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Project report mutal funds abu
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Project Report
On
(Awareness of Mutual Funds and its Scope)
In Partial Fulfilment for the award of the degree
Of
Bachelor of Business Administration
Department of the Management
Submitted To: Submitted By :
Prof Anita Rana Abhishek Choudhary
Class Roll NoU16BB004
University Roll No
5160710025
Shaheed Captain Vikram Batra Govt. College
Palampur
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STUDENT DECLARATION
I hereby declare that the projectreportentiled “STUDYOF AWERENESS OF
MUTUAL FUNDS AND ITS SCOPE ”submitted by me to Shaheed Captain Vikram
Batra Govt. College Palampur in partial fulfilment of the requirement for the
award if the B.B.A is record of bonafide projectwork carried out by me under the
guidance of Prof. Anita Rana. I further declare that the work reportin the project
reporthas not been submitted and will not be submitted, either in part or in
full, for the award of any other degree or diploma in this institute or
any other institute or university
Signature of Candidate Project Incharge
Counter signed Director / Coordinate
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ACKNOWLEDGEMEN
I have taken effortin the project. However, it would not havepossiblewithout
the supportand help of many individual and organization. I would like to extend
my sincerethanks to all of them.
I am highly indebted necessary information regarding the project and also for
their supportin completing the project.
I would like to express my gratitude towards my parents, teacher and all my
friends for their kind co-operation and encouragement which help me in
completion in this projectreport.
We also like to thanks Shaheed VikramBatra Govt. College Palampur to provide
us with the platformfor this interface.
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PRERACE
In today’s trend of cut –throat competition, Bachelor Of Business Administration
(BBA) is sure to have an edge over their counterparts.
BBA education brings its students in direct contact with the real corporateworld
through industrial training. The BBA Provides its students with an in depth study
of various managerialactivities that are performed in any organization
A detailed analysis of managerial activities conducted in various departmentlike
production, marketing, finance, human resource etc give the student a
conceptual idea of what they are expected to mange , how to manage and how to
obtain the maximum output through minimum input and how to maximize the
wastageresource.
Simple language has been used throughoutthe reportis illustrate with figure,
charts and diagrams as and with required
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TABLE OF CONTENT
SO PARTICULAR PAGENO
1 DECLRATION 1
2 ACKNOWLEGEMENT 2
3 CHAPTER NO: 1 38
INTRODUCTION OF MUTUAL FUNDS
INVESTMENT AND YOU
TYPE OF MUTUAL FUNDS
ADVANTAGES AND DISADVANTAGES
OBJECTIVE OF MUTUAL FUNDS
SCOPE OF MUTUAL FUNDS
4 CHAPTER NO : 2 1
METHODOLOGY
5 BIBLORAPHY 1
6 CONCLUSION 1
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INTRODUCTION
Introductionabout Mutual Funds
A Mutual Fund is a trust that pools the savings of a number of investors
who share a common financial goal. The money thus collected is invested
by the fund manager in different types of securities depending upon the
objective of the scheme. These could range from shares to debentures to
money market instruments. The income earned through these investments
and the capital appreciations realized by the scheme are shared by its unit
holders in proportion to the number of units owned by them (pro rata).
Thus a Mutual Fund is the most suitable investment for the common man
as it offers an opportunity to invest in a diversified, professionally managed
portfolio at a relatively low cost. Anybody with an investible surplus of as
little as a few thousand rupees can invest in Mutual Funds. Each Mutual
Fund scheme has a defined investment objective and strategy.
A mutual fund is the ideal investment vehicle for today‘s complex and
modern financial scenario. Markets for equity shares, bonds and other fixed
income instruments, real estate, derivatives and other assets have become
mature and information driven. Price changes in these assets are driven by
global events occurring in faraway places. A typical individual is unlikely to
have the knowledge, skills, inclination and time to keep track of events,
understand their implications and act speedily. An individual also finds it
difficult to keep track of ownership of his assets, investments, brokerage
dues and bank transactions etc.
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A mutual fund is the answer to all these situations. It appoints
professionally qualified and experienced staff that manages each of these
functions on a full time basis. The large pool of money collected in the fund
allows it to hire such staff at a very low cost to each investor. In effect, the
mutual fund vehicle exploits economies of scale in all three areas -
research, investments and transaction processing. While the concept of
individuals coming together to invest money collectively is not new, the
mutual fund in its present form is a 20th
century phenomenon. In fact,
mutual funds gained popularity only after the Second World War. Globally,
there are thousands of firms offering tens of thousands of mutual funds
with different investment objectives. Today, mutual funds collectively
manage almost as much as or more money as compared to banks.
A draft offer document is to be prepared at the time of launching the fund.
Typically, it pre specifies the investment objectives of the fund, the risk
associated, the costs involved in the process and the broad rules for entry
into and exit from the fund and other areas of operation. In India, as in
most countries, these sponsors need approval from a regulator, SEBI
(Securities exchange Board of India) in our case. SEBI looks at track records
of the sponsor and its financial strength in granting approval to the fund for
commencing operations.
A sponsor then hires an asset management company to invest the funds
according to the investment objective. It also hires another entity to be the
custodian of the assets of the fund and perhaps a third one to handle
registry work for the unit holders (subscribers) of the fund.
In the Indian context, the sponsors promotetheAssetManagement Company
also, in which it holds a majority stake. In many cases a sponsor can hold a
100% stakein the Asset Management Company (AMC). E.g. Birla Global
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Finance is the sponsor of the Birla Sun Life Asset Management Company Ltd.,
which has floated different mutual funds schemes and also acts as an asset
manager for the funds collected under the schemes.
Future Scenario
The asset base will continue to grow at an annual rate of about 30 to 35 %
over the next few years as investor‘s shifttheir assets frombanks and other
traditional avenues. Some of the older public and private sector players will
either close shop or be taken over.
Out of ten public sector players five will sell out, close down or merge with
stronger players in three to four years. In the private sector this trend has
already started with two mergers and one takeover. Here too someof them
will down their shutters in the near future to come.
But this does not mean there is no room for other players. The market will
witness a flurry of new players entering the arena. There will be a large
number of offers from various asset management companies in the time to
come. Some big names like Fidelity, Principal, and Old Mutual etc. are
looking at Indian market seriously. One important reason for it is that most
major players already have presence here and hence these big names
would hardly like to get left behind.
The mutual fund industry is awaiting the introduction of derivatives in India
as this would enable it to hedge its risk and this in turn would be reflected
in it‘s Net Asset Value (NAV).
SEBI is working out the norms for enabling the existing mutual fund
schemes to trade in derivatives. Importantly, many market players have
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called on the Regulator to initiate the process immediately, so that the
mutual funds can implement the changes that are required to trade in
Derivatives.
Market Trends
A lone UTI with just one scheme in 1964 now competes with as many as 400
odd products and 34 players in the market. In spite of the stiff competition and
losing market share, UTI still remains a formidable force to reckon with.
Last six years have been the most turbulent as well as exiting ones for the
industry. New players have come in, while others have decided to close shop
by either selling off or merging with others. Product innovation is now passé
with the game shifting to performance delivery in fund management as well as
service. Those directly associated with the fund management industry like
distributors, registrars and transfer agents, and even the regulators have
become more mature and responsible.
The industry is also having a profound impact on financial markets. While UTI
has always been a dominant player on the bourses as well as the debt markets,
the new generations of private funds which have gained substantial mass are
now seen flexing their muscles. Fund managers, by their selection criteria for
stocks haveforced corporategovernanceon the industry. By rewarding honest
and transparent management with higher valuations, a system of risk-reward
has been created where the corporate sector is more transparent then before.
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Funds have shifted their focus to the recession free sectors like
pharmaceuticals, FMCG and technology sector. Funds performances are
improving. Funds collection, which averaged at less than Rs100bn per annum
over five-year period spanning 1993-98doubled to Rs210bn in 1998-99. In the
current year mobilization till now have exceeded Rs300bn. Total collection for
the current financial year ending March 2000 is expected to reach Rs450bn.
What is particularly noteworthy is that bulk of the mobilization has been by
the privatesector mutual funds rather than public sector mutual funds. Indeed
private MFs saw a net inflow of Rs. 7819.34 crore during the first nine months
of the year as against a net inflow of Rs.604.40 crore in the case of public
sector funds.
Mutual funds are now also competing with commercial banks in the race for
retail investor‘s savings and corporate float money. The power shift towards
mutual funds has become obvious. The coming few years will show that the
traditional saving avenues are losing out in the current scenario. Many
investors are realizing that investments in savings accounts are as good as
locking up their deposits in a closet. The fund mobilization trend by mutual
funds in the current year indicates that money is going to mutual funds in a big
way. The collection in the firsthalf of the financial year 1999-2000 matches the
whole of 1998-99India is at the first stage of a revolution that has already
peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its
bank deposits. In India, mutual fund assets are not even 10% of the bank
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deposits, but this trend is beginning to change. Recent figures indicate that in
the firstquarter of the currentfiscal year mutual fund assets went up by 115%
whereas bank deposits rose by only 17%. (Source: Think-tank, the Financial
Express September, 99) This is forcing a large number of banks to adopt the
concept of narrow banking wherein the deposits are kept in Gilts and some
other assets which improves liquidity and reduces risk. The basic fact lies that
banks cannotbe ignored and they will not close down completely. Their role as
intermediaries cannot be ignored. It is just that Mutual Funds are going to
change the way banks do business in the future.
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What is a Mutual Fund?
A mutual fund is a common pool of money in to which investors with
common investment objective place their contributions that are to be
invested in accordance with the stated investment objective of the
scheme. The investment manager would invest the money collected
from the investor in to assets that are defined/ permitted by the stated
objective of the scheme. For example, an equity fund would invest
equity and equity related instruments and a debt fund would invest in
bonds, debentures, gilts etc.
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Mutual Fund Structure:
The structure consists
Sponsor: Sponsor is the person who acting alone or in combination with
another body corporate establishes a mutual fund. Sponsor must
contribute at least 40% of the net worth of the InvestmentManaged and
meet the eligibility criteria prescribed under the Securities and Exchange
Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not
responsibleor liable for any loss or shortfall resulting from the operation
of the Schemes beyond the initial contribution made by it towards
setting up of the Mutual Fund.
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Trust: The Mutual Fund is constituted as a trust in accordance with the
provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is
registered under the Indian Registration Act, 1908
Trustee: Trustee is usually a company (corporate body) or a Board of
Trustees (body of individuals). The main responsibility of the Trustee is to
safeguard the interest of the unit holders and inter alia ensure that the
AMC functions in the interest of investors and in accordance with the
Securities and Exchange Board of India (Mutual Funds) Regulations, 1996,
the provisions of the Trust Deed and the Offer Documents of the respective
Schemes. At least 2/3rd directors of the Trustee are independent directors
who are not associated with the Sponsor in any manner.
Asset Management Company (AMC): The AMC is appointed by the Trustee
as the Investment Manager of the Mutual Fund. The AMC is required to be
approved by the Securities and Exchange Board of India (SEBI) to act as an
asset management company of the Mutual Fund. At least 50% of the
directors of the AMC are independent directors who are not associated
with the Sponsor in any manner. The AMC must have a net worth of at least
10 crores at all times.
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Registrar and Transfer Agent:
The AMC if so authorized by the Trust Deed appoints the Registrar and
Transfer Agent to the Mutual Fund. The Registrar processes the
application form, redemption requests and dispatches account
statements to the unit holders. The Registrar and Transfer agent also
handles communications with investors and updates investor records.
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Types of Schemes:
Investment Objective: Schemes can be classified by way of their stated
investment objective such as Growth Fund, Balanced Fund, Income Fund
etc
Equity Oriented Schemes: These schemes, also commonly called Growth
Schemes, seek to invest a majority of their funds in equities and a small
portion in money market instruments. Such schemes have the potential to
deliver superior returns over the long term. However, because they invest
in equities, these schemes are exposed to fluctuations in value especially in
the short term.
Equity schemes are hence not suitable for investors seeking regular income or
needing to usetheir investments in the short-term. They are ideal for investors
who have a long-term investment horizon. The NAV prices of equity fund
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fluctuates with marketvalue of the underlying stockwhich are influenced by
external factors such as social, political as well as economic. HDFC Growth
Fund, HDFC Tax Plan 2000 and HDFC IndexFund are examples of equity
schemes
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General Purpose: The investment objectives of general-purpose equity
schemes do not restrict them to invest in specific industries or sectors. They
thus have a diversified portfolio of companies across a large spectrum of
industries. While they are exposed to equity price risks, diversified general-
purpose equity funds seek to reduce the sector or stock specific risks
through diversification. They mainly have market risk exposure. HDFC
Growth Fund is a general-purpose equity scheme.
Sector Specific: Theseschemes restricttheir investing to one or more pre-
defined sectors, e.g. technology sector. Since they depend upon the
performanceof select sectors only, these schemes are inherently more risky
than general-purposeschemes. They are suited for informed investors who
wish to take a view and risk on the concerned sector.
Index Schemes
The primary purpose of an Index is to serve as a measure of the
performance of the market as a whole, or a specific sector of the market.
An Index also serves as a relevant benchmark to evaluate the performance
of mutual funds. Some investors are interested in investing in the market in
general rather than investing in any specific fund. Such investors are happy
to receive the returns posted by the markets. As it is not practical to invest
in each and every stock in the market in proportion to its size, these
investors are comfortable investing in a fund that they believe is a good
representative of the entire market. Index Funds are launched and
managed for such investors. An example to such a fund is the HDFC Index
Fund.
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Tax saving schemes
Investors (individuals and Hindu Undivided Families (―HUFs‖)) arebeing
encouraged to investin equity markets through Equity Linked Savings Scheme
(―ELSS‖) by offering them a tax rebate. Units purchased cannotbe assigned /
transferred/pledged / redeemed / switched– out until completion of 3 years
fromthe date of allotment of the respectiveUnits.The Scheme is subjectto
Securities & Exchange Board of India (Mutual Funds) Regulations, 1996 and the
notifications issued by the Ministry of Finance (Departmentof Economic
Affairs), Governmentof India regarding ELSS.
Subject to such conditions and limitations, as prescribed under Section 88
of the Income-taxAct, 1961, subscriptions to the Units not exceeding Rs.10,
000 would be eligible to a deduction, from income tax, of an amount equal
to 20% of the amount subscribed. HDFC Tax Plan 2000 is such a fund.
Real Estate Funds:
Specialized real estate funds would invest in real estates directly, or may
fund real estate developers or lend to them directly or buy shares of
housing finance companies or may even buy their securitized assets.
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These schemes, also commonly called IncomeSchemes, invest corporate
bonds, debentures and governmentsecurities. The prices these schemes tend
to be morestable compared with equity schemes and mostof the returns to
the investors aregenerated through dividends or steady capital appreciation.
These schemes are ideal for conservativeinvestors or thosenot in a position to
take higher equity risks, such as retired individuals. However, as compared to
the money market schemes they do havea higher price fluctuation risk and
compared to a Gilt fund they have a higher credit risk.
Income Schemes
These schemes invest in money markets, bonds and debentures of corporate
with medium and long-term maturities. These schemes primarily target current
income instead of capital appreciation. They therefore distribute a substantial
part of their distributable surplus to the investor by way of dividend distribution.
Such schemes usually declare quarterly dividends and are suitable for
conservative investors who have medium to long term investment horizon and
are looking for regular income through dividend or steady capital appreciation.
HDFC Income Fund, HDFC Short Term Plan and HDFC Fixed Investment
Plans are examples of bond schemes.
Money Market Schemes:
These schemes invest in shortterm instruments such as commercial paper
(―CP‖), certificates of deposit (―CD‖), treasury bills (―T-Bill‖) and overnight
money (―Call‖). The schemes are the least volatile of all the types of schemes
because of their investments in money marketinstrument with short-term
maturities. These schemes have become popular with institutional investors
and high net worth individuals having short-term surplus funds.
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Gilt Funds:
This scheme primarily invests in Government Debt. Hence the investor
usually does not have to worry about credit risk since Government Debt is
generally credit risk free. HDFC Gilt Fund is an example of such a scheme.
Hybrid Schemes:
These schemes are commonly known as balanced schemes. These schemes
invest in both equities as well as debt. By investing in a mix of this nature,
balanced schemes seek to attain the objective of income and moderate
capital appreciation and are ideal for investors with a conservative, long-
term orientation. HDFC Balanced Fund and HDFC Children‘s Gift Fund are
examples of hybrid schemes.
Constitution:
Schemes can be classified as Closed-ended or Open-ended depending upon
whether they give the investor the option to redeem at any time (open-
ended) or whether the investor has to wait till maturity of the scheme.
Open ended Schemes:
The units offered by these schemes are available for sale and repurchase on
any business day at NAV based prices. Hence, the unit capital of the
schemes keeps changing each day. Such schemes thus offer very high
liquidity to investors and are becoming increasingly popular in India. Please
note that an open-ended fund is NOT obliged to keep selling/issuing new
units at all times, and may stop issuing further subscription to new
investors. On the other hand, an open-ended fund rarely denies to its
investor the facility to redeem existing units.
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Closed ended Schemes:
The unit capital of a close-ended product is fixed as it makes a one-time sale
of fixed number of units. These schemes are launched with an initial public
offer (IPO) with a stated maturity period after which the units are fully
redeemed at NAV linked prices. In the interim, investors can buy or sell
units on the stock exchanges where they are listed. Unlike open-ended
schemes, the unit capital in closed-ended schemes usually remains
unchanged. After an initial closed period, the scheme may offer direct
repurchasefacility to the investors. Closed-ended schemes areusually more
illiquid as compared to open-ended schemes and hence trade at a discount
to the NAV. This discount tends towards the NAV closer to the maturity
date of the scheme.
Interval Schemes:
These schemes combine the features of open-ended and closed-ended
schemes. They may be traded on the stock exchange or may be open for
sale or redemption during pre-determined intervals at NAV based prices.
Risk:
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The Risk-Return Trade -off:
The most important relationship to understand is the risk-return trade-off.
Higher the risk greater the returns/loss and lower the risk lesser the
returns/loss.
Hence it is up to you, the investor to decide how much risk you are willing
to take. In order to do this you must first be aware of the different types of
risks involved with your investment decision.
Market Risk:
Sometimes prices and yields of all securities rise and fall. Broad outside
influences affecting the market in general lead to this. This is true, may it be
big corporations or smaller mid-sized companies. This is known as Market
Risk. A Systematic Investment Plan
Credit Risk:
The debt servicing ability (may it be interest payments or repayment of
principal) of a company through its cash flows determines the Credit Risk
faced by you. This credit risk is measured by independent rating agencies
like CRISIL who rate companies and their paper. A AA‘ rating is considered
the safest whereas a ‗D‘ rating is considered poor credit quality. A well-
diversified portfolio might help mitigate this risk.
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Interest Rate Risk: In a free market economy interest rates are difficult if
not impossible to predict. Changes in interest rates affect the prices of
bonds as well as equities. If interest rates rise the prices of bonds fall and
vice versa. Equity might be negatively affected as well in a rising interest
rate environment. A well-diversified portfolio might help mitigate this risk.
Political/Government Policy Risk: Changes in government policy and
political decision can change the investment environment. They can create
a favorable environment for investment or vice versa.
Liquidity Risk: Liquidity risk arises when it becomes difficult to sell the
securities that one has purchased. Liquidity Risk can be partly mitigated by
diversification, staggering of maturities as well as internal risk controls that
lean towards purchase of liquid securities
Risk vs. Reward: Before you can begin to build a successfulinvestment
portfolio, you should understand the basic elements of mutual fund investing
and how they can affect the potential value of your investments over the
years. When you investin mutual funds, thereis no guarantee that you will
end up with more money when you withdraw your investmentthan you put in
to begin with -- and that's a scary prospect. Loss of valuein your investmentis
what is considered risk in investing. Even so, the opportunity for investment
growth that is possiblethrough investments in mutual funds far exceeds that
concern for mostinvestors.
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Benefits of Mutual Fund investment:
There are numerous benefits of investing in mutual funds and one of the
key reasons for its phenomenal success in the developed markets like US
and UK is the range of benefits they offer, which are unmatched by most
other investment avenues. We have explained the key benefits in this
section. The benefits have been broadly split into universal benefits,
applicable to all schemes and benefits applicable specifically to open-ended
schemes.
Professional Management
Mutual Funds provide the services of experienced and skilled professionals,
backed by a dedicated investment research team that analyses the
performance and prospects of companies and selects suitable investments
to achieve the objectives of the scheme. 1. Professional Investment
Management.
By pooling the funds of thousands of investors, mutual funds provide full-
time, high-level professional management that few individual investors can
afford to obtain independently. Such management is vital to achieving
results in today's complex markets. Your fund managers' interests are tied
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to yours, because their compensation is based not on sales commissions,
but on how well the fund performs. These managers have instantaneous
access to crucial market information and are able to execute trades on the
largest and most cost-effective scale. In short, managing investments is a
full-time job for professionals.
Diversification
Mutual Funds investin a number of companies across a broad cross-section of
industries and sectors. This diversification reduces the risk becauseseldom do
all stocks decline at the same time and in the same proportion. You achieve
this diversification through a Mutual Fund with far less money than you can do
on your own.
Mutual funds invest in a broad range of securities. This limits investment
risk by reducing the effect of a possible decline in the value of any one
security. Mutual fund shareowners can benefit from diversification
techniques usually available only to investors wealthy enough to buy
significant positions in a wide variety of securities.
Convenient Administration
Investing in a Mutual Fund reduces paperwork and helps you avoid many
problems such as bad deliveries, delayed payments and follow up with
brokers and companies. Mutual Funds save your time and make investing
easy and convenient.
Return Potential
Over a medium to long-term, Mutual Funds have the potential to provide a
higher return as they invest in a diversified basket of selected securities
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Low Costs
Mutual Funds are a relatively less expensive way to invest compared to
directly investing in the capital markets because the benefits of scale in
brokerage, custodialand other fees translateinto lower costs for investors.
Liquidity
In open-end schemes, the investor gets the money back promptly at net
asset value related prices from the Mutual Fund. In closed-end schemes,
the units can be sold on a stock exchange at the prevailing market price or
the investor can avail of the facility of direct repurchase at NAV related
prices by the Mutual Fund.
Transparency
you get regular information on the value of your investment in addition to
disclosure on the specific investments made by your scheme, the
proportion invested in each class of assets and the fund manager's
investment strategy and outlook.
Flexibility
Through features such as regular investment plans, regular withdrawal
plans and dividend reinvestment plans, you can systematically invest or
withdraw funds according to your needs and convenience.
Affordability
A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc.
depending upon the investment objective of the scheme. An investor can
buy in to a portfolio of equities, which would otherwise be extremely
expensive. Each unit holder thus gets an exposureto such portfolios with an
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investment as modest as Rs.500/-. This amount today would get you less
than quarter of an Infosys share!Thus it would be affordablefor an investor
to build a portfolio of investments through a mutual fund rather than
investing directly in the stock market.
Well Regulated
All Mutual Funds are registered with SEBI and they function within the
provisions of strict regulations designed to protect the interests of
investors. The operations of Mutual Funds are regularly monitored by SEBI
Life Cycle Planning
With no-load mutual funds, you can link your investment plans to future
individual and family needs -- and make changes as your life cycles change.
You can invest in growth funds for future college tuition needs, then move
to income funds for retirement, and adjust your investments as your needs
change throughout your life. With no-load funds, there are no commissions
to pay when you change your investments.
Market Cycle Planning
For investors who understand how to actively manage their portfolio, mutual
fund investments can be moved as marketconditions change. You can place
your funds in equities when the market is on the upswing and moveinto
money marketfunds on the downswing or take any number of steps to ensure
that your investments are meeting your needs in changing marketclimates. A
word of caution: sinceit is impossibleto predict whatthe market will do at any
point in time, staying on coursewith a long-term, diversified investment view
is recommended for mostinvestors
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Dividend Options
You can receive all dividend payments in cash. Or you can have them
reinvested in the fund free of charge, in which case the dividends are
automatically compounded. This can make a significant contribution to
your long-term investment results. With some funds you can elect to
have your dividends from income paid in cash and your capital gains
distributions reinvested.
Automatic Direct Deposit
You can usually arrange to have regular, third-party payments -- such as
Social Security or pension checks -- deposited directly into your fund
account. This puts your money to work immediately, without waiting to
clear your checking account, and it saves you from worrying about
checks being lost in the mail.
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HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY
The mutual fund industry in India started in 1963 with the formation of
Unit Trust of India, at the initiative of the Government of India and
Reserve Bank. Though the growth was slow, but it accelerated from the
year 1987 when non-UTI players entered the Industry.
In the past decade, Indian mutual fund industry had seen a dramatic
improvement, both qualities wise as well as quantity wise. Before, the
monopoly of the market had seen an ending phase; the Assets Under
Management (AUM) was Rs67 billion. The private sector entry to the fund
family raised the Aum to Rs. 470 billion in March 1993 and till April 2004;
it reached the height if Rs. 1540 billion.
The Mutual Fund Industry is obviously growing at a tremendous space
with the mutual fund industry can be broadly put into four phases
according to the development of the sector. Each phase is briefly
described as under.
First Phase – 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament
by the Reserve Bank of India and functioned under the Regulatory and
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administrative control of the Reserve Bank of India. In 1978 UTI was de-
linked from the RBI and the Industrial Development Bank of India (IDBI)
took over the regulatory and administrative control in place of RBI. The
first scheme launched by UTI was Unit Scheme 1964. At the end of 1988
UTI had Rs.6,700 crores of assets under management.
Second Phase – 1987-1993 (Entry of Public Sector Funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by
public sector banks and Life Insurance Corporation of India (LIC) and
General Insurance Corporation of India (GIC). SBI Mutual Fund was the
first non- UTI Mutual Fund established in June 1987 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 established its mutual fund in June 1989 while GIC had
set up its mutual fund in December 1990.At the end of 1993, the mutual
funds
Third Phase – 1993-2003 (Entry of Private Sector Funds)
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. The erstwhile Kothari Pioneer (now merged with Franklin
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Templeton) was the first private sector mutual fund registered in July
1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more
comprehensive and revised Mutual Fund Regulations in 1996. The
industry now functions under the SEBI (Mutual Fund) Regulations 1996.
As at the end of January 2003, there were 33 mutual funds with total
assets of Rs. 1,21,805 crores under industry had assets under
management of Rs.47,004 crores.
Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963
UTI was bifurcated into two separate entities. One is the Specified
Undertaking of the Unit Trust of India with assets under management of
Rs.29,835 crores as at the end of January 2003, representing broadly, the
assets of US 64 scheme, assured return and certain other schemes
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. consolidation and growth. As at the end of September, 2004,
there were 29 funds, which manage assets of Rs.153108crores under 421
schemes.
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Scope of Mutual funds
Scope of Mutual Funds has grown enormously over the years. In the first
age of mutual funds,when the investment management companies
started to offer mutual funds, choices were few. Even though people
invested their money in mutual funds as these funds offered them
diversified investment option for the firsttime. By investing in these funds
they were able to diversify their investment in common stocks, preferred
stocks, bonds and other financial securities. At the same time they also
enjoyed the advantageof liquidity. With Mutual Funds, they got the scope
of easy access to their invested funds on requirement.
But, in todays world, Scope of Mutual Funds has become so wide, that
people sometimes take long time to decide the mutual fund type, they
are going to invest in. Several Investment Management Companies have
emerged over the years who offer various types of Mutual Funds, each
type carrying unique characteristics and different beneficial features.
To understand the broad scope of Mutual Funds we need to discuss the
main types of Mutual Funds that are normally offered by the Mutual
Companies.
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1. Growth Funds-These funds invest in the stocks, which are under valued
compared to their worth. As these stock prices tends to rise in future
and carry good growth potential, Growth Funds go for these kind of
stocks
2. Value Funds-These funds go for long term investment and aims at
increase of value over the years
3. International Equity Funds-These funds invest in the stocks of foreign
companies.
4. Global Equity Funds-Thesefunds investin stocks of both the domestic
market and the foreign markets.
5. Sector Funds or Specialty Funds-Thesefunds investin specific sectors
like Health care and in specific commodities like Gold.
6. Index Funds-Thesefunds reflect the performanceof stock market
indexes.
7. Money Market Funds These funds invest in the money market. These
funds involve low level of risk and promises comparatively low rate of
return.
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ADVANTAGE OF MUTUAL FUND:-
The advantages of investing in a Mutual Fund are:
Diversification:
The best mutual funds design their portfolios so individual
investments will react differently to the same economic
conditions. For example, economic conditions like a rise in
interest rates may cause certain securities in a diversified
portfolio to decrease in value. Other securities in the portfolio
will respond to the same economic conditions by increasing in
value. When a portfolio is balanced in this way, the value of the
overall portfolio should gradually increase over time, even if
some securities lose value.
Professional Management: Most mutual funds pay topflight
professionals to manage their investments. These managers
decide what securities the fund will buy and sell.
Regulatory oversight: Mutual funds are subject to many
government regulations that protect investors from fraud.
Liquidity: It's easy to get your money out of a mutual fund.
Write a check, make a call, and you've got the cash.
Convenience: You can usually buy mutual fund shares by mail,
phone, or over the Internet.
Low cost: Mutual fund expenses are often no more than 1.5
percent of your investment. Expenses for Index Funds are less
than that, because index funds are not actively managed.
Instead, they automatically buy stock in companies that are
listed on a specific index.
Transparency: Mutual Fund schemes are said to be
Transparent because they show the clear allocation to
Investors.
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Flexibility: Mutual funds are flexible because they change
time to time and also if an Investor wants his money back
before the maturity of the Fund He/she can easily redeem it.
DRAWBACKS OF MUTUAL FUNDS:-
Mutual funds have their drawbacks and may not be for everyone:
No Guarantees:
No investment is risk free. If the entire stock market declines in
value, the value of mutual fund shares will go down as well, no
matter how balanced the portfolio. Investors encounter fewer
risks when they invest in mutual funds than when they buy and
sell stocks on their own. However, anyone who invests through
a mutual fund runs the risk of losing money.
Fees and commissions: All funds charge administrative fees to cover their
day-to-day expenses. Some funds also charge sales commissions or "loads" to
compensate brokers, financial consultants, or financial planners. Even if you
don't use a broker or other financial adviser, you will pay a sales commission if
you buy shares in a Load Fund.
Taxes: During a typical year, mostactively managed mutual funds sell
anywherefrom20 to 70 percent of the securities in their portfolios. If your
fund makes a profiton its sales, you will pay taxes on the income you receive,
even if you reinvestthe money you made.
Management risk: When you invest in a mutual fund, you depend on the
fund's manager to makethe right decisions regarding the fund's portfolio. If
the manager does not performas well as you had hoped, you might not make
as much money on your investmentas you expected. Of course, if you invest in
IndexFunds, you forego management risk, becausethese funds do not employ
managers.
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ASSOCIATION OF MUTUAL FUNDS IN INDIA:-
With the increasein mutual fund players in India, a need for
mutual fund association in India was generated to function
as a non-profitorganization. Association of Mutual Funds in
India (AMFI) was incorporated on 22nd August 1995.
AMFI is an apex body of all AssetManagement Companies
(AMC), which has been registered with SEBI. Till date all the
AMCs are that havelaunched mutual fund schemes are its
members. Itfunctions under the supervision and guidelines
of its Board of Directors.
Association of Mutual Funds India has broughtdown the
Indian Mutual Fund Industry to a professionaland healthy
market with ethical lines enhancing and maintaining
standards. Itfollows theprinciple of both protecting and
promoting the interests of mutual funds as well as their unit
holder
The objectives of Association of Mutual Funds in India:-
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 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 that 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.
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Association of Mutual Fund in India do represent the
Government of India, the Reserve Bank of India and other
related bodies on matters relating to the Mutual Fund Industry.
It develops a team of well qualified and trained Agent
distributors. It implements a program of training and
certification for all intermediaries and other engaged in the
mutual fund industry.
AMFI undertakes all India awareness programmed for investor’s
in order to promote proper understanding of the concepts and
working of mutual funds.
At last but not the least association of mutual fund of India also
disseminate information’s on Mutual Fund Industry and
undertakes studies and research either directly or in association
with other bodies.
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Some facts for the growth of mutual funds in India:-
Number of foreign AMC’s is in the queue to enter the Indian markets
like Fidelity Investments, US based, with over US$1trillion assets
under management worldwide.
Our saving rate is over 23%, highest in the world. Only channelizing
these savings in mutual funds sector is required.
We have approximately 29 mutual funds which is much less than US
having more than 800. There is a big scope for expansion.
'B' and 'C' class cities are growing rapidly. Today most of the mutual
funds are concentrating on the 'A' class cities. Soon they will find
scope in the growing cities.
Mutual fund can penetrate rural like the Indian insurance industry
with simple and limited products.
SEBI allowing the MF's to launch commodity mutual funds.
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PROBLEM STATEMENT:-
Due to the falling Rate of Interest on Bank deposits, it is
obvious that Investment in Mutual Fund will grow in year to
come. However lack of Awareness of Mutual Fund is a
hindering factor in expected growth of Mutual Fund Business.
Under noted problems are envisaged in this area:
Difficult in convincing people for investment.
Difficult to change mind of the
investor cording to age and Profession.
Difficult to make an approach to investors.
Difficult to take an appointment with professional people.
Difficult to get the documents required for
formalities from investors
Difficult to overcome an impassionate person who
wants return in less time.
Difficult follow up the people whose names are
being stored in a data.
Difficult to remove the fear of risk from the minds of investors.
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OBJECTIVE OF STUDY:-
In view of the problem cited above, the study aims at analyzing the
following major issues:
To know the awareness of MUTUAL FUND among people.
To know the different Asset management companies involve in MUTUAL
FUND.
To know the different aspects of MUTUAL FUND according to different age,
profession etc.
To see the interest of people in investing in MUTUAL FUNDS. To know the
future of MUTUAL FUNDS in India.
To know the different attitudes of people regarding risk, rate of return,
period of investment etc.
To study the diversification of mutual fund.
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METHODOLOGY OF STUDY:
Research can be defined as a systemized effort to gain new knowledge. A
research is carried out by different methodologies which have their own
pros and cons. Research methodology is a way to solve research in study
and solving research problems along with logic behind them are defined
through research methodology. Thus while talking about research
methodologies we are not only talking of research methods but also
consider the logic behind the methods. We are in context of our research
studies and explain why it is being used a particular method or technique
and why the others are not used. So that research result is capable of being
evaluated either by researcher himself or by others.
RESEARCH METHODOLOGY:
Research has its special significance in solving various operational and
planning problem of business and industry. Research methodology is a way
to systematically analyze the research problem.
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CONCLUSION
By now we've come to the end of the tape and I hope you've become
familiar with how to select and use mutual funds.
You still can learn a lot more from other books and magazines, but after a
point, you'll probably want to just jump in and start investing in mutual
funds.
The best way to invest with mutual funds is through a retirement account
like an IRA, so listen to my tape on retirement planning if you need help
here.
If you're just starting out, try to find a good fund with a fairly low
minimum investment and just invest a little money -- maybe $1,000. See
how you react to the fund's ups and down with only a little capital at
stake.
Mutual funds are more complex than a bank account, but they're also
much more powerful, especially for long-term financial planning.
To help you learn about funds, I'd recommend that you listen to this tape
several times. You'll pick up new information with each listening.
So good luck with your mutual fund investing, and remember to check the
luhman.org web site and our other audio products for more useful
information about mutual funds and other financial services.
