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  1. 1. DISSERTATION REPORT ON MUTUAL FUNDS INDUSTRY IN INDIA Submitted to Maharishi Dayanand University, Rohtak In the partial fulfillment of degree of Master of Business Administration (MBA) (Session 2005-2007) Under guidance of: Submitted By-Ms Bhawna sharma YOGESH KHURANA MBA (Final) Reg. No: ________ ____________________________________________________________ D.A.V. Institute of Management, Faridabad
  2. 2. ACKNOWLEDGEMENTConcentration, dedication, hard work and application are essential but not the only factorto achieve the desired goal. Those must be supplemented by the guidance assistance andcooperation of experts to make it success.I am extremely grateful to my institute for providing me the opportunity to undertake thisresearch project in the prestigious field.With profound pleasure, I extend my extreme sincere sense of gratitude and indebtednessto my faculty for extensive and valuable guidance that was always available to meungrudgingly and instantly, which help me complete my project without difficulty.I express my deep and sincere gratitude to Ms Bhawna Sharma, faculty member forproviding me first hand knowledge about other related subjects.Last but not the least I am indebted to Mr. Sharma, Director of our institute withoutwhose sincere gratitude this project would not have been possible. (YOGESH KHURANA)
  3. 3. PREFACEPractical exposure imbibes an integral part of management studies. One cannot relymerely upon the theoretical knowledge. However class lectures make the functionalconcepts clear, but these must be correlated with practical projects.I consider myself lucky to get the project in India’s best bank. It was a great learningexperience. It helped me to get a practical insight into how to conduct research and tomake my concepts clearer.In this project I have tried to give comprehensive picture of details of my project.Learning is like eating. It is not how much one eat that matters, what counts is how muchyou digest. Knowledge is potential power, wisdom is real power.Today’s economy has caused business to rethink their technology decisions. Budgetshave been cut and priorities have been reset. Companies can impact their bottom linetremendously by gathering necessary information. This dissertation is concerned with thestudy mutual funds industry in IndiaDuring my tenure of dissertation I studied about mutual funds industry in India anddeeply analyzed its various aspects. This dissertation shows the very aspect undertaken incontext to “MUTUAL FUNDS INDUSTRY IN INDIA”
  4. 4. DECLARATIONI, Yogesh Khurana Enrolment No. 05-DAVM-124 No. Class MBA of DAVIM herebydeclares that the project entitled “Mutual fund industry in India” is an original work andthe same has not been submitted to any other institution for the award of any otherDegree. The interim report was presented to the supervisor on 12th March 2007. Thefeasible suggestions have been duly incorporated in consultation with the supervisor.CountersignedSignature of the supervisor signature of the candidateForwarded by:Director/Principal of the institute
  5. 5. INTRODUCTION OF THE STUDYMUTUAL FUNDSA mutual fund is a form of collective investment that pools money from many investorsand invests the money in stocks, bonds, short-term money market instruments, and/orother securities. In a mutual fund, the fund manager trades the funds underlyingsecurities, realizing capital gains or loss, and collects the dividend or interest income.Your search for Mutual Fund India information follows. The investment proceeds arethen passed along to the individual investors. The value of a share of the mutual fund,known as the net asset value (NAV), is calculated daily based on the total value of thefund divided by the number of shares purchased by investors.Mutual funds are financial intermediaries, which collect the savings of investors andinvest them in a large and well diversified portfolio of securities such as money marketinstruments, corporate and government bonds and equity shares of joint stock companies.Mutual funds can survive and thrive only if they can live up to the hopes and trusts oftheir individual members .The project deals with the structure of mutual funds industry inIndia and its constituents. It also classified the mutual fund schemes and describes themajor players in the industry. The project includes the analysis of performance of 7mutual fund companies. Which comprises of 3 private players, 3 public and UTI.TheMutual fund companies have been selected on the basis of their AUM (ASSETS UNDERMANGEMENT).
  6. 6. • COMPANIES HAVING PRIVATE OWNERSHIP 1. Birla Sun Life Mutual Fund 2. Franklin Templeton Mutual Fund 3. Prudential ICICI Mutual Fund • COMPANIES HAVING PUBLIC OWNERSHIP 4. Canbank Mutual Fund 5. LIC Mutual Fund 6. SBI Mutual Fund OBJECTIVES OF STUDY. To study about various schemes of mutual funds in India. To study the recent and emerging trends in Mutual Fund Market. To analyze the performance of major private and public players in Mutual Funds Industry during 2005-06.
  7. 7. RESEARCH METHODOLGY The whole study is based upon primary data. Therefore, information has been collected from various magazines, journals, websites, and bulletins.RESEARCH DESIGNScope of study:The scope of any study should be to cover as large a population as possible tocover any errors. But due to time and money constraints, this study is limited toAmbala only. The study involves an interaction with the consumers An effort wasput to cover every dealer in the city and obtain correct and relevant informationDATA COLLECTION Collection of data is the critical point in the research process. There are two basic methods of data collection: • Primary method • Secondary method
  8. 8. For my analysis I have selected the primary method of data collection i.e. i. Questionnaire ii. Interview method iii. Telephone interviewDATA COLLECTION TECHNIQUE:  QUESTIONNAIRES  INTERVIEWSSAMPLING DESIGNSampling unit:  INDIVIDIUAL INVESTORS
  9. 9. Sampling size:  100Sampling techniques:  I use many sampling techniques like • Simple random sampling • Stratified random sampling • Judgment sampling
  10. 10. MUTUAL FUND-AN INTRODUCTIONA Mutual Fund is a trust that pools the savings of a number of investors who share acommon financial goal. The money thus collected is then invested in capital marketinstruments such as shares, debentures and other securities. The income earned throughthese investments and the capital appreciation realised are shared by its unit holders inproportion to the number of units owned by them. Thus a Mutual Fund is the mostsuitable investment for the common man as it offers an opportunity to invest in adiversified, professionally managed basket of securities at a relatively low cost. A mutualfund is simply a financial intermediary that allows a group of investors to pool theirmoney together with a predetermined investment objective. The mutual fund will have afund manager who is responsible for investing the pooled money into specific securities(usually stocks or bonds). When you invest in a mutual fund, you are buying shares (orportions) of the mutual fund and become a shareholder of the fund.Mutual funds can invest in many different kinds of securities (Mutual Fund India). Themost common are cash, stock, and bonds, but there are hundreds of sub-categories. Stockfunds, for instance, can invest primarily in the shares of a particular industry, such astechnology or utilities. These are known as sector funds. Bond funds can vary accordingto risk (high yield or junk bonds, investment-grade corporate bonds), type of issuers(government agencies, corporations, or municipalities), or maturity of the bonds (short orlong term). Both stock and bond funds can invest in primarily US securities (domesticfunds), both US and foreign securities (global funds), or primarily foreign securities(international funds). Most mutual funds investment portfolios are continually adjustedunder the supervision of a professional manager, who forecasts the future performance ofinvestments appropriate for the fund and chooses the ones which he or she believes willmost closely match the funds stated investment objective. A mutual fund is administeredthrough a parent management company, which may hire or fire fund managers.
  11. 11. DEFINITION: A mutual fund is a trust that pools the savings of a number of investors who shares a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them.“…. A mutual fund is a company that brings together money frommany people and invest in a stock, bonds, or other asset the fundsowns are known as its portfolio. Each investor in the fund ownsshare which represents a part of these holdings….” - The U.S. Securities and Exchange Commission.
  12. 12. THE GOAL OF MUTUAL FUNDThe goal of a mutual fund is to provide an individual to make money. There are severalthousand mutual funds with different investments strategies and goals to choosen from.Choosing one can be over whelming, even though it need not be different mutual fundshave different risks, which differ because of the fund`s goals fund manager, andinvestment style. Money from a mutual fund is made when the stocks, bonds or othersecurities increase in value ( a capital gain ) issue dividends or make interest paymentswhen investing in a mutual fund the income you make it the result of income receivedfrom dividend paying stocks, and interest from bonds. If the fund sell a holding whosevalue is increased you make money even if the fund does not sell that specific holding.The fund itself will still increase in value, and in that way you may also make moneytherefore the value of shares you hold in mutual fund will increase in value when theholdings increases in value capital gains and income or dividend payments are bestreinvested for younger investors. Retires often seek the income from dividenddistribution to augment their income with reinvestment of dividends and capitaldistribution your money increase at a even greater rate. When you redeem your shareswhat you receive is the value of the share.
  13. 13. MUTUAL FUND OPERATIONS FLOW CHARTThe flow chart below describes broadly the working of a Mutual Fund:
  14. 14. ORGANISATION OF A MUTUAL FUNDThere are many entities involved and the diagram below illustrates theorganisational set up of a mutual fund:
  15. 15. THE ADVANTAGES OF MUTUAL FUNDSThe advantages of investing in a Mutual Fund are: • Professional Management • Diversification • Convenient Administration • Return Potential • Low Costs • Liquidity • Transparency • Flexibility • Choice of schemes • Tax benefitsProfessional Management - The primary advantage of funds is the professionalmanagement of your money. Investors purchase funds because they do not have the timeor the expertise to manage their own portfolio. A mutual fund is a relatively inexpensiveway for a small investor to get a full-time manager to make and monitor investments.Diversification - By owning shares in a mutual fund instead of owning individual stocksor bonds, your risk is spread out. The idea behind diversification is to invest in a largenumber of assets so that a loss in any particular investment is minimized by gains inothers.Economies of Scale - Because a mutual fund buys and sells large amounts of securitiesat a time, its transaction costs are lower than you as an individual would pay.Liquidity - Just like an individual stock, a mutual fund allows you to request that yourshares be converted into cash at any time.
  16. 16. Simplicity - Buying a mutual fund is easy! Pretty well any bank has its own line ofmutual funds, and the minimum investment is small. Affordability: With many mutualfunds, you can begin buying units with a relatively small amount of money Some mutualfunds also let you buy more units on a regular basis with even smaller installments.Flexibility: Many mutual fund companies administer several different mutual funds andallow you to switch between funds within their fund family at little or no charge.Performance Monitoring: The value of most mutual funds is reported daily in thefinancial press and on many Internet sites, allowing you to continually monitor theperformance of your investment.DISADVANTAGES OF MUTUAL FUNDS:Professional Management- Did you notice how we qualified the advantage ofprofessional management with the word "theoretically"? Many investors debate overwhether or not the so-called professionals are any better than you or I at picking stocks.Costs - Mutual funds dont exist solely to make your life easier--all funds are in it for aprofit. The mutual fund industry is masterful at burying costs under layers of jargon.Dilution - Its possible to have too much diversification (this is explained in our articleentitled "Are You Over-Diversified?"). Because funds have small holdings in so manydifferent companies, high returns from a few investments often dont make muchdifference on the overall return.
  17. 17. MUTUAL FUND INDUSTRY IN INDIAThe mutual fund industry in India started in 1963 with the formation of Unit Trust ofIndia, at the initiative of the Government of India and Reserve Bank the. The history ofmutual funds in India can be broadly divided into four distinct phasesFirst Phase – 1964-87Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set upby the Reserve Bank of India and functioned under the Regulatory and administrativecontrol of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and theIndustrial Development Bank of India (IDBI) took over the regulatory and administrativecontrol in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At theend of 1988 UTI had Rs.6,700 crores of assets under managementSecond Phase – 1987-1993 (Entry of Public Sector Funds)1987 marked the entry of non- UTI, public sector mutual funds set up by public sectorbanks and Life Insurance Corporation of India (LIC) and General Insurance Corporationof India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of BarodaMutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had setup its mutual fund in December 1990.At the end of 1993, the mutual fund industry had assets under management of Rs.47,004crores
  18. 18. Third Phase – 1993-2003 (Entry of Private Sector Funds)With the entry of private sector funds in 1993, a new era started in the Indian mutual fundindustry, giving the Indian investors a wider choice of fund families. Also, 1993 was theyear in which the first Mutual Fund Regulations came into being, under which all mutualfunds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer(now merged with Franklin Templeton) was the first private sector mutual fund registeredin July 1993The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensiveand revised Mutual Fund Regulations in 1996. The industry now functions under theSEBI (Mutual Fund) Regulations 1996.The number of mutual fund houses went on increasing, with many foreign mutual fundssetting up funds in India and also the industry has witnessed several mergers andacquisitions. As at the end of January 2003, there were 33 mutual funds with total assetsof Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets undermanagement was way ahead of other mutual funds.Fourth Phase – since February 2003In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI wasbifurcated into two separate entities. One is the Specified Undertaking of the Unit Trustof India with assets under management of Rs.29,835 crores as at the end of January 2003,representing broadly, the assets of US 64 scheme, assured return and certain otherschemes. The Specified Undertaking of Unit Trust of India, functioning under anadministrator and under the rules framed by Government of India and does not comeunder the purview of the Mutual Fund Regulations
  19. 19. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It isregistered with SEBI and functions under the Mutual Fund Regulations. With thebifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores ofassets under management and with the setting up of a UTI Mutual Fund, conforming tothe SEBI Mutual Fund Regulations, and with recent mergers taking place amongdifferent private sector funds, the mutual fund industry has entered its current phase ofconsolidation and growth. As at the end of September, 2004, there were 29 funds, whichmanage assets of Rs.153108 crores under 421 schemes.
  20. 20. GROWTH IN ASSETS UNDER MANAGEMENTThe graph indicates the growth of assets over the years:
  21. 21. FUTURE OF MUTUAL FUNDS IN INDIABy December 2004, Indian mutual fund industry reached Rs 1,50,537 crore. It is estimat-ed that by 2010 March-end, the total assets of all scheduled commercial banks should beRs 40,90,000 crore.The annual composite rate of growth is expected 13.4% during the rest of the decade. Inthe last 5 years we have seen annual growth rate of 9%. According to the current growthrate, by year 2010, mutual fund assets will be double.SOME FACTS FOR THE GROWTH OF MUTUAL FUNDS IN INDIA • 100% growth in the last 6 years. • Number of foreign AMCs are in the que to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide. • Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required. • We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion.
  22. 22. • B and C class cities are growing rapidly. Today most of the mutual funds are concentrating on the A class cities. Soon they will find scope in the growing cities.• Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products.• SEBI allowing the MFs to launch commodity mutual funds.• Emphasis on better corporate governance.• Trying to curb the late trading practices.
  23. 23. TYPES OF MUTUAL FUND SCHEMES • By Structure o Open - Ended Schemes o Close - Ended Schemes o Interval Schemes • By Investment Objective o Growth Schemes o Income Schemes o Balanced Schemes o Money Market Schemes • Other Schemes o Tax Saving Schemes o Special Schemes  Index Schemes  Sector Specfic SchemesEquity funds: These funds involve only common stock investments. They can earn a lotof profit, but are also very risky.Fixed income funds: They include corporate and government securities. These fundsoffer fixed returns at a low risk.Balanced funds: This is the combination of bonds and stocks with a low risk. However,the investment does not earn a lot through these funds.
  24. 24. How it works?Mutual fund shares can be purchased from the company itself or a broker. There aresecondary market investors also, like the New York Stock Exchange. Per share net assetvalue of the funds or NAV is the price that you pay for buying a mutual fund share. Italso includes the shareholder fee that is imposed by the fund, at time of purchase. Thebest feature of mutual funds is that these shares are ‘redeemable’. You, as an investor,can sell your shares back to the broker. In order to accommodate new investors, mutualfund companies generally create new shares and sell them. They keep selling their sharescontinuously till they become large. Investment advisers act as separate entities and areresponsible for managing the investment portfolio of the mutual funds. Investing inmutual funds tends to lower the risk factor because they are the result of diverseinvestments. Since someone else manages your investments, you need not worry aboutkeeping constant tabs on the investment, though a periodical check enhances yourpersonal book of accounts. Managing funds is the full time job of the fund manager andhe is responsible for the performance and health of the investment.The rate of returns in mutual funds is based on the increase or decrease of the value,during a specific period. Returns of a fund indicate the track record. It is important toremember that the past performance cannot guarantee future results.As in the case of any investment or business, mutual funds also have risks associated withthe returns. It is essential to set your financial goals and requirements, before investing ina mutual fund.
  25. 25. TRENDS AND STRUCTURE OF THE INDIAN MUTUAL FUND INDUSTRYThough young, the industry has made significant strides in terms of its variety,sophistication and regulation. The mutual fund industrys existence in India is dividedinto four phases.The first phase which spanned across 1963-1987 saw UTI consolidating its position byoffering a host of products and extending its reach throughout the country.The next phase (1987-93) marked the arrival of mutual funds sponsored by public sectorbanks and financial institutions.With the arrival of private sector players, both Indian and foreign, began the third phase(1993-1996).1996 marks yet another milestone in the history of the mutual fund industryin the country as SEBI (Mutual Funds) Regulations came into being.The fourth phase, which is in vogue now, begun in 2003, marks, perhaps, the mostsignificant event in the history of the mutual fund industryrestructuring of UTI. Therewas the rush of players into the mutual fund industry during the last decade could beattributed to low entry barriers, both regulatory and competitive, and the desire of theexisting financial players to broad-base their activities in the financial sector. The periodis also characterized by significant developments such as standardization of operations,increased influence of technology, best practices, product innovation, and improvedregulatory environment.
  26. 26. EVOLVING DISTRIBUTION MODELSThe growing need for a strong distribution network and models for the mutual fundindustry in India to serve the huge untapped market in the country. It observes that theintensifying competition and the need to attain economies of scale are forcing industryplayers to increase their reach in non-metro cities and small towns, where the potential ishigh, but, penetration is low.This is resulting in fund houses exploring innovative distribution channels likeDepository and Distributor models along with the traditional ones like Collection Centermodel.Further, increasing commoditization and growing needs of the customers are forcingplayers to shift to solution-based models from the product-based ones.In either model, the role of the distribution channel remains critical as it helps stave offcompetition by maintaining relationships, providing advisory services and customizingneed-based solutions.
  27. 27. INDIAN MUTUAL FUND INDUSTRY: OPPORTUNITIES AND CHALLENGESThere are various challenges and opportunities before the industry. It suggests that amajor challenge before the industry is how to attract retail investors, who are thebackbone of the industry and who provide stability for the growth of the mutual fundindustry. Further, to fuel its growth, the mutual fund industry needs to emphasize creatinggreater awareness among investors. Also, it is imperative that the mutual fund industryaddresses the problem of size and its impact on the investors. A large size does notprovide best returns to the investors as the cost of operations is high on account of highturnover. MUTUAL FUND INDUSTRY IN INDIA: DEVELOPMENT AND GROWTHThe Indian mutual fund industry is one of the fastest growing sectors in the Indian capitaland financial markets. The mutual fund industry in India has seen dramatic improvementsin quantity as well as quality of product and service offerings in recent years. Mutualfunds assets under management grew by 96% between the end of 1997 and June 2003and as a result it rose from 8% of GDP to 15%. The industry has grown in size andmanages total assets of more than $30351 million. Of the various sectors, the privatesector accounts for nearly 91% of the resources mobilised showing their overwhelmingdominance in the market. Individuals constitute 98.04% of the total number of investorsand contribute US $12062 million, which is 55.16% of the net assets under management.
  28. 28. TOP INDIAN MUTUAL FUNDS ABN AMRO Mutual Fund Bank of Baroda Mutual Fund Benchmark Mutual Fund Birla Sunlife Mutual Fund Canbank Mutual Fund DBS Chola Mutual Fund Deutsche Mutual Fund DSP Merrill Lynch Mutual Fund Escorts Mutual Fund Fidelity Mutual Fund Franklin Templeton HDFC Mutual Fund HSBC Mutual Fund
  29. 29. ING Vysya Mutual Fund JM Mutual Fund INVESTMENT TIPS INVEST IN THE MUTUAL FUND, NOT ITS NAVWhat is NAV? Simply put, NAV is the sum total of all the assets of the mutual fund (atmarket price) less the expenses (fund manager fees, audit fees, registration fees amongothers); divide this by the number of units and you arrive at the NAV per unit of themutual fund. An illustration should help us better understand the same. NAV calculation Net Assets (Rs) 51,000 Expenses (Rs) 1,000 No. of Units 5,000 NAV (Rs) 10The following illustration will clearly establish the irrelevance of NAV while making aninvestment decision. NAV: Does size matter? Open-ended large cap equity funds NAV (Rs) 1-Yr (%) Franklin Prima Plus (G) 146.17 43.57 Franklin Bluechip (G) 138.10 39.09 Pru ICICI Power (G) 84.51 38.67 HSBC Equity (G) 74.42 37.63 Kotak 30 (G) 72.06 36.54
  30. 30. HDFC Equity (G) 153.79 35.50It is evident that the funds current NAV and its expected performance are unrelated andtherefore making an investment decision based on the NAV would be misguided. As aninvestor you need to consider factors like your own risk profile, the funds managementstyle and performance.1. Risk profileInvestors have a risk profile that dictates how much risk they can take on to achieve theirinvestment objective. In this backdrop, they must identify mutual funds that can helpthem meet their investment objectives at the desired risk level. For instance, some equityfunds adhere to the growth style of investment (aggressively managed funds), whileothers follow the value style of investment (conservatively managed funds). So it isimportant for investors to select a fund that takes on risk in line with their own riskappetite.2. Fund management styleFund houses have varying fund management styles and processes. Some pursue theindividualistic style, where the fund manager rather than the investment process plays adominant role in the investment process. As opposed to this, there are fund houses thatpursue a team-based investment approach where the investment process holds sway overthe individual. Our preference is for the team-based style of investing since it is morestable and the mutual fund (and its investors) is not over-dependent on an individual.3. Mutual fund performanceIt is imperative for investors to evaluate a mutual fund on parameters related to risk likeStandard Deviation and Sharpe Ratio as also NAV appreciation. The risk parametersevaluate the volatility in performance (Standard Deviation) and returns generated by the
  31. 31. fund per unit of risk borne (Sharpe Ratio). The best deal for an investor will come from amutual fund that has higher NAV appreciation and Sharpe Ratio and lower StandardDeviation.Hopefully, we have resolved the debate on the NAV and have given the investor morerelevant points to inquire about before considering investing in a mutual fund. So the nexttime your mutual fund distributor advances the low NAV or Rs 10 NAV argument,demand a detailed analysis of the mutual fund based on the parameters we have listed.Dont ignore the risk factorInvestors would do well not to lose sight of the risk-return trade off while makinginvestment decisions. Our advice to investors - always invest in line with your riskappetite and investment objectives. Chasing higher returns and turning a blind eye to riskin the process could prove hazardous to your finances.Schemes like NSC and PPF (offering an assured return of 8% per annum) and market-linked avenues like tax-saving funds are about as similar as chalk and cheese. Sure tax-saving funds can offer higher returns than NSC and PPF. But the differential should beseen as a reward for having taken on higher risk. Unlike NSC and PPF, wherein returnsare assured and capital protected, investors in tax-saving funds take on the risk of evenlosing the capital invested, depending on market conditions.The investment advisors rationale was fairly simple (and completely incorrect) -investors should only be concerned about the returns and opt for avenues that areequipped to offer the highest returns. A vital factor i.e. risk didnt feature in his scheme ofthings at all.
  32. 32. FAQS ON MUTUAL FUNDSWhat is a Mutual Fund?A Mutual Fund is a body corporate registered with the Securities andExchange Board of India (SEBI) that pools up the money fromindividual / corporate investors and invests the same on behalf of theinvestors /unit holders, in equity shares, Government securities,Bonds, Call money markets etc., and distributes the profits.Which was the First Mutual Fund to be set up in India?Unit Trust of India is the first Mutual Fund set up under a separate act, UTI Act in 1963,and started its operations in 1964 with the issue of units under the scheme US-64Which are the other institutions that have floated Mutual Funds in India?Currently public sector banks like SBI, Canara Bank, Bank of India, institutions likeIDBI, GIC, LIC Foreign Institutions like Alliance, Morgan Stanley, Templeton andPrivate financial companies like HDFC, Prudential ICICI, DSP Merrill Lynch, Sundaram,Kotak Mahindra etc. have floated their own mutual fundsWhat is the Regulatory Body for Mutual Funds?Securities Exchange Board of India (SEBI) is the regulatory body for all the mutual fundsmentioned above. All the mutual funds must get registered with SEBI. The only
  33. 33. exception is the UTI, since it is a corporation formed under a separate Act of Parliament.Why should I choose to invest in a mutual fund? • Mutual Funds provide the benefit of cheap access to expensive stocks • Mutual funds diversify the risk of the investor by investing in a basket of assets • A team of professional fund managers manages them with in-depth research inputs from investment analysts.How do mutual funds diversify their risks?Financial theory states that an investor can reduce his total risk by holding a portfolio ofassets instead of only one asset. By creating a portfolio of a variety of assets, this risk issubstantially reduced.Can mutual funds be viewed as risk-free investments?No. Mutual fund investments are not totally risk free. In fact, investing in mutual fundscontains the same risk as investing in the markets, the only difference being that due toprofessional management of funds the controllable risks are substantially reduced.What are the risks involved in investing in mutual funds?A very important risk involved in mutual fund investments is the market risk. When themarket is in doldrums, most of the equity funds will also experience a downturn.
  34. 34. What are the parameters on which a Mutual Fund scheme should be evaluated?Performance indicators like total returns given by the fund on different schemes, thereturns on competing funds, the objective of the fund and the promoters’ image are someof the key factors to be considered while taking decision regarding mutual funds.What are the different types of plans that any mutual fund scheme offers?That depends on the strategy of the concerned scheme. But generally there are 3 broadcategories. A dividend plan entails a regular payment of dividend to the investors. Areinvestment plan is a plan where these dividends are reinvested in the scheme itself. Agrowth plan is one where no dividends are declared and the investor only gains throughcapital appreciation in the NAV of the fund.What is NAV and how it is calculated?NAV is the net asset value of the fund. Simply put it reflects what the unit held by aninvestor is worth at current market prices.What is Switch?Some Mutual Funds provide the investor with an option to shift his investment from onescheme to another within that fund. For this option the fund may levy a switching fee.Switching allows the Investor to alter the allocation of their investment among theschemes
  35. 35. What is the difference between mutual funds and portfolio management schemes?While the concept remains the same of collecting money from investors, the targetinvestors are different. In the case of portfolio management the target investors are highnet worth investors while in case of mutual funds the target investors are the retailinvestors.How does the concept of entry load work in case of unit purchases?An entry load is an additional cost that an investor pays at the point of entry. Assume thatyour proposed investment is Rs.10,000/-. Also assume that the current NAV of the fundis Rs.12.00 and that the entry load is Rs.0.50. Then you will receive 10000/12.50 = 800units. The entry load could be different for each scheme.What are the broad guidelines issued for a MF?SEBI is the regulatory authority of MFs. SEBI has the following broad guidelinespertaining to mutual funds: • MFs should be formed as a Trust under Indian Trust Act and should be operated by Asset Management Companies (AMCs). • MFs need to set up a Board of Trustees and Trustee Companies. They should also have their Board of Directors. • The net worth of the AMCs should be at least Rs.5 crore. • The AMC or any of its companies cannot act as managers for any other fund. • All MF schemes should be registered with SEBI. • MFs should distribute minimum of 90% of their profits among the investors.
  36. 36. There are other guidelines also that govern investment strategy, disclosure norms andadvertising code for mutual fundFREQUENTLY USED TERMSNet Asset Value (NAV)Net Asset Value is the market value of the assets of the scheme minus its liabilities. Theper unit NAV is the net asset value of the scheme divided by the number of unitsoutstanding on the Valuation Date.Sale PriceIs the price you pay when you invest in a scheme. Also called Offer Price. It may includea sales load.Repurchase Price Is the price at which a close-ended scheme repurchases its units and itmay include a back-end load. This is also called Bid Price.Redemption Price Is the price at which open-ended schemes repurchase their units andclose-ended schemes redeem their units on maturity. Such prices are NAV related.Sales Load Is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes.Repurchase or ‘Back-end’ LoadIs a charge collected by a scheme when it buys back the units from the unit holders.
  37. 37. Analysis andinterpretation
  38. 38. PEOPLE CONSIDERS VARIOUS FACTORS WHILE INVESTING IN MUTUAL FUND Options responses Percentages(%) Returns 49 49 Tax saving 26 26 Liquidity 16 16 Risk free 9 9
  39. 39. People consider various factor while investing in mutual fund 60 50 % of response 40 30 Series1 20 10 0 1 2 3 4 5 optionsPEOPLE CONSIDER VARIOUS BASES FOR INVESTING IN ANY PARTICULAR FUND OPTIONS RESPONSES RESPONSES IN % Past performance of fund 64 64 Portfolio of fund 36 36
  40. 40. people consider various bases while investing in any particular fund 64 36 S1 responses in 1 % 2 optionsPREFERENCE OF VARIOUS MUTUAL FUNDS OF DIFFERENT PEOPLESOptions Responses Responses in %Franklin Templeton 17 17HDFC 19 19Reliance 11 11ICICI 18 18SBI 29 29Any other 8 8
  41. 41. preference of various funds of different peoples 8% 17% 1 2 27% 3 19% 4 5 6 11% 18% PEOPLE INVEST THE DIFFERENT % OF SAVING IN MUTUAL Options Responses Responses in %1 10-20% 46 462 20-30% 33 333 50% 15 154 More than 50% 6 6
  42. 42. peoples invest the different % of savings in mutual funds 50 46 40responses in % 33 30 20 15 10 6 0 1 2 3 4 options PEOPLE EXPECTATIONS OF RETURN FROM DIFFERENT FUNDS Options Responses Responses in % 1 10-20% 32 32 2 20-30% 45 45 3 50% 9 9 4 More than 50% 4 4
  43. 43. people expectations of returns from different funds 50 45 45 40 35 32returns in % 30 25 20 15 9 10 4 5 0 1 2 3 4 options SUGGESTIONS
  44. 44. CONCLUSIONSIndian mutual fund industry possess great potential for growth. The drivers for growthare • Structural changes in the financial sector • An increasing awareness of mutual funds as a savings vehicleDevelopment and trends of mutual funds in India are • The private sector has grown by 51.84% since 1999,. • The growth has been primarily in open-ended products.
  45. 45. • Development in the previous three years was dominated by the growth of debt products.• But with the positive outlook for equity markets, there have been increasing flows into equity products. LIMITATIONS OF THE STUDY Total number of mutual funds in the market is so large that it needs lot of resources to analyze them all. There are 34 Mutual fund Companies providing
  46. 46. more than 750 funds. They fall into large categories. Handling and analyzing such a varied and diversified data needs more time and resources. As the project is based on secondary data, possibility of unauthenticated information can not be avoided. The information about same scheme differ from one source to another
  47. 47. Annexure  Questionnaire  Bibliography QUESTIONNAIRE1. Do you invest in mutual fund? a) Yes b) no2. What are the factors you consider while investing in mutual fund? a) Returns b) tax saving c) liquidity d) risk free3. On what basis you invest in any particular fund? a) Past performance of fund b) portfolio of fund c) fund manager4. How you get information regarding mutual fund? a) Advertisement b) company sales force c) friends/relatives5. Which mutual fund you prefer to invest? a) Franklin Templeton b) HDFC c) Reliance d) ICICI e) SBI f) any other
  48. 48. 6. How long you prefer to keep your money in mutual fund? a) Short term b) long term7. How much of your saving you invest in mutual fund? a) 10-20% b) 20-30% c) 50% d) more than 50%8. How much return do you expect from a mutual fund? a) 10-20% b) 20-30% c) 50% d) more than 50%9. Which option in a mutual fund you like to choose? a) Growth b) dividend10. What type of fund you like to invest? a) Debt based b) equity based c) balanced fund11. What type of plan you like to invest? a) One time investment b) Mip plan c) Sip plan BIBLIOGRAPHY Mutual Fund in India by V.A. Avdhani Money Outlook Business India Business world Business Today
  49. 49.