Project on Mutual Funds


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Project on Mutual Funds

  2. 2. Project Report Of The Summer Internship Project AtTopic:- “Increasing the Value of Mutual Funds in India” Submitted by: Ravindra Jeet ICHE-B (FW 2010-13) ID No. :2010-13/SS/UGP/I-CHE-6B/IND-6B/IA-5020 1
  3. 3. Summer Project CertificateThis is to certify that Mr. Ravindra Jeet (ID No.2010-13/SS/UGP/I-CHE-6B/IND-6B/IA-5020) a student of IIPMhas worked on a summer project titled “Increasing the Valueof Mutual Funds in India” at SBI Mutual Fund, Indore afterSemester-IV in partial fulfillment of the requirement for theThree year full-time Under graduate programme in Planningand Entrepreneurship (FW 2010-13). This is his/her originalwork to the best of my knowledge.Date:________ Signature _____________ Dean IIPM, Indore 2
  4. 4. DeclarationI hereby declare that the following project report titled“Increasing the Value of Mutual Funds in India” is anauthentic work done by me. This is to declare that all the workindulged in the completion of this work such as research, datacollection, analysis is a profound and honest work of mine.Date: Ravindra JeetPlace: Indore ICHE-B (FW 2010-13) 3
  5. 5. Acknowledgement I would like to thank employees of SBI Mutual Funds forgiving me an opportunity to intern with them. The training atthe company was held over a period of 45 days. During thisperiod I was guided by the ISC Head of the Investor ServiceCentre, Indore Mr. Gaurav Agrawal. The project report andthe learning process would not have been possible without hisinputs and guidance at critical points of the project. Heimparted to me the knowledge of mutual funds and sharedwith me the practical marketing techniques of mutual funds.He also made sure that I was exposed to all the distributionchannels, the operational processes and also was exposed tothe sale of mutual funds. Under his guidance I was able toenhance my marketing and inter-personal skills.During the course of the 45 days I also came across otherpeople who put in their time and effort towards acclimatizingme towards the working of their organization. I express mythanks to every one of them.These 45 days were very important to me as it helped me ingoing beyond the class room and get a practical feel of howthings worked. 4
  6. 6. Table of ContentsSr. No. Title Page No.1 Executive Summary 62 Introduction to SBI Mutual Fund 7 Corporate Profile  Our Identity  Our Vision  Our Services3 Company Key Information 94 History of Mutual Funds 105 Regulatory Framework 136 Concept of Mutual Funds 167 Organization Structure of a Mutual Funds 188 Types of Mutual Fund schemes in India 209 Advantages Of Mutual Fund 2310 Mutual Fund Industry Trends 24 Key industry trends and gaps include i) AUM skewed towards debt funds, ii) Institutional dominance, iii) Top 10 players control 80% of AUM, iv) low penetration, and v) low awareness.11 Systematic Investment Planning (SIP) 2912 How to Invest in Mutual Funds? 3013 Research Methodology 35 i) Questionnaire ii) Research Objective iii) Limitation of the Study iv) References 5
  7. 7. 1. Executive SummaryA mutual fund is a scheme in which several people invest their money for acommon financial goal. The collected money invests in the capital market, debtand the money market, which they earned, is divided based on the number ofunits which they hold.The topic of this project is “Increasing the value of mutual funds in India”.The mutual fund industry in India has seen dramatic improvements in quantityas well as quality of product and service offerings in recent years. Along withthis project also touches on the aspect of Systematic Investment Plan and Stepsof how to invest in Mutual Fund.An effort has been made to work on the concepts that have been taught in classalong with other useful parameters so that better study can be done. 6
  8. 8. 1. Introduction to SBI Mutual FundCorporate ProfileOur IdentityWith 25 years of rich experience in fund management, we at SBI FundsManagement Pvt. Ltd. bring forward our expertise by consistently deliveringvalue to our investors. We have a strong and proud lineage that traces back tothe State Bank of India (SBI) - Indias largest bank. We are a Joint Venturebetween SBI and AMUNDI (France), one of the worlds leading fundmanagement companies.With our network of over 222 points of acceptance across India, we delivervalue and nurture the trust of our vast and varied family of investors.Excellence has no substitute. And to ensure excellence right from the first stageof product development to the post-investment stage, we are ably guided by ourphilosophy of „growth through innovation‟ and our stable investment policies.This dedication is what helps our customers achieve their financial objectives.Our Vision“To be the most preferred and the largest fund house for all asset classes, with aconsistent track record of excellent returns and best standards in customerservice, product innovation, technology and HR practices.”Our ServicesMutual Funds 7
  9. 9. Investors are our priority. Our mission has been to establish Mutual Funds as aviable investment option to the masses in the country. Working towards it, wedeveloped innovative, need-specific products and educated the investors aboutthe added benefits of investing in capital markets via Mutual Funds.Today, we have been actively managing our investors assets not only throughour investment expertise in domestic mutual funds, but also offshore funds andportfolio management advisory services for institutional investors.This makes us one of the largest investment management firms in India,managing investment mandates of over 5.4 million investors.Portfolio Management and Advisory ServicesSBI Funds Management has emerged as one of the largest player in Indiaadvising various financial institutions, pension funds, and local andinternational asset management companies.We have excelled by understanding our investors requirements and terms ofrisk / return expectations, based on which we suggest customized asset portfoliorecommendations. We also provide an integrated end-to-end customized assetmanagement solution for institutions in terms of advisory service, discretionaryand non-discretionary portfolio management services.Offshore FundsSBI Funds Management has been successfully managing and advising Indiasdedicated offshore funds since 1988. SBI Funds Management was the 1st banksponsored asset management company fund to launch an offshore fund calledSBI Resurgent India Opportunities Fund with an objective to provide ourinvestors with opportunities for long-term growth in capital, through well-researched investments in a diversified basket of stocks of Indian Companies. 8
  10. 10. 2. Company Key InformationSetup date Jun-29-1987Incorporation date Feb-07-1992Sponsor State Bank of IndiaTrustee SBI Mutual Fund Trustee Company Private LimitedChairman Mr. Pratip ChaudhriCEO / MD Mr. Deepak Kumar ChatterjeeCIO Mr. Navneet MunotCompliance Officer Ms. Vinaya DatarInvestor Service Officer Mr. C A SantoshAssets Managed Rs.47184.11 crore (Jun-30-2012)Auditors Haribhakti & Co /M/S. Chandabhoy &JassoobhoyCustodians Computer Age management Services Pvt.Ltd, Computeronics Financial Services Ltd, Datamatics Financial Software Services Ltd.Corporate Office SBI Funds Management Pvt Ltd. A joint venture between SBI and AMUNDI 191, maker Tower „E‟,Cuffe Parade, Mumbai - 400 005.Toll Free No. 1800 425 5425 9
  11. 11. 3. History of Mutual FundsThe 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 ofIndia. The history of mutual funds in India can be broadly divided into fourdistinct phases.First Phase – 1964-87Unit 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 Regulatoryand 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) tookover the regulatory and administrative control in place of RBI. The first schemelaunched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700Crores of assets under management.Second Phase – 1987-1993 (Entry of Public Sector Funds)1987 marked the entry of non- UTI, public sector mutual funds set up by publicsector banks and Life Insurance Corporation of India (LIC) and GeneralInsurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTIMutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec87), 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). LICestablished its mutual fund in June 1989 while GIC had set up its mutual fund inDecember 1990. 10
  12. 12. At the end of 1993, the mutual fund industry had assets under management ofRs.47, 004 Crores.Third Phase – 1993-2003 (Entry of Private Sector Funds)With the entry of private sector funds in 1993, a new era started in the Indianmutual fund industry, giving the Indian investors a wider choice of fundfamilies. Also, 1993 was the year in which the first Mutual Fund Regulationscame into being, under which all mutual funds, except UTI were to be registeredand governed. The erstwhile Kothari Pioneer (now merged with FranklinTempleton) 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 witnessedseveral mergers and acquisitions. As at the end of January 2003, there were 33mutual funds with total assets of Rs. 1, 21,805 Crores. The Unit Trust of Indiawith Rs.44, 541 Crores of assets under management was way ahead of othermutual fundsFourth Phase – since February 2003In February 2003, following the repeal of the Unit Trust of India Act 1963 UTIwas bifurcated into two separate entities. One is the Specified Undertaking ofthe Unit Trust of India with assets under management of Rs.29, 835 crores as atthe end of January 2003, representing broadly, the assets of US 64 scheme,assured return and certain other schemes. The Specified Undertaking of UnitTrust of India, functioning under an administrator and under the rules framed by 11
  13. 13. Government of India and does not come under the purview of the Mutual FundRegulations.The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB andLIC. It is registered with SEBI and functions under the Mutual FundRegulations. With the bifurcation of the erstwhile UTI which had in March2000 more than Rs.76,000 Crores of assets under management and with thesetting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund.The graph indicates the growth of assets over the years: 12
  14. 14. 4. Regulatory FrameworkSecurities and Exchange Board of India (SEBI)The Government of India constituted Securities and Exchange Board of India,by an Act of Parliament in 1992, the apex regulator of all entities that eitherraise funds in the capital markets or invest in capital market securities such asshares and debentures listed on stock exchanges. Mutual funds have emerged asan important institutional investor in capital market securities. Hence they comeunder the purview of SEBI. SEBI requires all mutual funds to be registered withthem. It issues guidelines for all mutual fund operations including where theycan invest, what investment limits and restrictions must be complied with, howthey should account for income and expenses, how they should makedisclosures of information to the investors and generally act in the interest ofinvestor protection. To protect the interest of the investors, SEBI formulatespolicies and regulates the mutual funds. MF either promoted by public or byprivate sector entities including one promoted by foreign entities are governedby these Regulations. SEBI approved Asset Management Company (AMC)manages the funds by making investments in various types of securities.Custodian, registered with SEBI, holds the securities of various schemes of thefund in its custody. According to SEBI Regulations, two thirds of the directorsof Trustee Company or board of trustees must be independent.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. 13
  15. 15. Association of Mutual Funds in India (AMFI) was incorporated on 22ndAugust, 1995.AMFI is an apex body of all Asset Management Companies (AMC) which hasbeen registered with SEBI. Till date all the AMCs are that have launchedmutual fund schemes are its member. It functions under the supervision andguidelines of its Board of Directors.Association of Mutual Funds India has brought down the Indian MutualFund Industry to a professional and healthy market with ethical line enhancingand maintaining standards. It follows the principle of both protecting andpromoting the interests of mutual funds as well as their unit holders.The objectives of Association of Mutual Funds in IndiaThe Association of Mutual Funds of India works with 30 registered AMCs ofthe country. It has certain defined objectives which juxtaposes the guidelines ofits Board of Directors. The objectives are as follows:  This mutual fund association of India maintains high professional and ethical standards in all areas of operation of the industry.  It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association.  AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. 14
  16. 16.  Associations of Mutual Fund of India do represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. It develops a team of well qualified and trained Agent distributors. It implements a program of training and certification for all intermediaries and other engaged in the mutual fund industry. AMFI undertakes all India awareness program for investors in order to promote proper understanding of the concept and working of mutual funds. At last but not the least association of mutual fund of India also disseminate information on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies. 15
  17. 17. 5. Concept of Mutual FundsMutual funds are institutions that collect money from several sources -individuals or institutions by issuing units, invest them on their behalf withpredetermined investment objectives and manage the same all for a fee. Theyinvest the money across a range of financial instruments falling into two broadcategories – equity and debt. Individual people and institutions no doubt, canand do invest in equity and debt instruments by themselves but this requirestime and skill on both of which there are constraints. Mutual funds emerged asprofessional financial intermediaries bridging the time and skill constraint. Theyhave a team of skilled people who identify the right stocks and debt instrumentsand construct a portfolio that promises to deliver the best possible constrainedreturns at the minimum possible cost. In effect, it involves outsourcing themanagement of money. More explicitly, the benefits of investing in equities anddebt instruments are supposedly much better if done through mutual funds. Thisis because of the following reasons: Firstly, fund managers are more skilled.They are trained to identify the best investment options and to assess theportfolio on a continual basis; secondly, they are able to invest in a diversifiedportfolio consisting of 15-20 different stocks or bonds or a combination ofthem. For an individual such diversification reduces the risk but can demand alot of effort and cost. Each purchase or sale invites a cost in terms of brokerageor transactional charges such as demat account fees in India. The need topossibly sell poor stocks/bonds and buy good stocks/bonds demands constanttracking of news and performance of each company they have invested in.Mutual funds are able to maintain and track a diversified portfolio on a constantbasis with lesser costs. This is because of the pecuniary economies that theyenjoy when it comes to trading and other transaction costs; thirdly, funds alsoprovide good liquidity. An investor can sell her/his mutual fund investments and 16
  18. 18. receive payment on the same day with minimal transaction costs as compared todealing with individual securities, this totals to superior portfolio returns withminimal cost and better liquidity.This can be represented with the following flow chart: Source: Association of Mutual Funds in India (AMFI)In India one can gain additional benefit by investing through mutual funds taxsavings. Investment in certain types of funds such as Equity Linked TaxSavings Schemes (ELSS) allows for certain amount of income tax benefits. 17
  19. 19. 6. Organization Structure of a Mutual FundThere are many entities involved and the diagram below illustrates theorganizational set up of a mutual fundThe important terms of the figure are explained as follows:Fund Sponsor:A ‟sponsor” is any person who, acting alone or in combination with anotherbody corporate, establishes a MF. The sponsor of a fund is similar to thepromoter of a company. In accordance with SEBI Regulations, the sponsorforms a trust and appoints a Board of Trustees, and also generally appoints anAMC as fund manager. In addition, the sponsor also appoints a custodian tohold the fund assets. The sponsor must contribute at least 40% of the net worthof the AMC and possess a sound financial track record over five years prior toregistration.Trustees:The MF or trust can either be managed by the Board of Trustees, which is abody of individuals, or by a Trust Company, which is a corporate body. Most ofthe funds in India are managed by Board of Trustees. The trustee being theprimary guardian of the unit holders‟ funds and assets has to be a person of highrepute and integrity. The trustees, however, do not directly manage the portfolio 18
  20. 20. securities. The portfolio is managed by the AMC as per the defined objectives,accordance with Trust Deed and SEBI (Mutual Funds) Regulations.Asset Management Company (AMC):The AMC, which is appointed by the sponsor or the trustees and approved bySEBI, acts like the investment manager of the trust. The AMC functions underthe supervision of its own Board of Directors, and also under the direction ofthe trustees and SEBI. AMC, in the name of the trust, floats and manages thedifferent investment ‟schemes‟ as per the SEBI Regulations and as per theInvestment Management Agreement signed with the Trustees.Others:Apart from these, the Mutual Fund has some other fund constituents, such ascustodians and depositories, banks, transfer agents and distributors.The custodian is appointed for safe keeping of securities and participating in theclearing system through approved depository. The bankers handle the financialdealings of the fund. Transfer agents are responsible for issue and redemption ofunits of Mutual Fund. 19
  21. 21. 8. Types of Mutual Fund schemes in IndiaA mutual fund, say, SBI Mutual Fund, can have several funds [called schemesin India) under its management. These different funds can be categorized bystructure, investment objective and others. It would be well illustrated by thefollowing flow chart: Source: Association of Mutual Funds in India (AMFI)An Open ended fund is available for purchase or redemption on continuousbasis at the days closing Net Asset Value (NAV). This gives liquidity toinvestments.A Close ended fund is open for investment only during the Initial Public Offer(IPO) after which the investment is locked in until the maturity date whichcould be between 3-7yrs. The investor can, however, sell or buy the shares ofthe funds on the stock exchange where the shares are listed. 20
  22. 22. Interval funds combine the characteristics of both open end funds. They can bebought or redeemed by the investor at predetermined times, say once in six ortwelve months.Growth oriented funds aim at providing capital appreciation. They tend toinvest primarily in equities.Income funds aim at providing regular income to investors. They generallyinvest a major portion of their assets in fixed income earning instruments suchas government securities, corporate bonds and money market instruments. Theirreturns are determined by fluctuations in interest rates.A Balanced fund tries to provide both capital appreciation and regular income.They invest in both equities and fixed income securities. They specify themaximum equity exposure in the prospectus and is normally 60 percent; of lateother types of balanced funds such as "Asset Allocation funds· and Arbitragefunds have also emerged. Asset allocation funds, such as the FranklinTempleton (FT) PIE ratio funds, allocate funds to equity or debt depending onthe dynamic situation. They tend to increase exposure to equity during a marketdownturn and move out during market peaks. The FT PIE ratio fund uses themarket PIE ratio to determine the degree of equity exposure.Arbitrage funds are funds that try to capitalize on the arbitrage opportunitiesthat arise out of pricing mismatch of stocks in the equity and derivative (futuresand options) segments of the stock market (Value Research Inc.). They investpredominantly in equities Money Marker. Funds invest only in short term debtsuch as call money, treasury bills and commercial paper. In the case of thesefunds the Net Asset Value is simply the interest accrued on these investmentson a daily basis. Their NAV does not fall below the initial investment value,unlike bond funds which are marked to market.Tax saving funds give an investor tax benefits under section 80 C of the IncomeTax Act. Such funds also termed as Equity Linked Saving Schemes (ELSS),have a lock in period of three years. By investing in such funds a person canavail of a maximum of rupees one hundred thousand in tax deductions. ELSSsare normally diversified equity funds.Index funds invest in securities of a particular index such as the Bombay StockExchange (BSE) sensex in the same proposition. They provide returns which 21
  23. 23. are close to that of the benchmark index with similar risks as well. It is a passiveinvestment approach with lower costs.Sector specific funds focus their investments on specific sectors which the fundmanager feels would do well. For instance, Franklin FMCG fund invests only inshares of companies that produce fast moving consumer goods.Exchange Traded Funds (ETF) are relatively a new concept in India. Suchfunds are essentially index funds that are listed and traded on the stock markets.There are also commodities ETFs such as Reliance hold ETF. 22
  24. 24. 9. Advantages Of Mutual FundDiversification - It can help an investor diversify their portfolio with aminimum investment. Spreading investments across a range of securities canhelp to reduce risk. A stock mutual fund, for example, invests in many stocks .This minimizes the risk attributed to a concentrated position. If a few securitiesin the mutual fund lose value or become worthless, the loss may be offset byother securities that appreciate in value. Further diversification can be achievedby investing in multiple funds which invest in different sectors.Professional Management - Mutual funds are managed and supervised byinvestment professional. These managers decide what securities the fund willbuy and sell. This eliminates the investor of the difficult task of trying to timethe market.Well regulated - Mutual funds are subject to many government regulations thatprotect investors from fraud.Liquidity - Its easy to get money out of a mutual fund.Convenience - we can buy mutual fund shares by mail, phone, or over theInternet.Low cost - Mutual fund expenses are often no more than 1.5 percent of ourinvestment. Expenses for Index Funds are less than that, because index fundsare not actively managed. Instead, they automatically buy stock in companiesthat are listed on a specific indexTransparency - The mutual fund offer document provides all the informationabout the fund and the scheme. This document is also called as the prospectusor the fund offer document, and is very detailed and contains most of therelevant information that an investor would need.Choice of schemes - there are different schemes which an investor can choosefrom according to his investment goals and risk appetite.Tax benefits - An investor can get a tax benefit in schemes like ELSS (equitylinked saving scheme) 23
  25. 25. 10. Mutual Fund Industry TrendsThe Indian mutual fund industry has come a long way since the formation of theUnit Trust of India in 1963 by the Government of India and the Reserve Bankof India (RBI). Currently, there are 44 mutual funds operating in the countrywith assets under management (AUM) of Rs 7.13 lakh cr. compared to AUM ofaround Rs.1 lakh cr. as of December 2001. However, the quantum of mutualfund assets in financial savings is very low - at less than 5%, as most Indiansavings are locked in bank fixed deposits, small savings (postal savings) andinsurance. With growing disposable incomes, rising inflation (cost of living),improving lifestyles and growing aspirations, there is a noticeable shift inpreference for mutual funds though it has still a long way to go.Break-up of financial savings * Equity market includes mutual fund investments Source: Reserve Bank of IndiaKey industry trends and gaps include i) AUM skewed towards debt funds,ii ) Institutional dominance, iii) Top 10 players control 80% of AUM, iv) lowpenetration, and v) low awareness. 24
  26. 26. i) AUM skewed towards debt fundsAn analysis of the assets reveals AUM has been traditionally skewed towardsdebt funds with 65% assets on an average deployed in debt. Within debt, theassets are deployed largely in short term debt funds (mainly liquid and ultrashort term debt funds). Liquid and ultra short term debt funds consumed 80% ofassets of all debt funds over these periods.Mutual Fund AUM across asset classes Source: Association of Mutual Funds in India (AMFI)ii) Institutional dominanceTraditionally, the majority of the money market in mutual funds comes frominstitutional investors which include corporates, banks and foreign institutionalinvestors (FIIs). All schemes, except equity oriented schemes, have seen a highparticipation from institutional investors. Corporates dominate the institutionalsegment with close to 90% share of institutional AUM as of September 2011.Retail participation is more in equity oriented schemes and is slowing pickingup in Gold Exchange Traded Funds (ETFs).Owing to the institutional dominance, mutual funds inflows / outflows too haveseen a trend wherein quarter ends witness outflows owing to redemptions (on 25
  27. 27. account of advance tax payments by corporates) while the funds return to theindustry in the subsequent month.AUM break-up for institutional and retail investors * Institutional includes corporate, Banks/FIs and FIIs Source: AMFI (Data as of September 2011)Mutual Fund Inflows/ Outflows Trends Source: Association of Mutual Funds in India (AMFI) 26
  28. 28. iii) Top 10 players control 80% of AUMAmong the 44 players, 56% of the AUM is controlled by the top 5 players while80% of the AUM is controlled by 10 players. The bottom 10 players contributeless than 1% of the AUM. This significant tilt towards larger players has seenconsolidation among asset management companies (AMCs) from time to time.AUM distribution by AMCs Source: Association of Mutual Funds in India (AMFI)iv) Low penetrationThe country-wide mutual fund penetration is abysmal with majority of theassets (over 75%) being held in the top 5 cities (Mumbai, New Delhi,Bangalore, Chennai and Kolkata) - Mumbai alone accounts for 49% of theassets. Further, the top 15 cities account for 87% of the AUM. The lowdistributor support in smaller cities has resulted in mutual funds becoming aninvestment product restricted to urban Indians as of now. Hence, it is of greatimportance for mutual funds to target smaller towns and rural areas, to spreadthe reach of the asset class as well as provide investors from smaller cities animportant avenue for investment. 27
  29. 29. AUM by Geography Source: AMFI (Data as of September 2011)v) Low awarenessLow public awareness (especially in smaller towns) about the investmentopportunity in mutual funds is also an integral factor affecting their growth. It isthus very important to make investors aware about the benefits of mutual funds,viz., professional management, low costs, transparency, liquidity and a strongregulatory framework. 28
  30. 30. 11. Systematic Investment Planning (SIP)SIP is similar to a Recurring Deposit. Every month on a specified date anamount you choose is invested in a mutual fund scheme of your choice. Thedates currently available for SIPs are the 5th, 10th, 15th, 20th and the 25th ofa month. There are many benefits of investing through SIP.Advantages of SIP•Encourages Regular and Disciplined Investments•A Convenient way to invest regularly•Long term perspective•Rupee Cost Averaging Benefit to counter volatility•Compounding Benefits•SIMPLE & CONVENIENT•A larger target segment due to lower initial investmentSIP – Easy Pay Facility•Opt for the SIP EASY PAY Auto debit Facility•Choose the Amount (minimum Rs 500/- p.m.)•Choose one Day of the month (5th / 10th /15th / 20th / 25th/ 30th )•Make First Investment by Cheque drawn in favor of the scheme. E.g. SBIMF -Magnum Tax Gain SchemeAnd Relax…….. Every month the said amount will be debited from your bankaccount and units will allocated to you.Register for Statement Of Account (SOA) by mail. 29
  31. 31. 13. How to invest in mutual funds?Step One - Identify your investment needs.Your financial goals will vary, based on your age, lifestyle, financialindependence, family commitments, level of income and expenses among manyother factors. Therefore, the first step is to assess your needs. Begin by askingyourself these questions: 1. What are my investment objectives and needs?Probable Answers: I need regular income or need to buy a home or finance awedding or educate my children or a combination of all these needs. 2. How much risk am I willing to take?Probable Answers: I can only take a minimum amount of risk or I am willing toaccept the fact that my investment value may fluctuate or that there may be ashort term loss in order to achieve a long term potential gain. 3. What are my cash flow requirements?Probable Answers: I need a regular cash flow or I need a lump sum amount tomeet a specific need after a certain period or I don‟t require a current cash flowbut I want to build my assets for the future.By going through such an exercise, you will know what you want out of yourinvestment and can set the foundation for a sound Mutual Fund Investmentstrategy.Step Two - Choose the right Mutual Fund.Once you have a clear strategy in mind, you now have to choose which MutualFund and scheme you want to invest in. The offer document of the scheme tellsyou its objectives and provides supplementary details like the track record ofother schemes managed by the same Fund Manager. Some factors to evaluatebefore choosing a particular Mutual Fund are:  The track record of performance over the last few years in relation to the appropriate yardstick and similar funds in the same category. 30
  32. 32.  How well the Mutual Fund is organized to provide efficient, prompt and personalized service.  Degree of transparency as reflected in frequency and quality of their communications.Step Three - Select the ideal mix of Schemes.Investing in just one Mutual Fund scheme may not meet all your investmentneeds. You may consider investing in a combination of schemes to achieve yourspecific goals.The following charts could prove useful in selecting a combination of schemesthat satisfy your needs. 31
  33. 33. 32
  34. 34. Step Four - Invest regularlyFor most of us, the approach that works best is to invest a fixed amount atspecific intervals, say every month. By investing a fixed sum each month, youget fewer units when the price is high and more units when the price is low, thus 33
  35. 35. bringing down your average cost per unit. This is called rupee cost averagingand is a disciplined investment strategy followed by investors all over theworld. With many open-ended schemes offering systematic investment plans,this regular investing habit is made easy for you.Step Five - Keep your taxes in mindAs per the current tax laws, Dividend/Income Distribution made by mutualfunds is exempt from Income Tax in the hands of investor. However, in case ofdebt schemes Dividend/Income Distribution is subject to Dividend DistributionTax. Further, there are other benefits available for investment in Mutual Fundsunder the provisions of the prevailing tax laws. You may therefore consult yourtax advisor or Chartered Accountant for specific advice to achieve maximumtax efficiency by investing in mutual funds.Step Six - Start earlyIt is desirable to start investing early and stick to a regular investment plan. Ifyou start now, you will make more than if you wait and invest later. The powerof compounding lets you earn income on income and your money multiplies ata compounded rate of return.Step Seven - The final stepAll you need to do now is to get in touch with a Mutual Fund or your advisorand start investing. Reap the rewards in the years to come. Mutual Funds aresuitable for every kind of investor whether starting a career or retiring,conservative or risk taking, growth oriented or income seeking. 34
  36. 36. 13. Research Methodologyi). QuestionnaireSA -Strongly agreeA-AgreeNAND-Neither Agree nor DisagreeD-DisagreeSD-Strongly Disagree QuestionnaireSr. Questions SA A NAND D SDNo.1 SBI MF has a diversified portfolio of 5 4 3 2 1 funds suited to different customers‟ needs.2 The brand image of the company helps to 5 4 3 2 1 easily convince the customers about its products.3 Funds of SBI MF have given consistent 5 4 3 2 1 returns over the years.4 There is continuous interaction through 5 4 3 2 1 emails, telephone or personal visit.5 The company responds quickly to the 5 4 3 2 1 complaints and queries.6 I have friendly relations with the 5 4 3 2 1 employee at SBI MF.7 Customer‟s queries and other 5 4 3 2 1 transactional requests like redemption, switch etc. are actively resolved.8 SBI MF in Indore is led by an effective 5 4 3 2 1 manager.9 SBI MF has skilled fund managers 5 4 3 2 110 Policies of SBI MF are more transparent 5 4 3 2 1 and fair as compared to other AMCs.11 Systematic investment plan is a batter 5 4 3 2 1 investment plan for future.12 Mutual funds investment are risk free 5 4 3 2 1 investment.13 Mutual funds scheme are always perform 5 4 3 2 1 batter. 35
  37. 37. ii). Research Objectivea). To know the value of mutual funds in India and their major aspects.b). To know the various fund offered by the mutual funds in India.c). To identify the level of risk involved in investing in various equitydiversified mutual fund schemes.d). To know various regulatory firm of mutual funds in India.e). To know the organizational structure of a mutual funds.f). To know the best mutual funds investment plan like Systematic investmentplan.g). To know the steps of how to invest in mutual fund by investor.iii). Limitation of the Studya). Time constraints: Due to shortage or less availability of time it may bepossible that all the related and concerned aspects may not be covered in theproject.b). Analysis done is limited to the availability of data. 36
  38. 38. iv). Funds in India – by H. Sadhak 37