mutual funds


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mutual funds

  1. 1. Growth Prospect in Mutual Fund Industry A Summary of Summer Project in Bajaj Capital Saket Sogani
  2. 2. About Bajaj Capital <ul><li>The single focus of the organization is to be the most useful, reliable and efficient provider of Financial services. </li></ul><ul><li>They have a track record of ethical dealings for the last 42 years and have had the honor of helping millions of investors achieve their life's financial goals. </li></ul>
  3. 3. Range of Products and Services <ul><li>Investment Advisory Products » Company fixed deposits » Bonds » Mutual funds </li></ul><ul><li>» Life insurance » General insurance » Pension schemes » Post office schemes </li></ul><ul><li>» Tax saving schemes </li></ul>
  4. 4. Continue…. <ul><li>» Insurance link and investment schemes </li></ul><ul><li>» Initial public offerings » Housing loans </li></ul><ul><li>» NRI schemes » Car insurance </li></ul><ul><li>Financial Planning Services </li></ul><ul><li>» Investment planning » Retirement planning » Insurance planning </li></ul>
  5. 5. Continue…. <ul><li>» Children's future planning </li></ul><ul><li>» Tax planning </li></ul><ul><li>» Short-term cash flow planning </li></ul><ul><li>They have a well-trained professional team comprising of MBAs, CAs, CSs, Financial Analysts, Financial Planners, Investment Experts, Insurance Experts, and Law Graduates . </li></ul>
  6. 6. History of Mutual Fund <ul><li>The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry . </li></ul><ul><li>The mutual fund industry can be broadly put into four phases according to the development of the sector. </li></ul>
  7. 7. <ul><li>First Phase - 1964-87 </li></ul><ul><li>Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. </li></ul><ul><li>Second Phase - 1987-1993 (Entry of Public Sector Funds) </li></ul><ul><li>Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets under management </li></ul>
  8. 8. Third Phase - 1993-2003 (Entry of Private Sector Funds) <ul><li>With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. </li></ul><ul><li>The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. </li></ul>
  9. 9. Fourth Phase - since February 2003 <ul><li>This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835 crores (as on January 2003) </li></ul><ul><li>The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. </li></ul><ul><li>As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes. </li></ul>
  10. 10. Some Basic Concepts Mutual Funds
  11. 11. What are Mutual Funds? <ul><li>A Mutual Fund is a trust that pools together the savings of a number of investors who share a common financial goal. The fund manager invests this pool of money in securities -- ranging from shares and debentures to money market instruments or in a mixture of equity and debt, depending upon the objectives of the scheme. </li></ul>
  12. 12. Mutual Fund Operation Flow Chart
  13. 13. What Types of Mutual Funds Are Available? <ul><li>There are thousands of different mutual funds offered on the market. They range from funds that include a broad variety of investments to funds that invest exclusively in single securities or narrow sectors of the market. With the many different investment styles and objectives, there’s bound to be a number of mutual funds that are suited to your investing profile. Each of these funds has expense, risk, and return characteristics. There are 15 principal types of funds. They are listed according to their primary objectives: growth, income, and specialized: </li></ul>
  14. 15. Balanced Funds <ul><li>Balanced funds seek to obtain the highest return consistent with a low-risk strategy. They hold a mix of common and preferred stocks, bonds and cash reserves. The mix can vary according to current market conditions. Balanced funds may offer higher yields than pure stock funds. Balanced funds are generally the least risky of growth-oriented mutual funds. </li></ul>
  15. 16. Growth and Income Funds <ul><li>Growth and income funds attempt to achieve both long-term growth and current income. They invest primarily in high-yield common stock, preferred stock, and convertible debt (bonds) to generate both growth potential and current income. Because they include a mix of investments, these funds are typically less risky than growth funds. </li></ul><ul><li>Growth Funds </li></ul><ul><li>Growth funds seek long-term appreciation by investing in the stocks of established companies that may be poised for growth. These companies typically pay low dividends yet offer the potential for long-term capital appreciation. Some growth funds limit their investments to specific sectors of the economy. Growth funds are generally less risky than aggressive growth funds. </li></ul>
  16. 17. International and Global Growth Funds <ul><li>International and global mutual funds offer diversification into international stock markets. International funds invest only in foreign securities. Global funds, on the other hand, can invest in foreign and U.S. securities. The risks associated with investing on a worldwide basis include differences in regulation of financial data and reporting, currency exchange differences, as well as economic and political systems that may be different that those in the United States. </li></ul>
  17. 18. Aggressive Growth Funds <ul><li>Aggressive growth funds, sometimes known as &quot;small-cap&quot; funds, seek maximum capital gains. They invest primarily in the stock of smaller, less established companies. Since these companies generally pay little or no dividends, aggressive growth funds rely on capital growth for returns. These funds tend to be the riskiest of growth-oriented mutual funds. </li></ul>
  18. 19. Money Market Funds <ul><li>Money market funds seek current income while maintaining a stable $1.00 per share net asset value by investing in short-term debt securities, including T-bills, certificates of deposit, commercial paper, and other highly liquid and safe securities. They offer modest current income and no potential for capital gains. They generally offer the lowest returns but the most safety of all fund types. Some money market funds also offer tax-free income. Money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 a share, it is possible to lose money by investing in the fund. </li></ul>
  19. 20. Government Securities Funds <ul><li>Government securities funds invest primarily in Treasury and government agency securities. Because they are issued or guaranteed by the U.S. government, they are considered the credit worthiness alternatives available. Government securities offer moderate current income and high safety. Treasury securities are backed by the full faith and credit of the U.S. government as to the timely payment of principal and interest. Government agency securities are not considered government obligations and therefore are not backed by the full faith and credit of the government. The principal value of these funds will fluctuate due to changes in interest rates. </li></ul>
  20. 21. Municipal Bond Funds <ul><li>Municipal bond funds seek tax-free income by investing in the bonds of state and local governments. In many cases, it may be wise to consider municipal bond funds issued by your state because they may offer double or even triple tax-free income. In some states you will have to pay income tax if you buy shares of a municipal bond fund that invests in bonds issued by other states. In addition, while some municipal bonds in the fund may not be subject to regular income taxes, they may be subject to federal, state, or local alternative minimum tax. If you sell a tax-free bond fund at a profit, there are capital gains taxes to consider. As with all types of bond funds, the principal value will fluctuate with changes in interest rates. </li></ul>
  21. 22. Corporate Bond Funds <ul><li>Corporate bond funds invest in debt securities issued by corporations. The risk of corporate bond funds may vary depending on the objectives of the fund. Because credit risk is somewhat higher, these funds may offer higher returns than funds specializing in government securities. Principal will fluctuate with changes in interest rates </li></ul><ul><li>High-Yield Bond Funds </li></ul><ul><li>High-yield bond funds seek to maximize current income by investing in lower-quality — high-yielding — corporate bonds. The bonds held by these funds are generally rated BB or lower by rating agencies. They offer the high current yields to compensate for the greater risk of default. Since they are more volatile than and pay higher yields than investment grade bonds, they tend to be suited to investors with a high degree of risk tolerance. </li></ul>
  22. 23. International Bond Funds <ul><li>International fixed-income funds invest in debt securities of foreign governments and corporations, and seek to provide current income. Global bond funds may include U.S. government and corporate bonds. The risks associated with investing on a worldwide basis include differences in regulation of financial data and reporting, currency exchange differences, as well as economic and political systems that may be different than those in the U.S. </li></ul><ul><li>Besides growth and income, there are a variety of mutual funds that limit their investments to a particular sector, index, or other specialized investments. Depending on your investment objectives and preference for risk, these funds might be considered additions to a portfolio containing more traditional types of funds. </li></ul>
  23. 24. Index Funds <ul><li>Index funds are mutual funds that attempt to match the performance of any of several market indexes. For example, a stock index fund may hold stocks that mirror the S&P 500 or the Dow Jones Industrial Average. Index funds provide broad diversification within a single type of asset class. </li></ul><ul><li>Precious Metals Funds </li></ul><ul><li>Precious metals funds invest directly in precious metals or in the stocks of companies that mine precious metals. Most of these funds limit their investments to gold and gold bullion or to shares in gold-mining companies. The returns from precious metals funds come primarily from long-term capital appreciation. </li></ul>
  24. 25. Asset Allocation Funds <ul><li>Asset allocation funds are those that give the manager great flexibility in deciding how to invest fund assets. The fund manager can typically invest in all the major investment classes, including stocks, bonds, and money market securities. The weightings of each class may vary dramatically and will reflect the market outlook and expectations of the fund manager. </li></ul><ul><li>Sector Funds </li></ul><ul><li>Sector funds invest in specific industries or sectors of the economy, such as communications, aerospace and defense, or health care. While they may be diversified within a particular sector, they lack broad diversification. This increases their investment risk. These funds typically seek long-term capital appreciation. </li></ul>
  25. 26. Socially Conscious Funds <ul><li>Socially conscious funds invest exclusively in the securities of socially conscious companies. For example, this type of fund may not invest in companies that cause environmental pollution or that have interests in countries with repressive governments. </li></ul><ul><li>The value of mutual fund shares fluctuates with market conditions and, when sold, shares may be worth more or less than their original costs. Bond funds are subject to the inflation, interest rate, and credit risks associated with the underlying bonds in the fund. </li></ul>
  26. 27. Why choose Mutual Funds? <ul><li>Investing in Mutual Funds offers several benefits: </li></ul><ul><li>Professional expertise: </li></ul><ul><li>Fund managers are professionals who track the market on an on-going basis. With their mix of professional qualification and market knowledge, they are better placed than the average investor to understand the markets. </li></ul><ul><li>Diversification: </li></ul><ul><li>Since a Mutual Fund scheme invests in number of stocks and/or debentures, the associated risks are greatly reduced. </li></ul><ul><li>Relatively less expensive: </li></ul><ul><li>When compared to direct investments in the capital market, Mutual Funds cost less. This is due to savings in brokerage costs, demat costs, depository costs etc. </li></ul><ul><li>. </li></ul>
  27. 28. Continue .. <ul><li>Liquidity: </li></ul><ul><li>Investments in Mutual Funds are completely liquid and can be redeemed at their Net Assets Value-related price on any working day. </li></ul><ul><li>Transparency: </li></ul><ul><li>You will always have access to up-to-date information on the value of your investment in addition to the complete portfolio of investments, the proportion allocated to different assets and the fund manager’s investment strategy • </li></ul><ul><li>Flexibility: </li></ul><ul><li>Through features such as Systematic Investment Plans, Systematic Withdrawal Plans and Dividend Investment Plans, you can systematically invest or withdraw funds according to your needs and convenience . </li></ul>
  28. 29. Continue .. <ul><li>SEBI regulated market: </li></ul><ul><li>All Mutual Funds are registered with SEBI and function within the provisions and regulations that protect the interests of investors. AMFI is the supervisory body of the Mutual Funds industry. </li></ul>
  29. 30. 3 years plus Aggressive investors with long term out look. Stocks High Risk Long-term Capital Appreciation Equity Funds 12 months & more Salaried & conservative investors Government securities Interest Rate Risk Security & Income Gilt Funds More than 9 - 12 months Salaried & conservative investors Predominantly Debentures, Government securities, Corporate Bonds Credit Risk & Interest Rate Risk Regular Income Bond Funds (Floating - Long-term) 3 weeks - 3 months Those with surplus short-term funds Call Money, Commercial Papers, Treasury Bills, CDs, Short-term Government securities. Little Interest Rate Liquidity + Moderate Income Short-term Funds (Floating - short-term) 2 days - 3 weeks Those who park their funds in current accounts or short-term bank deposits Treasury Bills, Certificate of Deposits, Commercial Papers, Call Money Negligible Liquidity + Moderate Income + Reservation of Capital Money Market Investment horizon Who should invest Investment Portfolio Risk Objective Mutual Fund Type
  30. 31. Continue .. 2 years plus Moderate & Aggressive Balanced ratio of equity and debt funds to ensure higher returns at lower risk Capital Market Risk and Interest Risk Growth & Regular Income Balanced Funds 3 years plus Aggressive investors. Portfolio indices like BSE , NIFTY etc NAV varies with index performance To generate returns that are commensurate with returns of respective indices Index Funds
  31. 32. Systematic Investment Plan (S IP ) <ul><li>A Systematic Investment Plan ( SIP ) is a simple method of investing, used across the world as a means to accumulate wealth. It works the same way as a recurring deposit account. SIP involves investing a fixed sum of money in a specific investment scheme, on a regular basis, for a pre-determined number of period. </li></ul>
  32. 33. SIP is a disciplined approach to investing, and : <ul><li>Helps us to invest disposable funds each month. </li></ul><ul><li>Gives us the benefits of rupee-cost averaging </li></ul><ul><li>Relieves us of trying to time the market </li></ul><ul><li>Helps us to reach your financial goals </li></ul>
  33. 34. Growth Analysis Growth in Asset under management
  34. 36. OBJECTIVE OF THE STUDY <ul><li>The primary objective of the research is to study the growth of Mutual Funds in India, their types, and advantages & disadvantages from the point of view of the investors. </li></ul><ul><li>The secondary objective of the study is to analyze the Investor perception about the Equity Linked Scheme. </li></ul><ul><li>To analyze the performance of top players in the Mutual Fund Industry and find out the future of Mutual Funds in India. </li></ul><ul><li>The study also try to find the new segments of customers for Bajaj Capital Ltd. </li></ul>
  35. 37. RESEARCH METHODOLOGY <ul><ul><li>The first stage included gathering information about the Mutual Fund Industry in India and getting acquainted with the working of the various Mutual Fund Schemes. </li></ul></ul><ul><ul><li>The next stage involved determining the objective of the study, knowing the target audience and drafting a questionnaire. The questionnaire was designed keeping in mind the target audience and objectives of the study. It was non-disguised in nature and will include a few open-ended questions. </li></ul></ul>
  36. 38. RESEARCH PLAN <ul><li>The research was exploratory in nature and the goal was to gather preliminary data to shed light on the real nature of problems and to suggest possible solutions or new ideas. It involved getting a feel of the situation and lays emphasis on the discovery of ideas and possible insights. </li></ul>
  37. 39. DATA SOURCES <ul><li>Primary data was collected from the specially targeted persons like salaried persons, business men and house wife.The primary information was collected through Questionnaire and interviews presented to the investors. </li></ul><ul><li>Secondary Data was collected from: </li></ul><ul><li>1.Print articles on Mutual Funds. </li></ul><ul><li>2.Annual audit report of the Mutual Fund Companies. </li></ul><ul><li>3.Product and Service Brochures of the Mutual Funds. </li></ul>
  38. 40. SAMPLING PLAN <ul><ul><li>The sampling unit comprised of the people present in the various offices of Mutual Fund Companies. The sample size taken for the study was two hundred fifty. The samples were chosen on the basis of random sampling and these respondents belonged to middle and upper class salaried and self-employed people, students, professionals and housewives who have invested in Mutual Funds. The research was carried out in South Delhi only. </li></ul></ul><ul><ul><li>DATA ANALYSIS TECHNIQUE </li></ul></ul><ul><li>Simple averages </li></ul><ul><li>Tabulation </li></ul>
  39. 41. LIMITATIONS <ul><li>The survey was conducted in selective areas because of constraints of time and resources. Therefore, the findings cannot be generalized or claimed until further research has been carried out. </li></ul><ul><li>The sample size taken was 250, which may not reflect a true picture of the consumers mind. Because of these constraints, the analysis may not be accurate and may vary, when tested in different places and time. </li></ul>
  40. 42. Findings: Out of total respondents a huge percentage is of male respondents, which mainly reflects the dominance of male decision makers.
  41. 43. Age : 5 42 150 53 Above 55 (Years) 40-55 (Years) 25-40 (Years) 18-25 (Years)
  42. 44. Educational Background: Finding: Large portion of investors were highly educated with Post Graduates and Professionally qualified respondents at equal percentage of 23% and 2% respondents were Graduates and rest with other qualifications. 6 158 28 58 Others Professional Post-Graduate Graduate
  43. 45. Findings: 75% a very large number of respondents were from the service/salaried class while 20% were from the business and the rest were professionals.
  44. 46. Finding: 19% respondents have monthly income below 10000, 38% respondents had income between 10000-15000, 12% respondents had income between 15000-25000 and 31% respondents had income above 25000 .
  45. 47. <ul><ul><ul><ul><ul><li>What is percentage of your income you save? </li></ul></ul></ul></ul></ul>Finding: 54% respondents saved less than 15% of their saving, 44% respondents saved 15-30% of their savings and 2% respondents saved of 30-40% of their saving. - 5 110 135 ABOVE 40% 30-40% 15-30% 0-15%
  46. 48. Purpose of your investment? Finding: For 51% respondents the purpose was saving and for 49% the purpose was wealth creation and investment. 122 128 WEALTH CREATION/INVESTMENT SAVINGS
  47. 49. If you prefer investment, then in which of the following type? Finding: 24% respondents preferred Mutual funds and investors equally preferred other investments. With increasing gold prices and real estate prices they were getting less popular as investment options. 38 32 34 58 65 75 REAL ESTATE GOLD INSURANCE GOVT. BONDS/BANK FD’S/POST OFFICE DEPOSITS SHARES MUTUAL FUNDS
  48. 50. <ul><ul><ul><ul><ul><li>How would you like to do trading in share market? </li></ul></ul></ul></ul></ul>Finding: 41% respondents preferred online trading in share market while 59% preferred share trading through personal advice. 148 102 THROUGH PERSONAL ADVICE ONLINE
  49. 51. Is fluctuation in share market effect your investment plan? <ul><ul><li>Finding: According to the responses only 6% were worried about fluctuation in share </li></ul></ul><ul><ul><li>market and that affected their investment plan. 36 % respondents were not at all worried </li></ul></ul><ul><ul><li>about share market fluctuations and 31% were little bit afraid and 27% were moderately </li></ul></ul><ul><ul><li>worried . </li></ul></ul>15 67 78 90 VERY MUCH MODERATE LITTLE BIT NOT AT ALL
  50. 52. Finding: 30% respondents had proper knowledge about the Mutual Funds and 14% did not have knowledge about the Mutual Funds. 56% respondents wanted to know about the Mutual Funds as they had partial knowledge about the Mutual Funds.
  51. 53. <ul><ul><ul><li>If you prefer mutual funds as your way of investment then </li></ul></ul></ul><ul><ul><ul><li>in which kind of Mutual fund you would prefer? </li></ul></ul></ul>Finding: 48% respondents prefer Equity funds, 16% respondents prefer Debt Funds and 36% preferred Balanced funds. 90 40 120 BALANCED DEBT EQUITY
  52. 54. <ul><ul><ul><ul><ul><li>How much of your total portfolio is in Equity? </li></ul></ul></ul></ul></ul>Finding: 32% respondents had invested less than 25% in equity funds, 56% have invested in 25-50% equity, 10% had invested 50-75% in equity funds and 2% respondents have invested 75-100% in equity funds. 5 25 140 80 75-100% 50-75% 25-50% 0-25%
  53. 55. Rank these consultancy firms, as per your preference of (1-4 in descending order) Finding: Karvy Consultant was ranked as the most preferred firm, followed by India bulls than Bajaj Capital. 4 1 2 3 OTHERS KARVY INDIABULLS BAJAJ CAPITAL
  54. 56. <ul><ul><ul><ul><ul><li>Do you have any knowledge about financial planning? </li></ul></ul></ul></ul></ul>Finding: 37% respondents have knowledge about financial planning, 32% respondents had very little knowledge about financial planning. While 31% respondents had partial knowledge about financial planning and were eager to know more about financial planning. Did your consultancy firm provide you financial planning services / other value added services? Finding: 26% respondents said that their consultancy firm provided them financial planning services / other value added services while 74% said that their consultancy firm did not provide any such information. 78 80 92 Partial, I would like to know more NO YES 186 64 NO YES
  55. 57. The Future plan: <ul><li>In a study conducted by the Associated Chamber of Commerce and Industry of India (ASSOCHAM) and the Association of Mutual Fund Industry of India (AMFI), it has been revealed that by 2014, the size of the Indian mutual fund industry is estimated to go up to over Rs 1,65,000 crore. </li></ul><ul><li>The focus of Industry players is shifting from sector based fund to more diversified fund as they carry less risk.Moreover the focus of industry is shifting from Debt based funds to Equity based funds which performance better </li></ul>
  56. 58. Continue… <ul><li>Some of the industry biggies are exploring the opportunities in pension reform by positioning themselves as the front-runners in the Pension Fund arena. </li></ul><ul><li>Companies are now focusing on distribution channels of Financial Planners and E-commerce, as they will stand to benefit enormously if these trends gain significance. </li></ul>