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15562101 project-rt-idfc-mutual-fundepor

  1. 1. Mutual funds A Case Study and survey at (HDFC Bank branches: Chandnichowk, Ashok Vihar, Ajmeri Gate.) Submitted to: jagan Institute of Management Studies Sector-5, Rohini, Delhi. Submitted by: Shailendar Kaswan Roll no. f0748 PGDBM(2007-09)
  2. 2. Contents Acknowledgment 3 Student undertaking 4 Executive summery 5 Introduction 7-38 - What is Mutual Fund; 7 - History of Mutual Fund in India; 9 - Types of mutual funds schemes; 12 - Advantages of Mutual Funds; 17 - Disadvantage of Investing Through Mutual Funds; 18 - Mutual Fund investment strategies; 19 - Performance evaluation; 20 - Risk and Return; 25 - Tax treatment for unit holder; 29 - Mutual fund set up; 33 - AMFI; 33 - Tips on buying mutual funds; 36 - AUM; 37 Company Profile 39-54 - Standard charted AMC Pvt Ltd; 41 - Schemes - IDFC AMC Pvt Ltd; 43 - Schemes - Acquisition of standard charted by IDFC Findings 52 - Survey background; 52 - Methodology; 52 - Findings;53 Conclusion and reconditions 60 Questionnaire 61 Glossary 65 References 67 2 | P a g e
  3. 3. Acknowledgment It took great deal of help, tolerance and understanding on the part of a variety of people and organizations to prepare this project report. I would particularly thank to Kamolini mam, Shikha mam, and Punit sir(Standard chartered/ IDFC AMC) as they provided me guide line and support during my training. My special thanks go to JIMS College and its placement department for providing me such an opportunity to work with Standard Chartered (IDFC) AMC. I would also thank to all staff members of different branches of HDFC Bank Ltd. To all the above and the many colleagues whose ideas and practice I adopted in the project I wish to express my warmest appreciation for their help and support along the way. Shailendar Kaswan 3 | P a g e
  4. 4. Student undertaking This is to certify that this project “Mutual Funds : study & survey” is original work done for the partial fulfillment for the award of post graduate diploma in business management from Jagan Institute of Management Studies, Rohini, Delhi. I am grateful to Dr B S Sharma, faculty of PGDBM, JIMS, Rohini, Delhi. Project guide Student (Dr. B S Sharma) (Shailendar Kaswan) 4 | P a g e
  5. 5. Executive summary The Indian mutual fund industry in recent years has exponential growth and yet it is still at a very nascent stage. We believe that the mutual fund industry has grown in terms of size or choices available, but is a long distance from being regarded as a mature one. To understand this one has to look at the global scenario. If one look at the global mutual fund industry, one has see that assets have grown by 185% between 2000 and 2006. In comparison, Indian assets outgrew at a staggering 446%, where as the US only grew by 158% and Europe by 242%. As our economy continues to grow at a spectacular rate there is a huge amount of wealth creating opportunities surfacing everywhere. Financial Planners have an immensely responsible role to play by identifying these opportunities and channeling them into wealth creating initiatives that would enable people to address their financial needs. To give an overview of a recent study conducted by Invest India, there are about 321.8 millions paid workers in India. Of this only 5.3 millions have an exposure to mutual funds. This is less than 2% of total work force. Even more interesting fact is that 77% of them reside in super metros and Tier I cities. Again, about 4 millions come in the Rs 90,000-5 lack income bracket. The penetration among the less than Rs 90,000 and more than Rs 5 lack income bracket is very low. The need for the hour is to expend the market boundaries and expand scope in Tier II and Tier III cities. India is also one of the fastest growing markets for mutual funds, attracting a host of global players. Hence, investors will have an even wider range of products to choose from. The combination of the increase in number of fund houses along with new schemes and the increase in the number of people parking their saving in mutual funds has resulted in per cent during April-December 2007. This now stands at Rs 30314 billions as against Rs 13476 billions for the corresponding period last year. As on January 31,2008, Indian assets stood at $ 137 billions and are growing. We already have many experts expressing their concentration at the frequency of NFO launches. Yet we have less than 1000 schemes in India, compared to 15000 in the US and 36000 in Europe. The gap is significant and has to be filled up with unique and better priced products. There has also been a rapid rise in the HNI segment. India stands only second-best to Korea in the Asia- Pacific region in terms of percentage growth. The total HNWI (High Net Worth Individual) assets stood at about Rs 12 trillion and their assets are distributed over various assets classes. To top them MFs will have to come up with structured products, real estate funds, commodity based funds, art funds and the like. Indian house holds have also increased their exposure to the capital market. Very interestingly, the MF proportion in this has increased. In fact, there has been more than 2000% growth in the assets coming to MFs in the last 3 years. Statistics reveal that a higher portion of investors’ savings is now invested in market-linked avenues like mutual funds as compared to earlier times. Passing through the growth phase 5 | P a g e
  6. 6. We have always read that fund industry has seen three phases – the UTI phase, the public sector phase and the post – UTI phase. But if we study a bit more closely, there have been four clear stages. - UTI Phase (1964 – 1987) - Public sector phase (1987 – 1993), during which the likes of SBI,BOB and Canara Bank comes in to existence - The emergence phase (1993 – 2003), when international players come in to India. Some have wound up their operations and a few of them are looking for re-entry. - Post UTI phase (2003 – 2007), when domestic players along with some global players have consolidated the MF industry. And now we are entering Phase V of the industry, when not only are newer players readying to enter the market but are also looking at penetration and market expansion. All in all, this is a win-win situation for Indian investors. We have also come up a long way from plain vanilla equity funds to hybrid funds, from balanced funds to arbitrage funds, from sectoral funds to quant strategies. Changing investor profile Today’s investor is quite young and very unlike the older generation. He follows a contrarian’s approach. Hw buys when the market flips and books profit when it rallies. While the market corrected by almost 22% during the January mayhem, mutual funds were net buyers to the tune of Rs 4,200 crores. Much of this support came from domestic investors. The retail participation in equity schemes has also increased tremendously. The total AUM of 330 schemes in December last year stood at Rs 2,157 billions as compared to 197 schemes and Rs92 billions In march 2000. Also in the last three years, mobilizations from NFOs stood at Rs 95,000 crores. Although many complain that the industry is still brokerage driven, the trends clearly suggest that investors prefer NFOs to enter equities. Our economy is booming, we have now a sustained GDP growth of 8%, which is likely to remain at this level for years to come, our per capita income is about to touch $ 1000 by the end of 2008. The number of AMCs is increasing. Their presence across India is expending. Distributors too are expending their networks. Besides, the regulator has taken up measures to safeguard investor interests. These are all drivers for the fund industry. Together, these greet investor warmly. The need of the investor populace has changed, resulting in a change in asset management styles. In a way, this is leading to the design of new and competitively-priced products, implying greater emphasis on higher quality of intermediation. This in itself is both an opportunity and a challenge. As our economy continuous to grow at a spectacular rate there is a huge amount of wealth creating opportunities surfacing everywhere. Financial Planners have an immensely responsible role to play by identifying these opportunities and channeling them into wealth creating initiatives that would enable people to adequately address their financial needs. Introduction 6 | P a g e
  7. 7. A mutual fund is a professionally-managed form of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.[1 In a mutual fund, the fund manager, who is also known as the portfolio manager, trades the fund's underlying securities, realizing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV) is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding. Legally known as an "open-end company" under the Investment Company Act of 1940(the primary regulatory statute governing investment companies), a mutual fund is one of three basic types of investment companies available in the United States.[2] Outside of the United States (with the exception of Canada, which follows the U.S. model), mutual fund may be used as a generic term for various types of collective investment vehicle. In the United Kingdom and Western Europe (including offshore jurisdictions), other forms of collective investment vehicle are prevalent, including unit trusts, open-ended investment companies (OEICs), SICAVs and unitized insurance funds. In Australia and New Zealand the term "mutual fund" is generally not used; the name "managed fund" is used instead. What is a Mutual Fund? Mutual funds belong to the class of firms known as investment companies. While companies may offer a "family" of funds under a single umbrella name and common administration - for example, the Vanguard Group, Fidelity Investments, or Strong Funds - each fund offered is a separately incorporated investment company. These are entities that pool investor money to buy the securities that make up the fund’s portfolio. The idea behind this pooling of investor money is to give each investor the benefits that come from the ownership of a diversified portfolio of securities chosen and monitored daily by experience, professional advisers. The funds create and sell new shares on demand. Investors` shares represent a portion of the fund’s portfolio and income proportional to the number of shares they purchase. Individual shareholders of the mutual funds have voting rights in the operation of the fund, just as most holders of common stocks in corporations have the right to vote on certain issues involving the running of the company. The key attribute of a mutual fund, regardless of how it is structured, is that the investor is entitled to receive on demand, or within a specified period after demand, an amount computed by reference to the value of the investor’s proportionate interest in the net assets of the mutual fund. This means that the owner of mutual fund shares can "cash in," or redeem his or her shares at any time. Mutual funds, therefore, are considered a liquid investment. The investor’s selling (redemption) price may be higher or lower than the purchase price. It all depends on the performance of the fund’s portfolio. The fund has an adviser who charges a fee for managing the portfolio. The adviser decides when and what securities to buy and sell, and is responsible for providing or causing to be provided all services required by the mutual fund in carrying on its day-to-day activities. All fund investors get this built-in portfolio management whether they own 50 shares or 10,000.The adviser generally purchases many different 7 | P a g e
  8. 8. securities for the portfolio, since investment theory holds that diversification reduces risk. It is this diminished risk that is one of the attractions of mutual funds. The fund also has a custodian, usually a financial institution such as a bank, which holds all cash and securities for the fund. History of Mutual Fund in India 8 | P a g e
  9. 9. The Evolution The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in the year 1963. The primary objective at that time was to attract the small investors and it was made possible through the collective efforts of the Government of India and the Reserve Bank of India. The history of mutual fund industry in India can be better understood divided into following phases: Phase 1. Establishment and Growth of Unit Trust of India - 1964-87 Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate under the regulatory control of the RBI until the two were de-linked in 1978 and the entire control was transferred in the hands of Industrial Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of investors in any single investment scheme over the years. UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in 1971, six more schemes between 1981-84, Children's Gift Growth Fund and India Fund (India's first offshore fund) in 1986, Master share (India’s first equity diversified scheme) in 1987 and Monthly Income Schemes (offering assured returns) during 1990s. By the end of 1987, UTI's assets under management grew ten times to Rs 6700 crores. Phase II. Entry of Public Sector Funds - 1987-1993 The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under management of the industry increased seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about 80% market share. 1992- 93 Amou nt Mobil ised Assets Under Manage ment Mobilisa tion as % of gross 9 | P a g e
  10. 10. Domesti c Savings UTI 11,05 7 38,247 5.2% Public Sector 1,964 8,757 0.9% Total 13,02 1 47,004 6.1% Phase III. Emergence of Private Sector Funds - 1993-96 The permission given to private sector funds including foreign fund management companies (most of them entering through joint ventures with Indian promoters) to enter the mutal fund industry in 1993, provided a wide range of choice to investors and more competition in the industry. Private funds introduced innovative products, investment techniques and investor-servicing technology. By 1994-95, about 11 private sector funds had launched their schemes. Phase IV. Growth and SEBI Regulation - 1996-2004 The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996. The mobilization of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Inventors’ interests were safeguarded by SEBI and the Government offered tax benefits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of investors from income tax. Various Investor Awareness Programmes were launched during this phase, both by SEBI and AMFI, with an objective to educate investors and make them informed about the mutual fund industry. In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective behind this was to bring all mutual fund players on the same level. UTI was re-organized into two parts: 1. The Specified Undertaking, 2. The UTI Mutual Fund 10 | P a g e
  11. 11. Phase V. Growth and Consolidation - 2004 Onwards The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutual fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players. 11 | P a g e
  12. 12. Types of mutual funds 12 | P a g e
  13. 13. 1. Schemes according to Maturity Period:- A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.  Open-ended Fund/ Scheme:- An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.  Close-ended Fund/ Scheme:- A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis. 2. Schemes according to Investment Objective:- A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:  Growth / Equity Oriented Scheme:- The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual 13 | P a g e
  14. 14. funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.  Income / Debt Oriented Scheme:- The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.  Balanced Fund:- The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.  Money Market or Liquid Fund:- These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.  Gilt Fund:- These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes. 14 | P a g e
  15. 15.  Index Funds :- Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. 3. Sector specific funds/schemes:- These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert. 4. Tax Saving Schemes:- These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme. 5. Fund of Funds (FoF) scheme:- A scheme that invests primarily in other schemes of the same mutual fund or other mutual funds is known as a FoF scheme. An FoF scheme enables the investors to achieve greater diversification through one scheme. It spreads risks across a greater universe. 6. Load or no-load Fund:- A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund which are more 15 | P a g e
  16. 16. important. Efficient funds may give higher returns in spite of loads. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units. 16 | P a g e
  17. 17. ADVANTAGES OF MUTUAL FUND S. No. Advantage Particulars 1. Portfolio Diversifica tion Mutual Funds invest in a well-diversified portfolio of securities which enables investor to hold a diversified investment portfolio (whether the amount of investment is big or small). 2. Profession al Manageme nt Fund manager undergoes through various research works and has better investment management skills which ensure higher returns to the investor than what he can manage on his own. 3. Less Risk Investors acquire a diversified portfolio of securities even with a small investment in a Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities. 4. Low Transactio n Costs Due to the economies of scale (benefits of larger volumes), mutual funds pay lesser transaction costs. These benefits are passed on to the investors. 5. Liquidity An investor may not be able to sell some of the shares held by him very easily and quickly, whereas units of a mutual fund are far more liquid. 6. Choice of Schemes Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further have different plans/options 7. Transpare ncy Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator. 8. Flexibility Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes. 9. Safety Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced. 17 | P a g e
  18. 18. Disadvantage of Investing Through Mutual Funds S. No. Disadvanta ge Particulars 1. Costs Control Not in the Hands of an Investor Investor has to pay investment management fees and fund distribution costs as a percentage of the value of his investments (as long as he holds the units), irrespective of the performance of the fund. 2. No Customize d Portfolios The portfolio of securities in which a fund invests is a decision taken by the fund manager. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial objectives. 3. Difficulty in Selecting a Suitable Fund Scheme Many investors find it difficult to select one option from the plethora of funds/schemes/plans available. For this, they may have to take advice from financial planners in order to invest in the right fund to achieve their objectives. 18 | P a g e
  19. 19. Mutual Fund Investment Strategies Systematic Investment Plan (SIPs): These are best suited for young people who have started their careers and need to build their wealth. SIPs entail an investor to invest a fixed sum of money at regular intervals in mutual fund scheme the investor has chosen. For instance an investor opting for SIP in xyz mutual fund scheme will need to invest a certain sum of money every month / quarter /half year in the scheme. Systematic Withdrawal Plan (SWPs): These plans are best suited for people nearing retirement. In these plans an investor invests in a mutual fund scheme and is allowed to withdraw a fixed sum of money at regular intervals to take care of expenses. Systematic Transfer Plan (STPs) : They allow the investors to transfer on a periodic basis a specified amount from one scheme to another within the same fund family meaning two schemes belonging to the same mutual fund. A transfer will be treated as redemption of units from the scheme from which the transfer is made .Such redemption or investment will be at the applicable NAV. This service allows the investor to manage his investment actively to achieve his objectives. Many funds do not even charge even any transaction feed for this service an added advantage for the active investor. 19 | P a g e
  20. 20. Performance Evaluation PARAMETERS OF MUTUAL FUND EVALUATION:  Risk  Returns  Liquidity  Expense Ratio  Composition of Portfolio Risks Associated With Mutual Funds Investing in mutual funds as with any security, does not come without risk. One of the most basic economic principles is that risk and reward are directly correlated. In other words, the greater the potential risk, the greater the potential return. The types of risk commonly associated with mutual funds are: Market Risk: Market risk relate to the market value of a security in the future. Market prices fluctuate and are susceptible to economic and financial trends, supply and demand, and many other factors that cannot be precisely predicted or controlled. Political Risk: Changes in the tax laws, trade regulations, administered prices etc. is some of the many political factors that create market risk. Although collectively, as citizens, we have indirect control through the power of our vote, individually as investors, we have virtually no control. Inflation Risk: Inflation or purchasing power risk, relates to the uncertainty of the future purchasing power of the invested rupees. The risk is the increase in cost of the goods and services, as measured by the Consumer Price Index. Interest Rate Risk: 20 | P a g e
  21. 21. Interest Rate risk relates to the future changes in interest rates. For instance, if an investor invests in a long term debt mutual fund scheme and interest rate increase, the NAV of the scheme will fall because the scheme will be end up holding debt offering lowest interest rates. Business Risk: Business Risk is the uncertainty concerning the future existence, stability and profitability of the issuer of the security. Business Risk is inherent in all business ventures. The future financial stability of a company can not be predicted or guaranteed, nor can the price of its securities. Adverse changes in business circumstances will reduce the market price of the company’s equity resulting in proportionate fall in the NAV of mutual fund scheme, which has invested in the equity of such a company. Economic Risk : Economic Risk involves uncertainty in the economy, which, in turn can have an adverse effect on a company’s business. For instance, if monsoons fall in a year, equity stocks of agriculture bases companies will fall and NAVs of mutual funds, which have invested in such stocks, will fall proportionately. There are 3 different methods with the help of which we can measure the risk. 21 | P a g e
  22. 22. Measurement of risk I. Beta Coefficient Measure Of Risk : Beta relates a fund’s return with a market index. It basically measures the sensitivity of funds return to changes in market index. If Beta = 1 Fund moves with the market i.e. Passive fund If Beta < 1 Fund is less volatile than the market i. e Defensive Fund If Beta > 1 Funds will give higher returns when market rises & higher losses when market falls i.e. Aggressive Fund II. Ex –Marks or R-squared Measure Of Risk : Ex –Marks represents co relation with markets. Higher the Ex-marks lower the risk of the fund because a fund with higher Ex-marks is better diversified than a fund with lower Ex-marks. III. Standard Deviation Measure Of Risk : It is a statistical concept, which measures volatility. It measures the fluctuations of fund’s returns around a mean level. Basically it gives you an idea of how volatile your earnings are. It is broader concept than BETA. It also helps in measuring total risk and not just the market risk of the portfolio. How to Calculate the Value of a Mutual Fund: The investors’ funds are deployed in a portfolio of securities by the fund manager. The value of these investments keeps changing as the market price of the securities change. Since investors are free to enter and exit the fund at any time, it is essential that the market value of their investments is used to determine the price at which such entry and exit will take place. The net assets represent the market value of assets, which belong to the investors, on a given date. Net Asset Value or NAV of a mutual fund is the value of one unit of investment in the fund, in net asset terms. NAV = Net Assets of the scheme / Number of Units Outstanding 22 | P a g e
  23. 23. Where Net Assets are calculated as:- (Market value of investments + current assets and other assets + Accrued income – current liabilities and other liabilities – less accrued expenses) / No. of Units Outstanding as at the NAV date NAV of all schemes must be calculated and published at least weekly for closed-end schemes and daily for open- end schemes. The major factors affecting the NAV of a fund are:  Sale and purchase of securities  Sale and repurchase of units  Valuation of assets  Accrual of income and expenses SEBI requires that the fund must ensure that repurchase price is not lower than 93% of NAV (95% in the case of a closed-fund). On the other side, a fund may sell new units at a price that is different from the NAV, but the sale price cannot be higher than 107 % of NAV. Also the difference between the repurchase price and the sale price of the unit is not permitted to exceed 7% of the sale price. Measuring Mutual Fund Performance: We can measure mutual fund’s performance by different method: • Absolute Return Method: Percentage change in NAV is an absolute measure of return, which finds the NAV appreciation between two points of time, as a percentage. e .g: If NAV of one fund changes from Rs.20 to Rs.22 in 12 months then Absolute return = (22 – 20)/20 X 100 =10% • Simple Annual Return Method : Converting a return value for a period other than one year, into a value for one year, is called as annualisation. In order to annualize a rate, we find out what the return would be for a year, if the return behaved for a year, in the same manner it did, for any other fractional period. E .g: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months then Annual Return = (22 – 20) /20 X 12/6 X 100 = 20% • Total Return Method: The total return method takes into account the dividends distributed by the mutual fund, and adds it to the NAV appreciation, to arrive at returns. 23 | P a g e
  24. 24. Total Return = (Dividend distributed + Change in NAV)/ NAV at the start X 100 e .g: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months if in between dividend of Rs. 4 has been distributed then Total Return = {4 + (22 – 20)}/20 X 100 = 30% • Total Return when dividend is reinvested: This method is also called the return on investment (ROI) method. In this method, the dividends are reinvested into the scheme as soon as they are received at the then prevailing NAV (ex-dividend NAV). = ((Value of holdings at the end of the period/ value of the holdings at the beginning) – 1)*100 E.g. An investor buys 100 units of a fund at Rs. 10.5 on January 1, 2007. On June 30, 2007 he receives dividends at the rate of 10%. The ex-dividend NAV was Rs. 10.25. On December 31, 2007, the fund’s NAV was Rs. 12.25. Value of holdings at the beginning period= 10.5*100= 1050 Number of units re-invested = 100/10.25 = 9.756 End period value of investment = 109.756*12.25 = 1344.51 Rs. Return on Investment = ((1344.51/1050)-1)*100 = 28.05% • Compounded Average Annual Return Method: This method is basically used for calculating the return for more than 1 year. In this method return is calculated with the following formula: A = P X (1 + R / 100) N Where P = Principal invested A = maturity value N = period of investment in years R = Annualized compounded interest rate in % R = {(Nth root of A / P) – 1} X 100 E. g: If amount invested is Rs. 100 & in the end we get return of Rs. 200 & period of investment is 10 years then annualized compounded return is 200 = 100 (1 + R / 100) 10 Rate = 7.2 % 24 | P a g e
  25. 25. RETURNS: Returns have to be studied along with the risk. A fund could have earned higher return than the benchmark. But such higher return may be accompanied by high risk. Therefore, we have to compare funds with the benchmarks, on a risk adjusted basis. William Sharpe created a metric for fund performance, which enables the ranking of funds on a risk adjusted basis. Sharpe Ratio = Risk Premium Funds Standard Deviation Treynor Ratio = Risk Premium Funds Beta Risk Premium = Difference between the Fund’s Average return and Risk free return on government security or treasury bill over a given period . LIQUIDITY: Most of the funds being sold today are open-ended. That is, investors can sell their existing units, or buy new units, at any point of time, at prices that are related to the NAV of the fund on the date of the transaction. Since investors continuously enter and exit funds, funds are actually able to provide liquidity to investors, even if the underlying markets, in which the portfolio is invested, may not have the liquidity that the investor seeks. EXPENSE RATIO: Expense ratio is defined as the ratio of total expenses of the fund to the average net assets of the fund. Expense ratio can actually understate the total expenses, because brokerage paid on transactions of a fund are not included in the expenses. According to the current SEBI norms, brokerage commissions are capitalized and included in the cost of the transactions. Expense ratio = Total Expenses Average Net Assets COMPOSITION OF THE PORTFOLIO: 25 | P a g e
  26. 26. Credit quality of the portfolio is measured by looking at the credit ratings of the investments in the portfolio. Mutual Fund fact sheets show the composition of the portfolio and the investments in various asset classes over time. Portfolio turnover rate is the ratio of lesser of asset purchased or sold by funds in the market to the net assets of the fund. If Portfolio ratio is 100% means portfolio has been changed fully. When Portfolio ratio is high means expense ratio is high. Portfolio Ratio = Total Sales & Purchase Net Assets of fund In order to meaningfully compare funds some level of similarity in the following factors has to be ensured:  Size of the funds  Investment objective  Risk profile  Portfolio composition  Expense ratios Fund evaluation against benchmark: Funds can be evaluated against some performance indicators which are known as benchmarks. There are 3 types of benchmarks:  Relative to market as whole  Relative to other comparable financial products  Relative to other mutual funds  Relative to market as whole: There are different ways to measure the performance of fund w.r.t market as Equity Funds • Index Fund – An Index fund invests in the stock comprising of the index in the same ratio. This is a passive management style. For example, Market Index Fund - BSE Sensex Nifty Index Fund - NIFTY The difference between the return of this fund and its index benchmark can be explained by “TRACKING ERROR”. 26 | P a g e
  27. 27. • Active Equity Funds: The fund manager actively manages this fund. To evaluate performance in such case we have to select an appropriate benchmark. Large diversified equity fund - BSE 100 Sector fund - Sectoral Indices • Debt Funds: Debt fund can also be judged against a debt market index e.g. I-BEX  Relative to other comparable financial products: Schemes Return ConvenienceSafety Volatility Liquidity Equity High Moderate Low High High FI Bonds Moderate High High Moderate Moderate Corporate Debentures Moderate Low Moderate Moderate Low Company Fixed Deposits Moderate Moderate Low Low Low Bank Deposits Low High High Low High PPF Moderate High High Low Moderate Life Insurance Low Moderate High Low Low Gold Moderate Low High Moderate Moderate Real Estate High Moderate High Low 27 | P a g e
  28. 28. Low Mutual Funds High High High Moderate High Schemes Investment Objective Risk Tolerance Investment Horizon Equity Term Capital Appreciation High Long FI Bonds Income Low Medium to Long term Corporate DebenturesIncome High Moderate Medium to Long term Company Fixed Deposits Income Moderate Low Medium Bank Deposits Income Generally Flexible all terms PPF Income Low Long Life Insurance Risk Cover Low Long Gold Inflation Hedge Low Long Real Estate Inflation Hedge Low Long 28 | P a g e
  29. 29. TAX TREATMENT FOR THE INVESTORS (UNITHOLDERS):- Tax benefits of investing in the Mutual Fund As per the taxation laws in force as at the date of the Offer Document, some broad income tax implications of investing in the units of the Scheme are stated below. The information so stated is based on the Mutual Fund's understanding of the tax laws in force as of the date of the Offer Document, which have been confirmed by its auditors. The information stated below is only for the purposes of providing general information to the investors and is neither designed nor intended tobe a substitute for professional tax advice. As the tax consequences are specific to each investor and in view of the changing tax laws, each investor is advised to consult his or her or its own tax consultant with respect to the specific tax implications arising out of his or her or its participation in the Scheme. Implications of the Income-tax Act, 1961 as amended by the Finance Act, 2006 To the Unit holders (a.) Tax on Income In accordance with the provisions of section 10(35)(a) of the Act, income received by all categories of unit holders in respect of units of the Fund will be exempt from income-tax in their hands. Exemption from income tax under section 10(35) of the Act would, however, not apply to any income arising from the transfer of these units. (b.) Tax on capital gains: As per the provisions of section 2(42A) of the Act, a unit of a Mutual Fund, held by the investor as a capital asset, is considered to be a short-term capital asset, if it is held for 12 months or less from the date of its acquisition by the unit holder. Accordingly, if the unit is held for a period of more than 12 months, it is treated as a long-term capital asset. 29 | P a g e
  30. 30. Computation of capital gain Capital gains on transfer of units will be computed after taking into account the cost of their acquisition. While calculating long-term capital gains, such cost will be indexed by using the cost inflation index notified by the Government of India. Individuals and HUFs, are granted a deduction from total income, under section 80C of the Act upto Rs. 100,000, in respect of specified investments made during the year (please also refer paragraph d). Long-term capital gains As per Section 10(38) of the Act, long-term capital gains arising from the sale of unit of an equity oriented fund entered into in a recognized stock exchange or sale of such unit of an equity oriented fund to the mutual fund would be exempt from income-tax, provided such transaction of sale is chargeable to securities transaction tax. Pursuant to an amendment made in the Finance Act, 2006, effective 1 April 2006, companies would be required to include such long term capital gains in computing the book profits and minimum alternated tax liability under section 115JB of the Act. Short -term capital gains As per Section 111A of the Act, short-term capital gains from the sale of unit of an equity oriented fund entered into in a recognized stock exchange or sale of such unit of an equity oriented fund to the mutual fund would be taxed at 10 per cent, provided such transaction of sale is chargeable to securities transaction tax. The said tax rate would be increased by a surcharge of: - 10 per cent in case of non-corporate Unit holders, where the total income exceeds Rs.1,000,000, - 10 per cent in case of resident corporate Unit holders, and - 2.5 per cent in case of non-resident corporate unit holders irrespective of the amount of taxable income. Further, an additional surcharge of 2 per cent by way of education cess would be charged on amount of tax inclusive of surcharge. In case of resident individual, if the income from short term capital gains is less than the maximum amount not chargeable to tax, then there will be no tax payable. Further, in case of individuals/ HUFs, being residents, where the total income excluding short-term capital gains is below the maximum amount not chargeable to tax1, then the difference between the current maximum amount not chargeable to tax and total income excluding short-term capital gains, shall be adjusted from short-term capital gains. Therefore only the balance short term capital gains will be liable to income tax at the rate of 10 percent plus surcharge, if applicable and education cess. Non-residents In case of non-resident unit holder who is a resident of a country with which India has signed a Double Taxation Avoidance Agreement (which is in force) income tax is payable at the 30 | P a g e
  31. 31. rates provided in the Act, as discussed above, or the rates provided in the such agreement, if any, whichever is more beneficial to such non-resident unit holder. Investment by Minors Where sale / repurchase is made during the minority of the child, tax will be levied on either of the parents, whose income is greater, where the said income is not covered by the exception in the proviso to section 64(1A) of the Act. When the child attains majority, such tax liability will be on the child. Losses arising from sale of units - As per the provisions of section 94(7) of the Act, loss arising on transfer of units, which are acquired within a period of three months prior to the record date (date fixed by the Fund for the purposes of entitlement of the unit holder to receive the income from units) and sold within a period of nine months after the record date, shall not be allowed to the extent of income distributed by the Fund in respect of such units. - As per the provisions of section 94(8) of the Act, where any units ("original units") are acquired within a period of three months prior to the record date (date fixed by the Fund for the purposes of entitlement of the unit holder to receive bonus units) and any bonus units are allotted (free of cost) based on the holding of the original units, the loss, if any, on sale of the original units within a period of nine months after the record date, shall be ignored in the computation of the unit holder's taxable income. Such loss will however, be deemed to be the cost of acquisition of the bonus units. --Each Unit holder is advised to consult his / her or its own professional tax advisor before claiming set off of long-term capital loss arising on sale / repurchase of units of an equity oriented fund referred to above, against long-term capital gains arising on sale of other assets. - Short-term capital loss suffered on sale / repurchase of units shall be available for set off against both long-term and short-term capital gains arising on sale of other assets and balance short-term capital loss shall be carried forward for set off against capital gains in subsequent years. - Carry forward of losses is admissible maximum upto eight assessment years. (c.) Tax withholding on capital gains Capital gains arising to a unit holder on repurchase of units by the Fund should attract tax withholding as under: 31 | P a g e
  32. 32. - No tax needs to be withheld from capital gains arising to a FII on the basis of the provisions of section 196D of the Act. - In case of non-resident unit holder who is a resident of a country with which India has signed a double taxation avoidance agreement (which is in force) the tax should be deducted at source under section 195 of the Act at the rate provided in the Finance Act of the relevant year or the rate provided in the said agreement, whichever is beneficial to such non-resident unit holder. However, such a nonresident unit holder will be required to provide appropriate documents to the Fund, to be entitled to the beneficial rate provided under such agreement. - No tax needs to be withheld from capital gains arising to a resident unit holder on the basis of the Circular no. 715 dated 8 August 1995 issued by the CBDT. Subject to the above, the provisions relating to tax withholding in respect of gains arising from the sale of units of the various schemes of the fund are as under: - No tax is required is to be withheld from long term capital gains arising from sale of units in equity oriented fund schemes, that are subject to securities transaction tax. - In respect of short-term capital gains arising to foreign companies (including Overseas Corporate Bodies), the Fund is required to deduct tax at source at the rate of 10.46 per cent (10 per cent tax plus 2.5 per cent surcharge thereon plus additional surcharge of 2 per cent by way of education cess on the tax plus surcharge). In respect of short-term capital gains arising to non-resident individual unit holders, the Fund is required to deduct tax at source at the rate of 11.22 per cent (10 per cent tax plus 10 per cent surcharge thereon2 plus additional surcharge of 2 per cent by way of education cess on the tax plus surcharge). (d.) Wealth Tax Units held under the Schemes of the Fund are not treated as assets within the meaning of section 2(ea) of the Wealth Tax Act, 1957 and therefore, not liable to wealth-tax. (e.) Securities Transaction Tax Nature of Transaction Current tax rate Tax rate effective (%) 1 June 2006 (%) Delivery based purchase transaction in equity shares or units of equity oriented fund entered in a recognized stock exchange 0.1 0.125 Delivery based sale transaction in equity shares or units of equity oriented fund entered in a recognized stock exchange 0.1 0.125 Non-delivery based sale transaction in equity shares or units of equity oriented fund entered in a recognized stock exchange. 0.02 0.025 Sale of units of an equity oriented fund to the mutual fund 0.2 0.25 Value of taxable securities transaction in case of units shall be the price at which such units are purchased or sold. A deduction in respect of securities transaction tax paid is not permitted for the purpose of computation of business income or capital gains. However, if the total income of an assessee includes any business income arising from taxable securities transactions, he shall be entitled to a rebate3 from income-tax of an amount 32 | P a g e
  33. 33. equal to the securities transaction tax paid by him in respect of the taxable securities transactions entered during the course of his business. The maximum amounts of total income, not chargeable to tax are as under: Type of person Maximum amount of income not chargeable to tax Women Rs. 135,000 Senior citizens Rs. 185,000 Other individuals and HUFs Rs. 100,000 How is a mutual fund set up? A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund. SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme. Association of Mutual Funds in India (AMFI) With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organization. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995.AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders. The objectives of Association of Mutual Funds in India:--- 33 | P a g e
  34. 34. The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows:-  This mutual fund association of India maintains a 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.  Association 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 programme of training and certification for all intermediaries and other engaged in the mutual fund industry.  AMFI undertakes all India awareness programme 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. The sponsorers of Association of Mutual Funds in India:--- - Bank Sponsored - SBI Fund Management Ltd. - BOB Asset Management Co. Ltd. - Canbank Investment Management Services Ltd. - UTI Asset Management Company Pvt. Ltd. Institutions - - GIC Asset Management Co. Ltd. - Jeevan Bima Sahayog Asset Management Co. Ltd. 34 | P a g e
  35. 35. Private Sector: - Indian - - BenchMark Asset Management Co. Pvt. Ltd. - Cholamandalam Asset Management Co. Ltd. - Credit Capital Asset Management Co. Ltd. - Escorts Asset Management Ltd. - JM Financial Mutual Fund - Kotak Mahindra Asset Management Co. Ltd. - Reliance Capital Asset Management Ltd. - Sahara Asset Management Co. Pvt. Ltd - Sundaram Asset Management Company Ltd. - Tata Asset Management Private Ltd. - Predominantly India Joint Ventures:- - Birla Sun Life Asset Management Co. Ltd. - DSP Merrill Lynch Fund Managers Limited - HDFC Asset Management Company Ltd. Predominantly Foreign Joint Ventures:- - ABN AMRO Asset Management (I) Ltd. - Alliance Capital Asset Management (India) Pvt. Ltd. - Deutsche Asset Management (India) Pvt. Ltd. - Fidelity Fund Management Private Limited - Franklin Templeton Asset Mgmt. (India) Pvt. Ltd. 35 | P a g e
  36. 36. - HSBC Asset Management (India) Private Ltd. - ING Investment Management (India) Pvt. Ltd. - Morgan Stanley Investment Management Pvt. Ltd. - Principal Asset Management Co. Pvt. Ltd. - Prudential ICICI Asset Management Co. Ltd. - Standard Chartered Asset Mgmt Co. Pvt. Ltd. Tips on buying mutual funds:- 1. Determine your financial objectives and how much money you have to invest. Make sure the fund’s objectives coincide with your own. Don’t change your objectives or exceed the amount set aside for investment unless you have good reason. 2. Always obtain all available information before you invest. Request the prospectus, the Statement of Additional Information and the latest shareholder report from each fund you are considering. 36 | P a g e
  37. 37. 3. Never invest in periodic payment plans unless you are virtually certain that you will not have to redeem early. If you redeem early or do not complete the plan, you may have to pay sales charges of up to 51% of your investment. 4. Be on the alert for incorporation by reference. You will have "no excuse" for not knowing this information, if a problem arises. You may be legally presumed to know materials incorporated by reference in a prospectus or other documents. 5. Always determine all sales charges, fees and expenses before you invest. Fees such as 12b-1 fees can cost you dearly and charges for reinvestment of dividends and capital gains distributions can substantially add to your costs. Shop around among the many funds offered and compare the various fees and costs connected with funds that appeal to you. 6. Learn the costs of redemption. Sometimes investors are surprised to learn that they have to pay to get out of funds through back-end loads or redemption fees. Find out the redemption costs before you invest so you won’t be unpleasantly surprised when you redeem your shares. 7. Never treat the risks of investment in a fund lightly. Weigh the risks of the funds you want to buy against your ability to tolerate the ups and downs of the market and your investment goals. Be extra cautious when considering investing in funds with high yield/high risk portfolios. Junk bond problems, for example, invariably affect the fund’s performance. 8. Don’t be misled by the name of a fund. Some funds have been given names denoting safety, stability and low risk, despite the fact that the underlying investments in the portfolio are volatile and highly risky. AUM Assets Under Management (AUM) as at the end of May-2008 (Rs in Lakhs) Mutual Fund Name Average AUM For The Month Excluding Fund Fund Of Funds - 37 | P a g e
  38. 38. of Funds - Domestic but including Fund of Funds - Overseas Domestic 1. ABN AMRO Mutual Fund 592459.08 20979.02 2. AIG Global Investment Group Mutual Fund 456809.8 0 3. Benchmark Mutual Fund 280241.84 0 4. Bharti AXA Mutual Fund N/A N/A 5. Birla Sun Life Mutual Fund 4142342.8 1854.08 6. BOB Mutual Fund 6776.69 0 7. Canara Robeco Mutual Fund 420417.41 0 8. DBS Chola Mutual Fund 185289.01 0 9. Deutsche Mutual Fund 1240531.71 0 10. DSP Merrill Lynch Mutual Fund 2155962.79 0 11. Edelweiss Mutual Fund N/A N/A 12. Escorts Mutual Fund 17065.31 0 13. Fidelity Mutual Fund 887973.14 2763.41 14. Franklin Templeton Mutual Fund 2799087.37 23660.71 15. HDFC Mutual Fund 5610729.27 0 16. HSBC Mutual Fund 1847223.18 0 17. ICICI Prudential Mutual Fund 5906002.34 3359.41 18. IDFC Mutual Fund 1427291.26 3776.66 19. ING Mutual Fund 916079.34 47916.62 20. JM Financial Mutual Fund 1296780.93 0 21. JPMorgan Mutual Fund 273018.18 0 22. Kotak Mahindra Mutual Fund 2217001.56 30651.82 23. LIC Mutual Fund 1864914.45 0 24. Lotus India Mutual Fund 788330.4 0 25. Mirae Asset Mutual Fund 216037.01 0 26. Morgan Stanley Mutual Fund 350997.47 0 27. PRINCIPAL Mutual Fund 1670542.76 0 28. Quantum Mutual Fund 6632.78 0 29. Reliance Mutual Fund 9843093.38 0 30. Sahara Mutual Fund 19814.33 0 31. SBI Mutual Fund 3179496.78 0 32. Sundaram BNP Paribas Mutual Fund 1459384.72 0 33. Tata Mutual Fund 2449586.66 0 34. Taurus Mutual Fund 33550.65 0 35. UTI Mutual Fund 5465168.28 0 Grand Total 60026632.68 134961.73 38 | P a g e
  39. 39. Company profile: 39 | P a g e
  40. 40. About Standard Chartered Mutual Fund Standard Chartered Mutual Fund is well-established fund house and is sponsored by the Standard Chartered Group. At Standard Chartered Mutual Fund we strive to launch not just innovative products, but products that truly add value to our investors. We were among the first to launch an active management debt fund-the Dynamic Bond Fund - that had the capability to mimic a cash fund or an income fund depending on market situations. The Short term and Medium term funds that were uniquely positioned at various points along the interest rate curve with the sole objective of maximizing value to investors with different investment time horizons. Lately this innovation was again brought to the fore with the launch of the Standard Chartered Enterprise Equity Fund , a close-ended fund that sought to invest a portion in Equity IPOs. The fund also launched the Standard Chartered Premier Equity fund an equity fund that seeks to generate wealth by investing in relatively smaller companies. We manage our schemes through well-researched and thoroughly tested processes like the 3 D Factor (For debt funds and helps us in predicting interest rate movements) and the Equity Circle process. SCMF also pioneered several service initiatives that helped increase transactional ease. It was the first mutual fund to initiate  Across the counter redemptions for all classes of investors in liquid funds,  Toll Free No accessible in 976 cities  Phone transact service wherein investors can redeem without having any Personal Identification Number Standard Chartered Mutual Fund currently manages assets in excess of Rs 15801.53Cr as on 5th February 2008 and has touched the lives of more than lakhs of investors residing in more than 1000 Indian towns. Schemes Managed Scheme Name Grindlays Cash Fund (G) 40 | P a g e
  41. 41. Grindlays CF - Inst Plan (G) Grindlays Dynamic Bond (G) Grindlays FRF - LTP Inst (G) Grindlays Floating Rate (G) Grindlays FRF- Inst Plan (G) Grindlays FRF - LTP (RP) (G) Grindlays GSec - Inv Plan (G) Grindlays GSec Fund - PF (G) Grindlays GSec - STP (G) Grindlays SSIF - MTP A (G) Grindlays SSIF STP - Inst (G) GSSIF STP - MF Plan C (G) GSSIF STP - Super Inst C (G) Grindlays SSIF (G) Grindlays SSIF - STP (G) SC All Seasons Bond - RP (G) StanChart Arbitrage - Inst (G) StanChart Arbitrage Fund (G) StanChart Classic Equity (G) StanChart Enterprise Equity(G) StanChart Imperial Equity (G) StanChart Imperial Equity (G) StanChart Liquidity Manager –G StanChart Liq. Manager Plus-G StanChart Premier Equity (G) StanChart Small&Midcap Eqty –G StanChart Tax Saver Fund (G) IDFC Asset Management Company Private Ltd 41 | P a g e
  42. 42. The fund was established on March 13, 2000. Now the management of the fund has been taken over by Standard Chartered Bank, the UK based banking conglomerate. The name of the AMC too has been changed from ANZ AMC. Previously sponsored by ANZ Banking Group, Australia, this fund has just set up its operations in the year 2000. Australia and New Zealand Banking Group Limited, the previous sponsor of the fund, is a leading international bank and is also one of the "Big Four" Australian commercial banks providing a full range of banking and financial services with total assets of US $ 97.35 billion as on 30th Sept, 1999. ANZ Funds Management is a core business unit of the group and is one of Australia s large fund managers. It has a full range of investment products and services managing more than AUD $ 13267.7 million in customer funds on 30th Sept., 1999. ANZ Banking Group has significant presence in 35 nations from the Middle East tohrough South Asia and East Asia to the Pacific. No. of schemes 84 No. of schemes including options 269 Equity Schemes 24 Debt Schemes 209 Short term debt Schemes 19 Equity & Debt 0 Money Market 0 Gilt Fund 13 42 | P a g e
  43. 43. Open Ended Schemes Scheme Name Performance ( % Return ) Fund Size As On 30 Days 91 Days 1 Year 3 Year Rs. in Cr. As on IDFC Arbitrage Fund - Plan A (Regular) - Dividend Jun 24, 2008 0.4885 1.4969 7.4858 NA 953.23 May 30, 2008 IDFC Arbitrage Fund - Plan A (Regular) - Growth Jun 24, 2008 0.4876 1.4962 7.492 NA 953.23 May 30, 2008 IDFC Arbitrage Fund - Plan B (I P) - Dividend Jun 24, 2008 0.5326 1.625 8.027 NA 953.23 May 30, 2008 IDFC Arbitrage Fund - Plan B (I P) - Growth Jun 24, 2008 0.5317 1.6241 8.0317 NA 953.23 May 30, 2008 IDFC Arbitrage Plus Fund - Plan A - Dividend Jun 24, 2008 NA NA NA NA NA NA IDFC Arbitrage Plus Fund - Plan A - Growth Jun 24, 2008 NA NA NA NA NA NA 43 | P a g e
  44. 44. IDFC Arbitrage Plus Fund - Plan B - Dividend Jun 24, 2008 NA NA NA NA NA NA IDFC Arbitrage Plus Fund - Plan B - Growth Jun 24, 2008 NA NA NA NA NA NA IDFC ASBF - Plan A - Annual Dividend Jun 24, 2008 0.2939 -5.3391 6.8617 5.8207 35.34 May 30, 2008 IDFC ASBF - Plan A - Growth Jun 24, 2008 0.2935 1.5911 8.2078 6.7611 35.34 May 30, 2008 IDFC ASBF - Plan A - Half Yly Div Jun 24, 2008 0.293 -0.806 7.3385 5.9336 35.34 May 30, 2008 IDFC ASBF - Plan A - Qtly Dividend Jun 24, 2008 0.2937 0.1307 7.1652 6.0192 35.34 May 30, 2008 IDFC Cash Fund - Plan A - Daily Dividend Jun 24, 2008 0.4832 1.2309 4.602 4.9521 75.61 May 31, 2008 IDFC Cash Fund - Plan A - Growth Jun 24, 2008 0.6198 1.5808 5.9411 5.9712 75.61 May 31, 2008 IDFC Cash Fund - Plan A - Wkly Div Jun 24, 2008 0.4063 1.1466 4.5146 4.9422 75.61 May 31, 2008 IDFC Cash Fund - Plan B - IP - Daily Div Jun 24, 2008 0.4832 1.2365 4.6088 4.9773 75.61 May 31, 2008 IDFC Cash Fund - Plan B - IP - Growth Jun 24, 2008 0.6206 1.5821 5.9428 5.981 75.61 May 31, 2008 IDFC Cash Fund - Plan B - IP - Periodic Dividend Dec 10, 2006 -0.3388 -0.3388 NA 0.5485 315.07 Jun 30, 2007 IDFC Cash Fund - Plan B - IP - Jun 24, 0.4991 1.2401 4.6164 4.9828 75.61 May 31, 2008 44 | P a g e
  45. 45. Wkly Div 2008 IDFC Cash Fund - Plan C - Super I P - Daily Div Jun 24, 2008 0.5137 1.3128 4.913 5.2922 75.61 May 31, 2008 IDFC Cash Fund - Plan C - Super I P - Growth Jun 24, 2008 NA NA -16.4341 -1.8693 160.04 Sep 30, 2007 IDFC Cash Fund - Plan C - Super I P - Mtly Div Dec 10, 2006 -0.6724 -0.6724 2.7921 NA 315.07 Jun 30, 2007 IDFC Cash Fund - Plan C - Super I P - Wkly Div Nov 4, 2007 0.2482 1.1995 5.5526 5.1952 204.83 Oct 31, 2007 IDFC Classic Equity Fund - Dividend Jun 24, 2008 -12.8553 -4.9533 0.0176 NA 375.65 May 30, 2008 IDFC Classic Equity Fund - Growth Jun 24, 2008 -12.8562 -4.9534 0.0152 NA 375.65 May 30, 2008 IDFC D B F - Plan A - Annual Dividend Jun 24, 2008 -0.3287 -5.258 9.0802 6.5327 21.9 May 30, 2008 IDFC D B F - Plan A - Qtly Div Jun 24, 2008 -0.3288 -0.9222 9.1944 6.6577 21.9 May 30, 2008 IDFC D B F- Plan A - Growth Jun 24, 2008 -0.3294 1.4593 10.4002 7.3973 21.9 May 30, 2008 IDFC F R F - IP - LTP - Plan B - Annual Div. Dec 7, 2007 0.6768 NA NA 0.2985 4659.8 Nov 30, 2007 IDFC F R F - IP - LTP - Plan B - Daily Div Jun 24, 2008 0.6358 1.8665 7.357 NA 3416.15 May 30, 2008 IDFC F R F - IP - LTP - Plan B - Growth Jun 24, 2008 0.7264 2.133 8.4368 6.934 3416.15 May 30, 2008 45 | P a g e
  46. 46. IDFC F R F - IP - LTP - Plan B - Mtly Div Jun 24, 2008 0.0577 1.2852 6.7581 3.4005 3416.15 May 30, 2008 IDFC F R F - IP - LTP - Plan B - Qtly Div Jun 24, 2008 0.726 -0.3002 7.2733 6.1876 3416.15 May 30, 2008 IDFC F R F - IP - LTP - Plan B - Wkly Div Jun 24, 2008 0.6483 1.8515 7.3721 4.0193 3416.15 May 30, 2008 IDFC F R F - LTP - Plan A - Daily Div. Jun 24, 2008 0.5893 1.733 6.8208 NA 3416.15 May 30, 2008 IDFC F R F - LTP - Plan A - Growth Jun 24, 2008 0.6727 1.9831 7.8407 6.5438 3416.15 May 30, 2008 IDFC F R F - LTP - Plan A - Mtly Div. Jun 24, 2008 0.5995 1.711 6.1764 5.3717 3416.15 May 30, 2008 IDFC F R F - LTP - Plan A - Qtly Div. Jun 24, 2008 0.6722 -0.4767 6.6976 5.8075 3416.15 May 30, 2008 IDFC F R F - LTP - Plan A- Annual Div. Jun 24, 2008 0.6728 1.9793 6.8914 4.9984 3416.15 May 30, 2008 IDFC F R F - STP - Plan A - Daily Div Jun 24, 2008 0.414 1.2201 4.6269 4.9538 117.63 May 31, 2008 IDFC F R F - STP - Plan A - Growth Jun 24, 2008 0.5317 1.5688 5.9976 5.9647 117.63 May 31, 2008 IDFC F R F - STP - Plan A - Mthly Div Jun 24, 2008 0.4198 1.2276 4.8518 4.8893 117.63 May 31, 2008 IDFC F R F - STP - Plan A - Wkly Div Jun 24, 2008 0.4259 1.2227 4.6509 4.9599 117.63 May 31, 2008 46 | P a g e
  47. 47. IDFC F R F - STP - Plan B - IP - Daily Div Jun 24, 2008 0.4144 1.2212 4.6456 4.969 117.63 May 31, 2008 IDFC F R F - STP - Plan B - IP - Growth Jun 24, 2008 0.5315 1.5692 5.9992 5.9686 117.63 May 31, 2008 IDFC F R F - STP - Plan B - IP - Mthly Div Feb 21, 2007 0.4808 1.4559 5.5025 4.7709 140.47 Jul 31, 2007 IDFC F R F - STP - Plan B - IP - Wkly Div Jun 24, 2008 0.4228 1.2227 4.6507 4.9805 117.63 May 31, 2008 IDFC F R F - STP - Plan C - Super I P - Daily Div Jun 24, 2008 0.4342 1.2668 4.8759 5.2513 117.63 May 31, 2008 IDFC F R F - STP - Plan C - Super I P - Growth Nov 7, 2007 NA -17.0808 -13.0535 -0.9103 140.47 Jul 31, 2007 IDFC F R F - STP - Plan C - Super I P - Monthly Div Dec 10, 2006 -0.4678 0.1209 3.5741 NA 364.26 Nov 30, 2006 IDFC F R F - STP - Plan C - Super I P - Weekly Div Dec 10, 2006 0 0 2.259 NA 364.26 Nov 30, 2006 IDFC G Sec Fund - Investment - Plan A - Annual Div. Jun 24, 2008 -0.5188 -3.5388 7.8655 5.8857 8.05 May 30, 2008 IDFC G Sec Fund - Investment - Plan A - Growth Jun 24, 2008 -0.5197 0.9384 8.643 6.4532 8.05 May 30, 2008 IDFC G Sec Fund - Investment - Plan A - HY Div. Jun 24, 2008 -0.5185 -2.7098 7.8489 5.8443 8.05 May 30, 2008 IDFC G Sec Fund - Investment - Plan A - Qtrly Div. Jun 24, 2008 -0.5188 -0.4688 7.8695 5.9078 8.05 May 30, 2008 47 | P a g e
  48. 48. IDFC G Sec Fund - Short Term - Plan A - Growth Jun 24, 2008 -0.3101 -0.3116 4.1879 4.0783 0.29 May 30, 2008 IDFC G Sec Fund - Short Term - Plan A - Mthly Div. Jun 24, 2008 -0.3097 -0.1873 3.7783 3.6239 0.29 May 30, 2008 IDFC G Sec Fund - Short Term - Plan A - Qtly Div. Jun 24, 2008 -0.3094 -1.2873 2.1828 3.1104 0.29 May 30, 2008 IDFC G-Sec Fund - IP - PF Plan - Plan B - Annual Dividend Dec 2, 2005 0 0 0.8139 NA 17.5 Apr 30, 2008 IDFC G-Sec Fund - IP - PF Plan - Plan B -Qty Dividend Jun 24, 2008 -0.0653 -0.8643 9.2156 6.4255 17.64 May 30, 2008 IDFC G-Sec Fund - IP- PF Plan - Plan B - Growth Jun 24, 2008 -0.0665 1.5199 10.2988 7.1258 17.64 May 30, 2008 IDFC G-Sec Fund - PF Plan - Plan A - Annual Dividend Jun 24, 2008 -0.066 -5.2848 8.9937 6.3775 17.64 May 30, 2008 IDFC G-Sec Fund - PF Plan - Plan A - Growth Jun 24, 2008 -0.0659 1.5199 10.3307 7.2039 17.64 May 30, 2008 IDFC G-Sec Fund - PF Plan - Plan A - Qtly Dividend Jun 24, 2008 -0.0662 -0.861 9.217 6.498 17.64 May 30, 2008 IDFC Imperial Equity Fund - Dividend Jun 24, 2008 -12.4986 -5.0837 6.4711 NA 144.49 May 30, 2008 IDFC Imperial Equity Fund - Growth Jun 24, 2008 -12.4995 -5.4539 6.0593 NA 144.49 May 30, 2008 IDFC Liquidity Manager Fund - Daily Div Jun 24, 2008 0.4837 1.2568 4.7504 NA 34.65 May 31, 2008 48 | P a g e
  49. 49. IDFC Liquidity Manager Fund - Monthly Div Jun 24, 2008 0.504 1.2843 4.8135 NA 34.65 May 31, 2008 IDFC Liquidity Manager Fund - Weekly Div Jun 24, 2008 0.4989 1.2631 4.7622 NA 34.65 May 31, 2008 IDFC Liquidity Manager Fund -Growth Jun 24, 2008 0.6205 1.6159 6.1409 NA 34.65 May 31, 2008 IDFC Liquidity Manager Fund Plus - Daily Div Jun 24, 2008 0.5514 1.6129 6.0924 NA 2420.41 May 31, 2008 IDFC Liquidity Manager Fund Plus - Growth Jun 24, 2008 0.7084 2.0725 7.8835 NA 2420.41 May 31, 2008 IDFC Liquidity Manager Fund Plus - Monthly Div Jun 24, 2008 0.5616 1.6275 6.1181 NA 2420.41 May 31, 2008 IDFC Liquidity Manager Fund Plus - Weekly Div Jun 24, 2008 0.568 1.618 6.1035 NA 2420.41 May 31, 2008 IDFC Premier Equity Fund - Dividend Jun 24, 2008 -12.6315 0.4989 12.0037 NA 785.32 May 30, 2008 IDFC Premier Equity Fund - Growth Jun 24, 2008 -12.6315 0.4989 12.0037 NA 785.32 May 30, 2008 IDFC SSIF - Invt. Plan - Plan A - Ann Div. Jun 24, 2008 -0.4539 -5.639 8.5943 5.4839 68.94 May 30, 2008 IDFC SSIF - Invt. Plan - Plan A - Growth Jun 24, 2008 -0.4535 1.0729 9.9139 6.1931 68.94 May 30, 2008 IDFC SSIF - Invt. Plan - Plan A - H Y Div. Jun 24, 2008 -0.4536 -3.4994 8.8549 4.6899 68.94 May 30, 2008 49 | P a g e
  50. 50. IDFC SSIF - Invt. Plan - Plan A - Qtly Div. Jun 24, 2008 -0.4522 -1.2874 8.8493 5.6155 68.94 May 30, 2008 IDFC SSIF - MTP - Plan A - Bimonthly Dividend Jun 24, 2008 0.1003 0.6906 6.2578 5.6267 181.93 May 30, 2008 IDFC SSIF - MTP - Plan A - Daily Dividend Jun 24, 2008 0.1575 1.5463 6.2093 NA 181.93 May 30, 2008 IDFC SSIF - MTP - Plan A - Fortnightly Dividend Jun 24, 2008 0.1601 1.5166 6.0223 NA 181.93 May 30, 2008 IDFC SSIF - MTP - Plan A - Growth Jun 24, 2008 0.19 1.7778 7.0329 6.4605 181.93 May 30, 2008 IDFC SSIF - MTP - Plan A - Monthly Dividend Jun 24, 2008 0.1091 1.5082 6.0738 NA 181.93 May 30, 2008 IDFC SSIF - Short Term - Plan A - Fortnightly Div Jun 24, 2008 -0.2826 0.9306 6.7801 NA 261.54 May 30, 2008 IDFC SSIF - Short Term - Plan A - Growth Jun 24, 2008 -0.2652 1.1583 7.7508 6.7463 261.54 May 30, 2008 IDFC SSIF - Short Term - Plan A - Monthly Dividend Jun 24, 2008 -0.3178 0.9134 6.6321 5.8049 261.54 May 30, 2008 IDFC SSIF - Short Term - Plan B - Fortnightly Div Jun 24, 2008 -0.2618 0.9887 7.0197 NA 261.54 May 30, 2008 IDFC SSIF - Short Term - Plan B - Growth Jun 24, 2008 -0.243 1.219 8.0156 NA 261.54 May 30, 2008 IDFC SSIF - Short Term - Plan B - Monthly Dividend Jun 24, 2008 -0.2987 0.9688 6.9434 NA 261.54 May 30, 2008 50 | P a g e
  51. 51. IDFC SSIF - Short Term - Plan C - Super IP - Frtly Div Jun 24, 2008 -0.2548 1.0057 6.9577 NA 261.54 May 30, 2008 IDFC SSIF - Short Term - Plan C - Super IP - Growth Jun 18, 2008 0.1099 1.7759 8.4959 NA 261.54 May 30, 2008 IDFC SSIF - Short Term - Plan C - Super IP - Monthly Div Jun 24, 2008 -0.2901 0.9874 4.4279 NA 261.54 May 30, 2008 IDFC SSIF - Short Term - Plan D - MF Plan - Growth Jun 24, 2008 -0.2612 1.1675 NA NA 261.54 May 30, 2008 IDFC SSIF - Short Term - Plan D - MF Plan - Monthly Div Jun 24, 2008 -0.3107 0.925 NA NA 261.54 May 30, 2008 IDFC acquires StanChart's mutual fund Infrastructure Finance Development Company Ltd today acquired mutual fund business of Standard Chartered Bank. The company has received all necessary approvals from the concerned regulatory authority, IDFC informed the Bombay Stock Exchange in a communiqué here. The company had earlier signed an agreement with Standard Chartered Bank in March for a consideration of Rs 820 crore. 51 | P a g e
  52. 52. Standard Chartered MF has around Rs 14,000 crore in assets of which Rs 4,000 crore is in equity while rest is in debt. With this IDFC acquires Standard Chartered Trustee Company and Standard Chartered Asset Management Company, both of which represent Standard Chartered's mutual fund business in India. IDFC is one of the leading infrastructure finance institutions, and the acquisition would give it a foothold in the retail sector and improve its high margin fee based income. Study and Survey: Objective This study is conducted in order to find out:- - Current trends of mutual funds in the Indian market. 52 | P a g e
  53. 53. - Investor’s perception towards mutual funds investment option. - Different views of professional advisors. RATIONALE OF STUDY The study of this nature is being conducted on the behalf of IDFC AMC (Standard charted) for prediction of future of mutual funds in Indian emerging market. A high level of competition entering the mutual funds sector, companies need to catch up with the ever changing demands of the industry. The study is being conducted to get an edge over other MFs houses in the mutual fund industry. It is also done in order to know as to how much knowledge and money the consumers contribute in the MFs schemes. Survey Methodology Survey comprises collecting, organizing, and evaluating data, reaching at a specific conclusion and at the same time careful evaluation of the conclusion. Collection of data has been done by two ways (1) primary data collection; and (2) secondary data collection, through questionnaires and websites, magazines, newspapers, documents, etc. Area of data collection was HDFC Bank branches at Chandnichowk, Ashok vihar (Delhi). Analysis of data has been done with the help of spss software. Articles are attached from various magazines. Conclusion is drown from result of different data processing and articles analyzation. LIMITATIONS OF THE STUDY The survey was conducted in chandnichowk and ashok vihar. The standard of living, per capita income of people, earning style, etc. of this region is different from other areas. Therefore, the inferences drawn from the survey can’t be generalized. Another major limitation was unwillingness of respondents to reveal information. Due to lack of sufficient time and hesitation to reveal information regarding their investments, it was a difficult task to extract information from them. Sample size was also small i.e. 100. Therefore, it is very difficult to infer correct conclusions from small sample. Findings 1. This graph clearly shows that young people are more likely to visit bank branches. Thus more chances of getting long term, more risk taker and aggressive investors. 53 | P a g e
  54. 54. Figure 1 Age group 2. Here data shows that people are willing to earn more return than that of they earn in traditional ways of investment. 54 | P a g e
  55. 55. Expected returns Figure 2 3. This graph predicts that generally consumers keep a smaller part of their disposable income aside for different investment options. 55 | P a g e
  56. 56. % of disposable income Figure 3 4. This graphical representation clearly shows that investors give smaller part of their investment pool to mutual funds investment. 56 | P a g e
  57. 57. % of total investment Figure 4 5. These pillars provide a clear thought to our mind that in India professional advisors are more reliable source to get mutual funds related information. 57 | P a g e
  58. 58. No. of persons Figure 5 6. This chart is showing that Indian investors are willing to stay invested for a time duration of more than 12 months. They have patience, they want to earn more money on their investment, and this is a bright sign for mutual funds industry. 58 | P a g e
  59. 59. Figure 6 Key findings:- # Study found that more young people are likely to involved in financial activities. They more frequently visit banks and meet financial advisors. This is an opportunity for mutual funds houses to attract these people. # More than 50% of surveyed persons willing to take high risk for high rate of return. This indicates that riskier investment options can also attract big pool of money if investors are properly convinced. 59 | P a g e
  60. 60. # Study shows professional advisors are considered to be more reliable source of mutual funds information, not because they provide human touch to investor but others are not aggressively proposed, advertised, availed and used . # An another observation made by study was , many a time advisors themselves do not get timely updates from AMCs. This leads them not to offer some of schemes those may give good returns. # technological advancements are at nascent stage. Therefore these channels will take time to come in picture. In other words these are seems to narrow ways to walk. # surveyed persons are not having knowledge of more than 10 AMCs name and not more than 7 schemes of any one of mutual fund houses. This requires an aggressive marketing of funds. So that awareness level of investor can be improved. Professional advisors think that investors are not educated properly. They (investor) rely on what others say or what they (advisors) say. It’s easy to convince them for investment but not so easy to make them clear about market affecting factors. “Stock market is going low and I am already losing, you are asking for investment in market, sorry I am not interested.” An investor grievance. Conclusion & recommendations: After going through a two months summer training and survey, I have come to know about different aspects of mutual funds and mutual funds industry. India is an emerging market. Consumption level is rising with rising earning level. Economic indicators micro and macro both show a sky facing arrows. Data shows that there will be more number of billionaires from India than any of other country. We know that Indians are earning more therefore spending more, but how much they save/invest in order to secure future. There are numbers of traditional ways of saving. They give guaranteed return with low 60 | P a g e
  61. 61. risk. High risk associated investment options was not considered a right decision. India is a young country having a considerably big part of young people. They are more risk taker. They need a right direction for investment options. This study and survey on mutual funds is a small eye hole to see the picture of mutual funds industry in India. This provides almost clear view to the readers. Mutual funds industry is enlarging its size in India. JVs, foreign JVs and acquisitions are in trend. AUM has gone to $8 trillion, number of investors is rising, and number of AMCs is going up. These changes are likely to happen. Indian monetary policy is supporting new business. Private sector is aggressively participating in mutual funds business. Numbers of schemes are much more than earlier. With such shining sides, double digit inflation rate, bearish stock market, RBI’s high bank rates, squeezing liquidity and other dark sides putting pressure on consumers saving. This situation pushes investors back from investment. They wait and hold cash rather than investing. This study found that investors are willing to invest with high rate of return. They know high return always adhere to high risk but market still is not in correction mode. It will take time. Indian market potential is high, investors are willing to pour money in mutual funds, despite some temporary restraints, other economic factors are in favorable mode. Thus we need proper management of advisory services, more schemes, financial advisors and institutions to cater untouched markets. Industry need to revise its business strategy. Investor’s perception is not prioritized yet. Instead of completing targets, advisors working under institutions should consider the requirement of investors. We need to change pattern of selling mutual funds schemes. I hope this study will help readers to identify industry’s unidentified areas where they need to work out. Questionnaires [I] For staff of HDFC Bank Ltd. 1. How long have you been selling mutual funds? 2. By what way did you used to communicate to your clients? 3. Do you still follow the same modes? 61 | P a g e
  62. 62. 4. Industry is changing, consumer`s perception is changing, Indian economy is also dynamic, growing, how do you justify your job with such a changing scenario? 5. How do you describe ‘technological innovation in mutual funds ‘, by what extent seen and foreseen changes are caused by it? 6. If I keep all recommendations aside and simply ask you, what factors do you consider before suggesting any scheme to a prospective client? 7. Demand and supply mechanism moreover is applicable to buying and selling, what is the present seen of this mechanism for mutual funds in India? 8. Data says that in US number of mutual funds schemes are more than that of number of listed companies at stock exchange whereas in India not more than 1000 schemes. How do you react on this situation? 9. One side double digit inflation rate, RBI’s norms for curbing liquidity from market, high price of fuel, are putting pressure on consumer’ s savings, on the other side SEBI and RBI are relaxing norms for AMCs business. How these two repelling poles can stand simultaneously? 10. Number of distribution channels is increasing just to cater untouched market. What do you think? 11. Finally, where do you see this industry in coming 10years horizon? [II] For clients of HDFC Bank Ltd. 1. Which of the following age bands do you fall in to? Less than 21 21 to 25 25 to 35 35 to 60 Above 60 62 | P a g e
  63. 63. 2. What is your primary source of income? Your pension Your salary Income from your business Rental income from investment properties 3. What is your return expectation on your investment? Up to 8% Between 8% to 18% Above 18% 4. How would you describe/rate your level of knowledge of financial products? Low level of knowledge Medium level of knowledge High level of knowledge 5. What level of risk are you willing to accept on your investment? I want to protect my capital I am comfortable with a small degree of risk I am comfortable accepting the fact that investment could decline I am willing to tolerate putting my principal at risk by investing in volatile investments 6. What percent of your disposable income do you keep aside for different investment options? 0% to 5% 63 | P a g e
  64. 64. 5% to 10% 10% to 15% 15% to 20% 20% to 30% Above 30% 7. What percent of above mentioned percentage part do you invest in mutual funds? 0% to 5% 5% to 10% 10% to 20% 20% to 30% 30% to 50% Above 50% 8. Which of the following source of mutual funds information do you like to opt for? Professional advisory Company advisory Mutual fund prospects Newspaper, magazine, television Mutual fund rating service 9. How long are you planning to stay invested? Long term > 12 months 64 | P a g e
  65. 65. Medium term 6 – 12 months Short term < 6 months 10. How likely are you stay invested during volatile times? Unlikely you will stay invested Likely you will stay invested Highly likely to remain invested Glossary:- Back-end Load - Charge imposed by a mutual fund when an investor redeems shares. Redemption fees and contingent deferred sales charges are examples. Contingent Deferred Sales Charges - Back-end load imposed on an investor who redeems shares. It is usually expressed as a percentage of the original purchase price or of the value of shares redeemed. In most cases, the longer the investor holds his shares, the smaller the deferred sales charge. Distribution - Payments made to shareholders by the mutual fund. Interest and stock dividends earned by the fund’s portfolio are passed to shareholders as dividends, while capital gains are 65 | P a g e
  66. 66. passed as capital gains distributions. Dividend Reinvestment Fee - Fee charged when an investor uses dividends paid by a mutual fund to purchase additional shares of the mutual fund. Exchange Fee - Fee charged when an investor switches from one mutual fund to another in the same family of funds. Front-end Load - Sales charge applied at the time the investor purchases shares. Investment Companies - The companies that pool investor monies to purchase securities. The Investment Company Act of 1940 created three types of investment companies: face-amount certificate companies, unit investment trusts and management companies. Management Companies - There are two types: open-end and closed-end. Open-end funds, which sell and buy shares back on demand, are called mutual funds. Closed-end funds have a fixed number of shares. After the initial public offering, shares in closed-end funds trade only on exchanges. The price is determined by the market and does not necessarily reflect the net asset value of the shares. Management Fee - A fee paid by the mutual fund to its investment adviser and charged against fund assets, generally 1% or less per year. Net Asset Value - In effect, the share price of a fund computed daily by adding the value of the fund’s securities and other assets, subtracting liabilities, and dividing by the number of shares outstanding. For a mutual fund with a front-end load, net asset value is identical to the "asked price" or "offering price." Prospectus - A disclosure document which should provide the investor with full and complete disclosure of all material information needed by the investor to make a decision whether or not to invest. The prospectus generally incorporates the SAI by "reference." (See SAI definition.) Redemption Fee - A fee charged to an investor who redeems shares. It is generally expressed as a percentage of the value of shares redeemed. Rule 12b-1 Fee - An asset-based sales load, permitted by SEC Rule 12b-1, representing annual charges of up to 1-1/4% for specific sales or promotional activities of the mutual fund. Over time, the amount paid in Rule 12b-1 fees can surpass the amount paid in sales fees charged by load funds. SAI - A disclosure document called a Statement of Additional Information. The SAI is not required to be furnished by mutual funds to investors unless investors specifically request it. Investors are 66 | P a g e
  67. 67. responsible for information in the SAI, even if they don’t request it. Total Return - A computation of mutual fund performance which measures changes in total value over a specified time period. Included in the computation are distributions paid to investors, capital gains distributions and unrealized capital gains and losses. Since all fund activity which has an effect on net asset value is represented, this measure provides a picture of performance which is more complete than yield. Yield - A measure of mutual fund performance, which is figured by dividing the income generated (dividends, capital gains distribution, etc.) per share for a specific time period by the fund’s current price per share. For example if, during a year, a single share of a fund had paid income totaling $1 and its share price was $10, the annual yield for that year would be figured by dividing 1 by 10, which equals one tenth, or a yield of 10%. References:- www.IDFCMF.com www.moneycontrolindia.com http://www.nse-india.com http://www.amfiindia.com http://www.mutualfundsindia.com http://www.sebi.gov.in www.businessmapsofindia.com 67 | P a g e
  68. 68. www.ceicdata.com www.economictimes.com www.valueresearchonline.com 68 | P a g e