can invest in Mutual Funds. Each Mutual Fundscheme has a defined investment objective and strategyA 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,skills, inclination and time to keep track of events, understand their implicationsand act speedily. An individual also finds it difficult to keep track of ownership ofhis assets, investments, brokerage dues and bank transactions etc.A draft offer document is to be prepared at the time of launching the fund.Typically, it pre specifies the investment objectives of the fund, the risk associated,the costs involved in the process and the broad rules for entry into and exit from thefund and other areas of operation. In India, as in most countries, these sponsorsneed approval from a regulator, SEBI (Securities exchange Board of India) in ourcase. SEBI looks at track records of the sponsor and its financial strength ingranting approval to the fund for commencing operations.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(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% stakein the Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor
29of the Birla Sun Life Asset Management Company Ltd., which has floated differentmutual funds schemes and also acts as an asset manager for the funds collectedunder the schemes.CHARACTERISTICS OF MUTUAL FUNDS•The ownership is in the hands of the investors who have pooled in their funds.• It is managed by a team of investment professionals and other service providers.•The pool of funds is invested in a portfolio of marketable investments.•The investors share is denominated by ‘units’ whose value is called as Net AssetValue (NAV) which changes everyday.•The investment portfolio is created according to the stated investment objectives ofthe fund. MUTUAL FUND OPERATION TYPES OF MUTUAL FUNDSMutual fund schemes may be classified on the basis of its structure and itsinvestment objective.
30A. By Structure: Open-ended FundsAn 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 atNet Asset Value ("NAV") related prices. The key feature of open-end schemes isliquidity. Closed-ended FundsA closed-end fund has a stipulated maturity period which generally ranging from 3to 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 andthereafter they can buy or sell the units of the scheme on the stock exchanges wherethey are listed. In order to provide an exit route to the investors, some close-endedfunds give an option of selling back the units to the Mutual Fund through periodicrepurchase at NAV related prices. SEBI Regulations stipulate that at least one of thetwo exit routes is provided to the investor. Interval FundsInterval funds combine the features of open-ended and close-ended schemes. Theyare open for sale or redemption during pre-determined intervals at NAV relatedprices.B. By Investment Objective: Growth/Equity oriented schemesThe 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 hasbeen proven that returns from stocks, have outperformed most other kind ofinvestments held over the long term. Growth schemes are ideal for investors havinga long-term outlook seeking growth over a period of time. Income/Debt oriented schemesThe aim of income funds is to provide regular and steady income to investors. Suchschemes generally invest in fixed income securities such as bonds, corporatedebentures and Government securities. Income Funds are ideal for capital stabilityand regular income.
31 Balanced FundsThe aim of balanced funds is to provide both growth and regular income. Suchschemes periodically distribute a part of their earning and invest both in equitiesand fixed income securities in the proportion indicated in their offer documents. Ina rising stock market, the NAV of these schemes may not normally keep pace, or fallequally when the market falls. These are ideal for investors looking for acombination of income and moderate growth. Money Market/liquid fundThe aim of money market funds is to provide easy liquidity, preservation of capitaland moderate income. These schemes generally invest in safer short-terminstruments such as treasury bills, certificates of deposit, commercial paper andinter-bank call money. Returns on these schemes may fluctuate depending upon theinterest rates prevailing in the market. These are ideal for Corporate and individualinvestors as a means to park their surplus funds for short periods. Gilt FundThese funds invest exclusively in government securities. Government securities haveno default risk. NAVs of these schemes also fluctuate due to change in interest ratesand other economic factors as is the case with income or debt oriented schemes. Index FundsIndex Funds replicate the portfolio of a particular index such as the BSE Sensitiveindex,S&P NSE 50 index (Nifty), etc, these schemes invest in the securities in thesame weightage comprising of an index. NAV’s of such sche-mes would rise or fall in accordance with the rise or fall in the index, though notexactly by the same percentage due to some factors known as "tracking error" intechnical terms. Necessary disclosures in this regard are made in the offer documentof the mutual fund scheme. Load FundsA Load Fund is one that charges a commission for entry or exit. That is, each timeyou buy or sell units in the fund, a commission will be payable. Typically entry andexit loads range from 1% to 2%. It could be worth paying the load, if the fund has agood performance history. No-Load FundsA No-Load Fund is one that does not charge a commission for entry or exit. That is,no commission is payable on purchase or sale of units in the fund. The advantage ofa no load fund is that the entire corpus is put to work
32C. other schemes: Tax Saving SchemesThese schemes offer tax rebates to the investors under specific provisions of theIndian Income Tax laws as the Government offers tax incentives for investment inspecified avenues. Investments made in Equity Linked Savings Schemes (ELSS) andPension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. TheAct also provides opportunities to investors to save capital gains u/s 54EA and 54EBby investing in Mutual Funds. Industry Specific SchemesIndustry Specific Schemes invest only in the industries specified in the offerdocument. The investment of these funds is limited to specific industries likeInfoTech, FMCG, and Pharmaceuticals etc. Index SchemesIndex Funds attempt to replicate the performance of a particular index such as theBSE Sensex or the NSE 50 Sectoral SchemesSectoral Funds are those, which invest exclusively in a specified industry or a groupof industries or various segments such as A Group shares or initial publicofferings. NET ASSET VALUENet Asset Value (NAV)Definition of NAV Net Asset Value, or NAV, is the sum total of the market value ofall the shares held in the portfolio including cash, less the liabilities, divided by thetotal number of units outstanding. Thus, NAV of a mutual fund unit is nothing butthe book value.It is calculated simply by dividing the net asset value of the fund by the number ofunits. However, most people refer loosely to the NAV per unit as NAV, ignoring the"per unit". We also abide by the same convention.
33 An example will make it clear that returns are independent of the NAV. Say; you have Rs 10,000 to invest. You have two options, wherein the funds are same as far as the portfolio is concerned. But say one Fund X has an NAV of Rs 10 and another Fund Y has NAV of Rs 50. You will get 1000 units of Fund X or 200 units of Fund Y. After one year, both funds would have grown equally as their portfolio is same, say by25%. Then NAV after one year would be Rs 12.50 for Fund X and Rs 62.50 for Fund Y. The value of your investment would be 1000*12.50 = Rs 12,500 for Fund X and 200*62.5= Rs 12,500 for Fund Y. Thus your returns would be same irrespective of the NAV.It is quality of fund, which would make a difference to your returns. COMPARISON OF MUTUAL FUNDSMutual Objective Risk Investment Who should Investmentfunds portfolio invest horizonEquity Long-term capital High risk Stock &share Aggressive 3 years +funds investors , long appreciation term investmentBalanced Growth & Capital market Balanced ratio Moderate & 2 years +funds regular income risk & interest of equity aggressive risk &debt funds to investors ensure higher return at low riskIndex To generate NAV varies Portfolio Aggressive 3 years +funds returns that with index indices like investors commensurate performance BSE, NIFTY with returns of etc. respective indicesGilt funds Securities & Interest rate Government Salaried & 12 months + Income risk Securities conservative InvestorsBond Regular Income Credit Risk & Debentures Salaried & 12 months +funds Interest rate ,Govt. conservative risk securities , Investors corporate Bonds
34Money Liquidity + Negligible Treasury Bills, Park funds in 2 Days to 3market Moderate Income Certificates of current A/c s weeks + Reservation of Deposits , or short term Income commercial Bank Deposits papers, Call money HOW MUTUAL FUND DIFFER IN TERMS OF RISK PROFILE? EQUITY FUNDS High level of return, but has a high level of risk too (no fixed return) DEBT,s FUND Return comparatively less than equity funds LIQUID AND MONEY Provide stable but low level of return MARKET FUND ADVANTAGES OF MUTUAL FUND Mutual Funds offer several benefits to an investor that are unmatched by the other investment options. 1. Affordability: Small investors with low investment fund are unable to invest in high-grade or blue chip stocks. An investor through Mutual Funds can be benefited from a portfolio including of high priced stock. 2. Risk Diversification: Investors investment is spread across different securities (stocks, bonds, money market, real estate, fixed deposits etc.) and different sectors (auto, textile, IT etc.). This kind of a diversification add to the stability of returns, reduces the risk for example during one period of time equities might under perform but bonds and money market instruments might do well do well and may protect principal investment as well as help to meet return objectives. 3. Variety: Mutual funds offer a tremendous variety of schemes. This variety is beneficial in two ways: first, it offers different types of schemes to investors 4. Professional Management: Mutual Funds employ the services of experienced and skilled professionals and dedicated investment research team. The whole team analyses the performance and balance sheet of companies and selects them to achieve the objectives of the scheme.
35 5. Tax Benefits: Depending on the scheme of mutual funds, tax shelter is alsoavailable. As per the Union Budget-99, income earned through dividends frommutual funds is 100% tax free. Under ELSS of open-ended equity-oriented funds anexemption is provided up to Rs. 100,000/- under section 80C. 6. Regulation: All Mutual Funds are registered with SEBI and they function withinthe provisions of strict regulations designed to protect the interests of investors. Theoperations of Mutual Funds are regularly monitored by SEBI.7. Liquidity: Investment in MUTUAL FUND can be redeemed at any time.8. Flexibility: Investment in MUTUAL FUND is flexible because an investor canswitch easily in schemes.9. High Return: Mutual Fund may generate high return in long run (beyond 5year). DISADVANTAGES OF MUTUAL FUNDThe following are the disadvantages of investing through mutual fund:1. No GuaranteesNo investment is risk free. If the entire stock market declines in value, the value ofmutual fund shares will go down as well, no matter how balanced the portfolio.Investors encounter fewer risks when they invest in mutual funds than when theybuy and sell stocks on their own. However, anyone who invests through mutual fundruns the risk of losing the money.2. No control over costSince investors do not directly monitor the fund’s operations, they cannot controlthe costs effectively. Regulators therefore usually limit the expenses of mutual funds.3. No tailor-made portfolio Mutual fund portfolios are created and marketed by AMCs, into which investorsinvest. They cannot made tailor made portfolio.Projectsformba.blogspot.com4. Managing a portfolio of funds As the number of funds increase, in order to tailor a portfolio for himself, aninvestor may be holding portfolio funds, with the costs of monitoring them andusing hem, being incurred by him. 5. Delay in RedemptionThe redemption of the funds though has liquidity in 24- hours to 3 days takes formalapplication as well as needs time for redemption. This becomes cumbersome for theinvestors.
36 6. Non-availability of loans Mutual funds are not accepted as security against loan. The investor cannot deposit the mutual funds against taking any kind of bank loans though they may be his assets. DISTRIBUTION CHANNELS OF THE MUTUAL FUNDIn India, AMCs work with five distinct distribution channels those are direct,banking, retail, corporate and individual financial adviser.1. The Direct Channels:In the direct channel, customers invest in the schemes directly through AMC. Inmost cases, the company does not provide any investment advice, so these investorshave to carry out their own research and select schemes themselves.Thefund companies provide several tools to investors who invest through this channel.This includes monthly a/c statement, processing of transaction, and maintaince ofrecords. In this channel most investors can invest through websites, or receiveinformation through telephonic services provided by the company. About 10-20% ofthe total sales of an AMC come through this direct channel2. The banking channel:The large customer base of banks,in developed countries, have played an importantrole in the selling MFs. In the recent years, this channel has also opened up in India.Banks operating in India , including public sector, private and foreign banks haveestablished tie-up with various fund companies for providing distribution andservicing. The banking channel is likely to develop as the most vital distributionchannel for fund companies there are several reasons for the same. Customersremain invested in banks for long periods of time and therefore banks maintain arelationship of trust with their customers. Customers are rely on advice provided tothem by bankers as they are always on the look out for better investment avenues.Managers are guiding to customers about various funds.An additional advantage that banks provide is that the concerned customer becomesa permanent contact of the banks and therefore can be reached during launch of(new fund offer) NFO or new schemes any time in the future.3. The retail channel:A customer can deal with directly with a sub broker belonging to a distributioncompany, instead of taking trouble of dealing with several agents. Distributioncompanies sell the schemes of several fund houses simultaneously and brokerage is
37paid by the AMC whose funds they sell. The retail channel offers the benefitsof specialist knowledge and established client contact and, therefore private fundhouses are generally prefer this channel. Some of the major players in India in thisin this channel are national players like Karvey, Birla sunlife IL&FS andcholamandalam. The key factor for this channel to sell a company’s fund used to bethe brokerage paid. The banking and retail channel generally contribute to about50-70% of the total Asset under Management (AUM).4. The corporate channelThe corporate channel includes a variety of institutions that invest in shares on thecompany’s name. These are businesses, trust, and even state and local governments.For institutional investors, fund managers prefer to create special funds and shareclasses. Corporate can either invest directly in mutual funds or through anintermediary such as a distribution house or a bank. Corporate exhibit varyingdegrees ‘of awareness of mutual fund products.Most of the established corporate,such as the TVS industries in Hyderabad, are well-versed with the performance and composition of variousfunds. The smaller companies and start-up firms, however, need to be educating onseveral aspects of mutual funds. In order to provide information to such clients,fund companies usually organize presentation for these companies or set-upmeetings with the finance managers.5. Individual financial advisors (ifa) or agents: The IFA channel is the oldest channel for distribution and was widely employed at the time when UTI monopoly in the market. In recent times with the emergence significantly decreased. An agent who basically acts as an interface between the customer and the fund house there is a unique systems in place in India , wherein several sub-brokers are working under one main broker. The huge network of sub-brokers, thus ensure larger market penetration and geographic coverage. As per AMFI, over one lakh agents are registered to sell mutual funds and other financial products such as insurance across the country. RISK INVOLVED IN MUTUAL FUND THE RISK-RETURN TRADE-OFF The most important relationship to understand is the risk-return trade-off. Higher the risk greater the returns/loss and lower the risk lesser the returns/loss
38Hence 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 involvedwith your investment decision. MARKET RISKSometimes prices and yields of all securities rise and fall. Broad outside influencesaffecting the market in general lead to this. This is true, may it be big corporationsor smaller mid-sized companies. This is known as Market Risk. A SystematicInvestment Plan (“SIP”) that works on the concept of Rupee Cost Averaging(“RCA”) might help mitigate this risk CREDIT RISKThe debt servicing ability (May it be interest payments or repayment of principal)of a company through its cash flows determines the Credit Risk faced by you. Thiscredit risk is measured by independent rating agencies like CRISIL who ratecompanies and their paper. An ‘AAA’ rating is considered the safest whereas a ‘D’rating is considered poor credit quality. A well-diversified portfolio might helpmitigate this risk. INFLATION RISKThings you hear people talk about: “Rs. 100 today is worth more than Rs. 100tomorrow.” “Remember the time when a bus ride costed 50 paisa?” “Mehangai KaJamana Hai.” The root cause,Inflation. Inflation is the loss of purchasing power overtime. A lot of times people make conservative investment decisions to protect theircapital but end up with a sum of money that can buy less than what the principalcould at the time of investment. This happens when inflation grows faster than the return on your investment. Awell-diversified portfolio with some investment in equities might help mitigate thisrisk INTEREST RATE RISKIn a free market economy interest rates are difficult if not impossible to predict.Changes in interest rates affect the prices of bonds as well as equities. If interestrates raise the prices of bonds fall and vice versa. Equity might be negativelyaffected as well in a rising interest rate environment. A well-diversified portfoliomight help mitigate this risk POLITICAL/GOVERNMENT POLICY RISKChanges in government policy and political decision can change the investmentenvironment. They can create a favorable environment for investment or vice versa. LIQUIDITY RISKLiquidity risk arises when it becomes difficult to sell the securities that one haspurchased. Liquidity Risk can be partly mitigated by diversification, staggering ofmaturities as well as internal risk controls that lean towards purchase of liquidsecurities.
39 FACTORS AFFECTING MUTUAL FUND Governmental Influences Mutual fund business is a highly regulated business throughout the world as itseeks to ensure that quality and fairly priced schemes are available. Governmentalintervention thus in mutual fund market usually is most needed to ensure thatinsurers are reliable Taxation Policy Social equity being one of the motives behind tax collections, government givescertain exemptions from such levying. One such exemption is deduction incurred bytax payer s towards investment in mutual fund coverage. Similarly, capital investedin infrastructure bonds etc is offered with certain concession under tax laws. National IncomeThe relative importance of the mutual fund Market within a country will also bedependent upon economic development. With greater rates of economic growth,consumption of investment should increase as a result of increased income, and anincreased stock of assets requiring mutual fund. Employment The effect of employment on mutual fund industry is as direct as that on economicdevelopment of any country. With the rising levels of employment the effect onmutual fund industry is positive. Money supplyThe central banks has indicated that credit growth and money supply number arelikely to be above its prosecution for the current fiscal year, the statement “toconsider promptly all possible measures as appropriate to the evolving global anddomestics situation “is indicative of phased increase in FII limits for gilt investmentcould help in depending the securities market and is part of the road map towardsfuller convertibility. InterestInterest is major factor for investment when a person find less return frominvestment tool than people move towards the higher returns tool of investment. Risk factor All investments in Mutual Fund and securities are subject to market risks and theNAV of the fund may go up or down depending on the factors and forces affectingthe security market. There can be no assurance that the fund’s objective will beachieved. Past performance of the sponsors/Mutual fund/schemes/AMC is not
40necessarily indicative of the future results. The name of the schemes does not in anymanner indicate their quality, their future prospects or returns. The specific riskwould be credit, market, illiquidity, judgmental error, interest rate, swaps andforward rates. Demographic environment The demographic environment significantly affects the demand for the mutual fundindustry. Factors like the average age of the population, levels of education,household structures income distribution, life style and the extent ofindustrialization. EducationEducation is major factor of demand for mutual fund product. If the educationlevels is higher than the people know the benefits of mutual fund the use mutualfund as investment tool and also take raise capital growth REGULATORY FREAMWORK FOR MUTUAL FUNDFor the smooth functioning of mutual funds in INDIA followings are the watchdogs1. ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)With the increase in mutual fund players in India, a need for mutual fundassociation in India was generated to function as a non-profit organization.Association of Mutual Funds in India (AMFI) was incorporated on 22 nd August1995.AMFI is an apex body of all Asset Management Companies (AMC), which has beenregistered with SEBI. Till date all the AMCs are that have launched mutual fundschemes are its members. It functions under the supervision and guidelines of boardof directors. AMFI has brought down the Indian Mutual Fund Industry to aprofessional and healthy market with ethical lines enhancing and maintainingstandards. It follows the principle of both protecting and promoting the interest ofmutual funds as well as their unit holders.2. SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS)REGULATIONS, 1996The fast growing industry is regulated by Securities and Exchange Board of India(SEBI) since inception of SEBI as a statutory body. SEBI initially formulated“SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS)REGULATIONS, 1993” providing detailed procedure for establishment,registration, constitution, management of trustees, asset management company,about schemes/products to be designed, about investment of funds collected, general
41obligation of MFs, about inspection, audit etc. based on experience gained andfeedback received from the market SEBI revised the guidelines of 1993 and issuedfresh guidelines in 1996 titled “SECURITIES AND EXCHANGE BOARD OFINDIA (MUTUAL FUNDS) REGULATIONS, 1996”. The said regulations asamended from time to time are in force even today. STRUCTURE OF MUTUAL FUNDSThe mutual fund industry is governed by the Securities and Exchange Board ofIndia (Mutual Fund) Regulations, 1996, which lays the norms for the structure andthe operation of a mutual fund in India. The diagram below illustrates theorganizational set up of a mutual fund: Organizational Setup of a Mutual Fund • SPONSOR A “sponsor” is a person who, acting alone or in combination with anothercorporate body, establishes a Mutual Fund. In order to register with SEBI as aMutual Fund, the sponsor should have a sound financial track record of over fiveyears and general reputation of fairness and integrity in all his businesstransactions. Following its registration with SEBI, the sponsor forms a trust,
42appoints a Board of Trustees and an Asset Management Company (AMC) as a fundmanager. The sponsor should contribute at least 40% of the net worth of the AMC. • SEBI The regulation of mutual funds operating in India falls under the preview ofauthority of the Securities and Exchange Board of India (SEBI). Any personproposing to set up a mutual fund in India is required under the SEBI (MutualFunds) Regulations, 1996 to be registered with the SEBI. • MUTUAL FUNDA Mutual Fund is established in the form of a trust under the Indian Trusts Act,1882. The investor subscribes to the units issued by the Mutual Funds. Theresources raised are pooled under various schemes established by the trust. • TRUSTEES The Mutual Fund can either be managed by the Board of Trustees, which is a bodyof individuals, or by a trust company, which is a corporate body. Most of the fundsin India are managed by the Board of Trustees. The Trustees are appointed with theapproval of the SEBI. Two thirds of the Trustees are independent persons and arenot associated with the sponsors. The Trustees, however, do not manage theportfolio of Mutual Fund. It is managed by the AMC. • UNIT HOLDERS They are the parties to whom the mutual fund is sold. They are ultimatebeneficiary of the income earned by the mutual funds. • ASSET MANAGEMENT COMPANY (AMC) The AMC,appointed by the sponsors or the Trustees and approved by SEBI, actslike an investment manager of the Trust. The AMC should have a net worth of atleast Rs.10 crores. It functions under the supervision of its Board of Directors,Trustees and the SEBI. In the name of the Trust, AMC floats and manages differentinvestment schemes as per the SEBI regulations. Apart from these, a Mutual Fundhas some other constituents, such as, custodians and depositories, banks, transferagents and distributors. A custodian is appointed for safe keeping the securities andparticipating in the clearing system through approved depository. The bankers
43handle the financial dealings of the fund. Transfer agents are responsible for issueand redemption of the ‘units’. The AMC appoints distributors or brokers to sell‘units’ on behalf of the fund. • CUSTODIAN The mutual fund is required, under the Mutual Fund Regulations, to appointa custodian to carry out the custodial services for the schemes of the fund. Onlyinstitutions with substantial organizational strength, service capability in terms ofcomputerization and other infrastructure facilities are approved to act ascustodians. The custodian must be totally delinked from the AMC and must beregistered with SEBI. LIMITATIONS OF THE STUDYResearch has made many achievements and thus simplified human life. Whateverwe are enjoying today is due to research. Every research has its own advantages, disadvantages and limitations and mypresent research work is no exception to this general rule. Limitations of the study are as under:· In this research Interview method was followed which is very much time consuming and very expensive method, especially when spread geographic sample is taken. Questionnaire method can be used only for those respondents who are literate and co-operative. In this research work Sample size was 170 which is not enough to study the awareness of mutual fund and on the basis of this sample we can not make a judgment. Sampling techniques used in the study is convenient sampling so it may result in personal bias. Even respondent give bias answers. Time is main constraint of the research as we have very less time.
44 FINDING AND SUGESSIONSDuring my summer training program at panchkula in NJ India invest I found that alarge number of wealth Advisors were working with insurance companies (LIC,new India, oriental insurance, National insurance) and post offices or with both.Most of investors and advisors have a little knowledge about mutual fund.FINDINGS • Highest number of investors comes from the salaried class(having age group 25-40) and have been investing in mutual funds for last 5-7 years. • Most of the advisors have been working with insurance companies and post offices. • Brokerage in mutual funds is very low as compare to insurance. • Mutual fund investments are subject to market risk therefore people don’t want to talk about them. • Advisors don’t want to be AMFI certified because they have to study and they think fee at NJ is more as compare to LIC. • Some advisors were dealing in mutual fund with out any AMFI certification with RR chd. • Majority of people were not aware about NJ India Invest so they should launch Brand awareness programme periodically. • ARN holders who are working independently don’t want to associate with NJ due to less brokerage at NJ. • Some people want to earn high return, some want safety, some want tax benefit and some want liquidity.SUGGESTIONS • NJ should decrease charges upon AMFI test. • NJ should launch awareness program about mutual fund for general public to get direct clients and for brand building. • Brokerage of the financial advisor’s should be improved.
45 • Give more importance to safety and return attributes because Independent Financial Advisors are more concern about safety and of giving more benefit of the investments to their clients. • By providing better service NJ India Invest should try to attract the Independent Financial Advisors to join with them. • Tax benefit should be highlighted to attract public sector employees for investment in mutual fund. CONCLUSIONOn the Basis of above research we can say that mutual fund industry is growingwith a great speed and investment in mutual fund provides a good return in longrun i.e. beyond 5 years. Today each and every person is fully aware of every kind of investment proposal.Everybody wants to invest money, which entitled of low risk, high returns and easyredemption.Though a mutual fund provides a good return but it also has risk involved in it.Investor should have a good knowledge about working of mutual fund and marketbefore investment. In my opinion before investing in mutual funds, one should befully aware of each and everything. REFERENCES & BIBLIOGRAPHYWebsites: • www.google.com • www.njfundz.com • www.amfiindia.com • www.mutualfundsindia.comBooks: • C.R.Kothari,Research methodology, new Delhi: new age international publishers.
46 • Text book for AMFI Exam.Magazines: • Business India • Opportunity (by NJ) • Business Today