SUMMER TRAINING AT HDFC MUTUAL FUND (HDFC ASSETS MANAGEMENT COMPANY LTD)
IN PARTIAL FULFILLMENT OF MASTER OF BUSINESS ADMINISTRATION PROGRAMME
SUBMITTED BY:
GUIDED BY:
BADAMI KALPESH. D.
INTERNAL GUIDE AT GRIMS DR.R.S.SHAH EXTERNAL GUIDE AT CO. MR.RAJAN MEHTA
GIDC RAJJU SHROFF ROFEL INSTITUTE OF MANAGEMENT STUDIES, VAPI SUMMER TRAINING PROJECT (2007)
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DECLARATION I, Badami Kalpesh D. a student of MBA semester iii, here by declare that the project work presented in this report is my contribution and has been carried out under supervision of DIRECTOR DR.R.S.SHAH of GIDC RAJJU SHROFF INSTITUTE OF MANAGEMENT STUDIES.
The objective of the training undertaken is to get specialized knowledge in the specialized field, which further sharpen the skill and add practicality in the specialization. This work has not been previously submitted to any other university for any other examination
DATE: -
SIGNATURE (student)
BADAMI KALPESH D. PLACE: -
SIGNATURE (guide)
DR.R.S.SHAH
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PREFACE “Experience is the best teacher.” This saying is very well applicable in everyone’s life. Therefore as a student of management it must apply to me also. Then the question arises that from where we can get this experience. Obviously we must undergo practical Training. To serve this purpose I had undergone two months summer training at HDFC assets Management Company limited and as an outcome I have prepared this project report. This project report on “mutual fund awareness in retail investors of HDFC assets Management Company in Surat” is as per syllabus prescribed by Veer Narmad south Gujarat University for MBA students. This project also deals with various activities of HDFC assets Management Company limited. The experience of this training will be useful in my future and findings of this particular project will be Helpful to take decision regarding to marketing and advertising of mutual fund schemes To HDFC assets Management Company limited.
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ACKNOWLEDGEMENT First of all, I would like to express my sincere gratitude to Mr. Rajan Mehta, Branch manager of HDFC assets Management Company limited, Surat branch for allowing me for summer training at HDFC assets Management Company limited. I heartily feel thanks to Mr. Piyush lal, sales executive who provided me valuable suggestions and guidance at every stage of my summer training. I would also like to express my gratitude to Mr. R.s.shah, my project mentor and other faculty members of GIDC RAJJU SHROFF ROFEL INSTITUTE OF MANAGEMENT STUDIES, vapi for guide me. I would like to thank following persons who help me a lot in my summer training. Mr. Gaurav maheshwari, HDFC assets Management Company limited Mr. Pinkal shah, HDFC assets Management Company limited. Mr. Chintan patel, HDFC assets Management Company limited. Mr. Ritesh jariwala, HDFC assets Management Company limited. Mr. Utkrash gheewala, HDFC bank, Parle point branch Mr. Nilesh patel, HDFC bank, Parle point branch. Mr. Mitesh sampat, HDFC bank, Parle point branch. I also thank to respondents, who have been helpful and faithful enough to give the required information, which helped my project to be a great success, which was the main and important part of my project. I feel happy indeed and it has given me a lot of pleasure in company. Last but not the least I would like to extent my deep sense of gratitude to my family, friends and all whom guided and helped me during my training period. Place: - Surat. Date: - 9thAugust 2007
Badami Kalpesh. B.
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Objectives of Study Without any aim or objective, no activity can exist, in the same direction of preparation of this report on HDFC assets Management Company limited. In different functional areas & research on the “mutual fund awareness in retail investors of HDFC assets Management Company limited in Surat� is based on the following objectives: -
1. My primary objective is to acquire primary functions of management like Planning, Organizing, Directing and controlling from various functional areas such as Finance, Human Resource, Marketing, and Sales etc. 2. Whatever we are taught in the classrooms, there is a limitation that book can only give theoretical concept or knowledge and it has a limited view of practically. So, the other important objective of this training is to know about practical aspect and to know how a company actually works in practical situation. 3. To know the mutual fund awareness level of the retail investors who are invest in HDFC assets Management Company limited.
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Limitations of Study There is no activity without any limitations. 1. Though every one used to be very co-operative but every detail was unable to be disclosed to me as the officials has to maintain secrets of the company. 2. It is difficult to cover all the function of the company. 3. The analysis and conclusion made by me as per my limited understanding and there may be something variation in the actual situation. 4. Because of the limited time period, the survey work was conducted in the Surat region and the sample size was taken as 100 respondents only. 5. In this rapidly changing turbulent era the suggestions and recommendations drawn out today might prove inadequate or improper tomorrow; this is likely to limit its effectiveness.
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EXECUTIVE SUMMARY
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Executive Summary The entire report is an unforgettable journey of support, knowledge, experience, dedication, perfection, and patience. For me it is all about to understand a customer and market of mutual fund industry. The report is specially oriented to particular area, though it is representing the strong base of Investment management-which covers different investment avenues, their handling contribution, strategy, portfolios, and related risk factors. Mutual funds- how they are formed, history, scenario, types, trends, myths, distribution, advantages, and even disadvantages of them. Tips to effectively sell the mutual funds, to be effective agent, some do’s and don’ts about mutual funds while investing. Company details and its progress and its interpretation base for analysis, conclusion, findings, and questionnaire, which helped a lot in consumer, survey analysis. Asset allocation, accounting, taxation, valuation and necessary information for generating base for conclusion. And at last but not the least the collected data from city and their interpretation. In short all efforts which was made to make this report explains
“WORK IS WORSHIP”
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CONTENTS
Sr. No. 1 2 3 4
5 6 7
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9 10 11 12 13
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Name of Table Objectives of Study Limitations of study Executive summary Company details About the Company Sponsors of HDFC Assets Management Company Management of HDFC Assets Management Company Offices of HDFC assets management company limited Product details Future scenario Industry details Introduction History of Mutual Fund Industry Customers Profile of mutual fund industry Positioning Strategy of mutual fund industry Promotional Tools Employed by various mutual fund companies Facts About Mutual Fund Mutual fund Introduction to Mutual Fund Mutual Fund Cycle Critical view about Mutual Fund Why Investor Needs Mutual Fund Mutual Fund Risk Types of Mutual Fund Structure of Mutual Fund Other various assets management companies details Regulatory Aspects Research Purpose of the Research Research Objective Research Methodology
Page No. 5 6 8 11 12 13 14 17 24 32 33 34 36 40 41 42 45 46 47 49 50 54 55 58 60 64 67 71 72 73 74
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15 16 17 18 19
Research Design Sources of Data Sampling Plan Data Collection Method Data analysis and findings Findings Limitations Conclusions Recommendations
75 76 78 80 81 92 95 97 100
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Annexure
103
21 22 23 24
Glossary List of Table List of Graphs Bibliography
105 107 108 109
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COMPANY DETAILS
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About the Company: An HDFC asset Management Company limited is well-established fund house. HDFC Assets Management Company limited is sponsored by Housing Development Finance Corporation Limited (HDFC) and Standard life investments limited.
HDFC assets Management Company limited launched its scheme HDFC EQUITY FUND in the year January 1995. Since then it focused on different class of schemes for many years and launched several innovative products that went to become bourgeoning categories in the Indian mutual fund industry.
Some of these were HDFC GROWTH FUND, HDFC TOP 200 FUND, and HDFC BALANCED FUND, HDFC PRUDENCE FUND etc.
HDFC assets Management Company limited have offices in 29 cities and currently manage assets in excess of Rs 36146.67 cores. (May 2007.)
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Sponsors of HDFC Assets Management Company:Housing Development Finance Corporation Limited (HDFC) HDFC was incorporated in 1977 as the first specialized Mortgage Company in India. HDFC provides financial assistance to individuals, corporates and developers for the purchase or construction of residential housing. It also provides property related services (e.g. property identification, sales services and valuation), training and consultancy. Of these activities, housing finance remains the dominant activity. HDFC has a client base of around 9.5 lack borrowers, around 1 million depositors, over 91,000 shareholders and 50,000 deposit agents as at March 31, 2007. HDFC has raised funds from international agencies such as the World Bank, IFC (Washington), USAID, DEG, ADB and KfW, international syndicated loans, domestic term loans from banks and insurance companies, bonds and deposits. HDFC has received the highest rating for its bonds and deposits program for the twelfth year in succession. HDFC Standard Life Insurance Company Limited, promoted by HDFC was the first life insurance company in the private sector to be granted a Certificate of Registration (on October 23, 2000) by the Insurance Regulatory and Development Authority to transact life insurance business in India. Standard Life Investments Limited The Standard Life Assurance Company was established in 1825 and has considerable experience in global financial markets. The company was present in the Indian life insurance market from 1847 to 1938 when agencies were set up in Kolkata and Mumbai. The company re-entered the Indian market in 1995, when an agreement was signed with HDFC to launch an insurance joint venture. On April 2006, the Board of The Standard Life Assurance Company recommended that it should demutualise and Standard Life plc float on the London Stock Exchange. At a Special General Meeting held in May voting members overwhelmingly voted in favor of this. The Court of Session in Scotland approved this in June and Standard Life plc floated on the London Stock Exchange on 10 July 2006. Standard Life Investments was launched as an investment management company in 1998. It is a wholly owned subsidiary of Standard Life Investments (Holdings) Limited, which in turn is a wholly owned subsidiary of Standard Life plc. Standard Life Investments is a leading asset management company, with approximately US$ 269 billion as at March 30, 2007, of assets under management. The company operates in the UK, Canada, Hong Kong, China, Korea, Ireland and the USA to ensure it is able to form a truly global investment view. In order to meet the different needs and risk profiles of its clients, Standard Life Investments Limited manages a diverse portfolio covering all of the major markets world-wide, which includes a range of private and public equities, government and company bonds, property investments and various derivative instruments.
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Management of HDFC Assets Management Company:-
HDFC Trustee Company Limited: A company incorporated under the Companies Act, 1956 is the Trustee to the Mutual Fund vides the Trust deed dated June 8, 2000, as amended from time to time. HDFC Trustee Company Limited is a wholly owned subsidiary of HDFC Limited.
HDFC Asset Management Company Limited: HDFC assets Management Company limited was incorporated under the Companies Act, 1956, on December 10, 1999, and were approved to act as an Asset Management Company for the Mutual Fund by SEBI on July 3, 2000. The registered office of the HDFC assets Management Company limited is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay Reclamation, Church gate, Mumbai - 400 020. In terms of the Investment Management Agreement, the Trustee has appointed HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up capital of the HDFC assets Management Company limited is Rs.75.161 crore.
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The present share holding pattern of the HDFC Assets management company is as follows: Particulars HDFC Standard Life Investments Limited
% of the paid up share capital 50.10 49.90
The HDFC Assets management company is managing 18 open-ended schemes of the Mutual Fund viz. HDFC Growth Fund (HGF), HDFC Balanced Fund (HBF), HDFC Income Fund (HIF), HDFC Liquid Fund (HLF), HDFC Tax Plan 2000 (HTP), HDFC Children's Gift Fund (HDFC CGF), HDFC Gilt Fund (HGILT), HDFC Short Term Plan (HSTP), HDFC Index Fund, HDFC Floating Rate Income Fund (HFRIF), HDFC Equity Fund (HEF), HDFC Top 200 Fund, (HT200), HDFC Capital Builder Fund (HCBF), HDFC Tax Saver (HTS), HDFC Prudence Fund (HPF), HDFC High Interest Fund (HHIF), HDFC Sovereign Gilt Fund (HSGF) and HDFC Cash Management Fund (HCMF). HDFC assets Management Company limited is also managing the respective Plans of HDFC Fixed Investment Plan, a closed ended Income Scheme.
The HDFC Assets management company has obtained registration from SEBI vide Registration No. - PM / INP000000506 dated December 22, 2000 to act as a Portfolio Manager under the SEBI (Portfolio Managers) Regulations, 1993. The HDFC Assets management company is also providing portfolio management / advisory services and such activities are not in conflict with the activities of the Mutual Fund
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HDFC assets Management Company’s punch line is “continuing a tradition of trust”. In Gujarat HDFC assets Management Company is located at Ahmadabad, Surat, vadodara, Rajkot. HDFC assets Management Company is working from 9:30 a.m. onwards. HDFC assets Management Company Have 200 and more distributors in Surat. HDFC assets Management Company Provide account statements to investors according to investor’s requirement. HDFC assets Management Company Provide good services to investors.
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Offices of HDFC ASSETS MANAGEMENT COMPANY LIMITED INVESTOR SERVICE CENTRES/ OFFICIAL POINTS OF ACCEPTANCE FOR HDFC MUTUAL FUND HDFC Mutual Fund - Mumbai * REGISTERED OFFICE
Ramon House, 3rd Floor, H.T Parekh Marg, 169, Backbay Reclamation, Church gate Mumbai 400020.
HDFC Mutual Fund - Hyderabad 6-3-883/7, 2nd Floor, Saphire Square, Somajiguda, Hyderabad - 500282.
Andhra Pradesh
Email:serviceshyderabad@hdfcfund.com HDFC Mutual Fund - Visakhapatnam Ground Floor, Saigopal Arcade, Opp Waltair Club, Waltair Main Road, Siripuram, Visakhapatnam - 530003. Email:servicesvizag@hdfcfund.com HDFC Mutual Fund - Patna
Bihar
Rani Plaza Apartment, (Patna X-Ray Clinic), Exhibition Road, Patna - 800001. Email:servicespatna@hdfcfund.com HDFC Mutual Fund - New Delhi
New Delhi
Goa
4th Floor, Mohan Dev Bldg., 13, Tolstoy Marg, Connaught Place, New Delhi - 110001. Email:servicesdelhi@hdfcfund.com HDFC Mutual Fund - Goa
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A3, First Floor, Krishna Building, Opp. Education Dept, Behind Susheela Building, G.P. Road, Panaji - 403001. Email:servicesgoa@hdfcfund.com HDFC Mutual Fund - Ahmadabad 2nd Floor, Megha House, Besides Gruh House, Mithakhali Six Roads, Ahmedabad - 380009. Email:servicesahmedabad@hdfcfund.com HDFC Mutual Fund - Rajkot
Gujarat
2nd Floor, Shiv Darshan, Dr Radha Krishnan Road, 5, Jagnath Plot Corner, Rajkot - 360001. Email:servicesrajkot@hdfcfund.com HDFC Mutual Fund - Surat U1 - U3, Jolly Plaza, Opp Athwa Gate Police Station, Athwa Gate, Surat - 395001. Email:servicessurat@hdfcfund.com HDFC Mutual Fund - Vadodara Upper Ground Floor, Gokulesh, R C Dutt Road, Vadodara - 390007. Email:servicesvadodara@hdfcfund.com HDFC Mutual Fund – Jamshedpur
Jharkhand
Karnataka
Gayatri Enclave, 2nd Floor, "K Road", Bistupur, Jamshedpur - 831001. Email:servicesjamshedpur@hdfcfund.com HDFC Mutual Fund – Bangalore No.114, 1st Floor, Prestige Towers, 99 & 100, Residency Road, Bangalore - 560025. Email:servicesbangalore@hdfcfund.com HDFC Mutual Fund – Mangalore
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UG -II, 6 & 7, Upper Ground Floor, Maximus Commercial Complex, Light House Hill Road, Opp. KMC, Mangalore - 575001. Email:servicesmangalore@hdfcfund.com HDFC Mutual Fund – Kochi
Kerala
Ground Floor, Cinema Cum Commercial Complex, Behind Ravipuram Bus Stop, M.G. Road, Kochi - 682016. Email:serviceskochi@hdfcfund.com HDFC Mutual Fund – Bhopal
Madhya Pradesh
Ranjit Towers, Zone II, 8 MP Nagar, Bhopal - 462011. Email:servicesbhopal@hdfcfund.com HDFC Mutual Fund – Indore M1, M2 & M3, Mezzanine Floor, Sterling Arcade,15 / 3, Race Course Road, Indore - 452001. Email:servicesindore@hdfcfund.com
Maharashtra
HDFC Mutual Fund – Mumbai Mistry Bhavan, 1st Flr, 122, Backbay Reclamation, Dinsha Vachha Road, Churchgate, Mumbai - 400020. Email:servicesmumbai@hdfcfund.com HDFC Mutual Fund – Nagpur 106-110, Shriram Shyam Towers, 2nd Floor, Next to NIT Building, Kingsway, Sadar, Nagpur - 440001. Email:servicesnagpur@hdfcfund.com HDFC Mutual Fund – Nashik G- 1 & G-2, "Suyojit Heights", Opp. Rajiv Gandhi Bhavan, Sharanpur Road, Nashik - 422002. Email:servicesnashik@hdfcfund.com HDFC Mutual Fund – Pune
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HDFC House, 2nd Floor, Shivaji Nagar, University Road, Pune - 411005. Email:servicespune@hdfcfund.com HDFC Mutual Fund – Bhubaneswar Orissa
2nd Floor, Vinayak 96, Janpath, Bhubaneshwar - 751001. Email:servicesbhubaneshwar@hdfcfund.com HDFC Mutual Fund – Chandigarh
Punjab
SCO 375-376, Ground Floor, Sector 35-B, Chandigarh - 160022. Email:serviceschandigarh@hdfcfund.com HDFC Mutual Fund – Ludhiana SCO 122, Feroze Gandhi Market, Ludhiana - 141001. Email:servicesludhiana@hdfcfund.com HDFC Mutual Fund – Jaipur
Rajasthan
Moondhra Bhavan, 3 Ajmer Rd, Jaipur - 302001. Email:servicesjaipur@hdfcfund.com HDFC Mutual Fund – Jodhpur Gulab Singh Building, 11, Chopasani Road, Jodhpur - 342003. Email:servicesjodhpur@hdfcfund.com HDFC Mutual Fund – Coimbatore
Tamil Nadu
1371A, Ground Floor, Nadar Building Trichy Road, Coimbatore - 641018. Email:servicescoimbatore@hdfcfund.com HDFC Mutual Fund – Chennai ITC Centre, 1st Floor, 760 Anna Salai, Chennai - 600002. Email:serviceschennai@hdfcfund.com
Uttar Pradesh
HDFC Mutual Fund – Kanpur
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1st Floor, 16/80 D, Behind SBI Main, Civil Lines, Kanpur - 208001. Email:serviceskanpur@hdfcfund.com HDFC Mutual Fund – Lucknow 4 Shahnajaf Road, Lucknow - 226001. Email:serviceslucknow@hdfcfund.com HDFC Mutual Fund – Kolkata
West Bengal
Menaka Estate, 1st Floor, 3 Red Cross Place, Kolkata - 700001. Email:serviceskolkata@hdfcfund.com
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(Fig no 1- office locations of HDFC Assets Management Company)
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PRODUCT DETAILS
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Product Details
EQUITY
BALANCED
DEBT
(Fig no 2 - Different Types of Products) EQUITY SCHEMES OF HDFC ASSET MANAGEMENT COMPANY:1. HDFC Equity Fund: Investment Objective: The investment objective of the Scheme Is to achieve capital appreciation. Investment Options: Dividend & Growth Option Nature of Scheme: - Open Ended Growth Scheme Inception Date: - January 01, 1995
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2. HDFC growth fund: Investment Objective: - The primary investment objective of the Scheme is to generate long term capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments. Investment Options: Dividend & Growth Option Nature of Scheme: - Open Ended Growth Scheme Inception Date: -September 11, 2000
3. HDFC Top 200 fund: Investment Objective: - To generate long-term capital appreciation from a portfolio of equity and equity-linked instruments primarily drawn from the companies in BSE 200 index. Investment Options: Dividend & Growth Option
4. HDFC mid cape opportunity fund;
Investment Objective: - To generate long-term capital appreciation from a portfolio that is substantially constituted of equity and equity related securities of small and Mid-Cap companies.
Investment Options: Dividend & Growth Option Nature of Scheme:- Open Ended Growth Scheme Inception Date:- May 07, 2007
5. HDFC capital builder fund: Investment
Objective:
-
To
generate
long-term
capital
appreciation from a portfolio that is substantially constituted of equity and equity related securities of small and Mid-Cap companies. Investment Options: Dividend & Growth Option Nature of Scheme:- Open Ended Growth Scheme Inception Date:- February 01, 1994
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6. HDFC core and satellite fund: Investment Objective: - The primary objective of the Scheme is to generate capital appreciation through equity investment in companies whose shares are quoting at prices below their true value. Investment Options: Dividend & Growth Option Nature of Scheme:- Open Ended Growth Scheme Inception Date:- September 17, 2004 7. HDFC premier multicape fund: Investment Objective: - The primary objective of the Scheme is to generate capital appreciation in the long term through equity investments by investing in a diversified portfolio of Mid Cap and Large Cap `blue chip` companies. Investment Options: Dividend Plan, Growth Plan, The Dividend Plan offers Dividend Payout and Reinvestment Facility. Nature of Scheme: - Open Ended Growth Scheme Inception Date: - April 06, 2005
BALANCED SCHEMES OF HDFC ASSET MANAGEMENT COMPANY:1.
HDFC balanced fund: Investment Objective: - The primary objective of the Scheme is to generate capital appreciation along with current income from a combined portfolio of equity and equity related and debt and money market instruments. Investment Options: Dividend & Growth Option Nature of Scheme: - Open Ended balanced fund Inception Date: - September 11, 2000
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2.
HDFC prudence fund: Investment Objective: - The investment objective of the Scheme is to provide periodic returns and capital appreciation over a long period of time, from a judicious mix of equity and debt investments, with the aim to prevent/ minimize any capital erosion Investment Options: Dividend & Growth Option Nature of Scheme: - Open Ended balanced fund Inception Date: - February 01, 1994
3.
HDFC short term plan:
Investment Objective: - The primary objective of the HDFC Short Term Plan is to generate regular income through investment in debt securities and money market instruments.
Investment Options: Growth Plan, Dividend Plan. The Dividend Plan offers Dividend Payout and Reinvestment Facility. Nature of Scheme:- Open Ended income fund Inception Date: - February 28, 2002
4.
HDFC multi yield fund:
Investment Objective: - The primary objective of the Scheme is to generate positive returns over medium time frame with low risk of capital loss over medium time frame.
Investment Options: Growth Plan, Dividend Plan. The Dividend Plan offers Dividend Payout and Reinvestment Facility. Nature of Scheme: - Open Ended income fund Inception Date: - September 17, 2004
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DEBT SCHEMES OF HDFC ASSET MANAGEMENT COMPANY:1. HDFC Income Fund: Investment Objective: - The primary objective of the Scheme is to optimize returns while maintaining a balance of safety, yield and liquidity. Investment Options: Dividend & Growth Option Nature of Scheme: - Open Ended Income Scheme Inception Date: - September 11, 2000
2. HDFC Income Fund: Investment Objective: - The investment objective of HDFC High Interest Fund is to generate income by investing in a range of debt and money market instruments of various maturity dates with a view to maximizing income while maintaining the optimum balance of yield, safety and liquidity. Investment Options: Dividend & Growth Option Nature of Scheme: - Open Ended Income Scheme Inception Date: - April 28, 1997
3. HDFC MF Monthly Income Plan - Short Term Plan: Investment Objective: - The primary objective of Scheme is to generate regular returns through investment primarily in Debt and Money Market Instruments. The secondary objective of the Scheme is to generate long-term capital appreciation by investing a portion of the Scheme’s assets in equity and equity related instruments. However, there can be No assurance that the investment objective of the Scheme will be achieved.
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Investment Options: Quarterly Dividend Option, Monthly Dividend Option, and Growth Plan. The Dividend Plan offers Dividend Payout and Reinvestment Facility Nature of Scheme: - An open-ended income scheme. Monthly income is not assured and is subject to availability of distributable surplus Inception Date:- December 26, 2003
4. HDFC MF Monthly Income Plan - Long Term Plan: Investment Objective: - The primary objective of Scheme is to generate regular returns through investment primarily in Debt and Money Market Instruments. The secondary objective of the Scheme is to generate long-term capital appreciation by investing a portion of the Scheme’s assets in equity and equity related instruments. However, there can be no assurance that the investment objective of the Scheme will be achieved Investment Options: Growth Plan, Quarterly Dividend Option, Monthly Dividend Option. The Dividend Plan offers Dividend Payout and Reinvestment Facility. Nature of Scheme: - An open-ended income scheme. Monthly income is not assured and is subject to availability of distributable surplus Inception Date: - December 26, 2003
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5. HDFC Floating Rate Income Fund Long Term Plan: Investment Objective: - The primary objective of the Scheme is to generate regular income through investment in a portfolio comprising substantially of floating rate debt / money market instruments, fixed rate debt / money market instruments swapped for floating rate returns, and fixed rate debt securities and money market instruments. Investment Options: Dividend Plan, Growth Plan. The Dividend Plan offers Reinvestment Facility only Nature of Scheme: - An open-ended income scheme. Inception Date: - January 16, 2003
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FUTURE SCENARIO
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The asset base will continue to grow at an annual rate of about 35 to 40% over the next five year as investor’s shift their assets from banks 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 players five will sell out, close down or merge with stronger player in three to four years. In the private sector this trend has already started with two mergers and one take over. Here too some of them will down their shutters in the near future to come.
But this does not mean that there is no room for other players. The market will witness a flurry of new players entering the areas. There will be a large no. of offers from various asset management companies in the time to come, some big names like Principle, SBI, Fidelity, old mutual etc are looking at Indian market seriously. One important reason for it is that most major players 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 its 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 called on the Regular to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in Derivatives.
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INDUSTRY DETAILS
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Introduction
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. 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 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.
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History of 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 of India. The history of mutual funds in India can be broadly divided into four distinct phases
First phase – 1964-87 (Monopoly of UTI) An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by the Reserve Bank of India and functioned under the Regulatory and 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 – 1987-93 (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), and 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 fund industry had assets under management of Rs.47, 004 crores.
Third Phase – 1993-2003 36
(Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin 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. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds.
Forth 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 Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.
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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. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of October 31, 2003, there were 31 funds, which manage assets of Rs.126726 crores under 386 schemes.
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The graph indicates the growth of assets over the years.
(Fig no 3. Growth of Asset Over The year)
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Customers Profile of mutual fund industry:-
(Fig no 4.Type of Customer) 1. While you recommend a financial plan, you also need to understand the needs and financial objectives of your customer along with his risk tolerance and his expectations from the investments. 2. Honest and straightforward advice is appreciated. Help your customers make the right choice 3. Advise your customers to start investing early and regularly to help them optimize the benefits of the compounding rupee. 4. Help your investors with the procedures and paper work involved in making an investment. Treat every customer exclusively. A satisfied customer can give you increased business through resale and referrals of other prospective customers
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Positioning Strategy of mutual fund industry:-
Positioning starts with a product. But positioning is not what you do to a product. Positioning is what you do to the mind of the prospect. That is, you position the product in the mind of prospect. A company’s differentiating and positioning strategy must change as the product, market, and competitors change over time. . There should be no under positioning, over positioning, confused positioning or doubtful positioning.
Channel of Distribution:In Every asset Management Company’s distribution channel played very important roles. Here assets management companies have distributors like Consultants Agents Distributors Advisers Broker
Their role is very important for Assets Management Company’s Office.
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Promotional Tools Employed by various mutual fund companies:Some specific other document help to increase selling product like: (1) Banners: Banners define brief idea of scheme, it should be very attractive with specific objective & its related picture in city, and Banners keep in specific places which very help to do good publicity. It distributes only by AMC’s office. When any new scheme is launched or any new NFO coming up that times company make banners before few days. Its helps to good advertising & easy cover to customer or people. (2) Application Form: Any product like Equity, debt and balance, investor should fill up its common Application forms. Form define acknowledge slip which give return to customer. Actually 3-time stamp done in form, one of them is acknowledged slip. These forms are distributed by Assets Management Company’s office. It is all Assets Management Company’s office duty to dispatch forms to their customer like agents, brokers, and advisers time to time. (3) Broachers: Broachers include brief history of company. It defines when and where assets management Company invests investor’s money. This defines performance of each scheme product & also defines its comparison to last 3 months to more than 5 years. In end of every month Assets Management Company’s office send Boucher to their investors, brokers, agents, advisers regularly.
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NET ASSET VALUE:The Net Asset Value or NAV is a term used to describe the value of an entity's assets less the value of its liabilities. The term is commonly used in relation to collective investment schemes. It may also be used as a synonym for the book value of a firm.
NAV covers the company's current asset and liability position. Investors might expect the company to have large growth prospects, in which case they would be prepared to pay more for the company than the NAV suggests.
The NAV is usually below the market price because the current values of the fund’s assets are higher than the historical financial statements used in the NAV calculation.
CALCULATING NET ASSET VALUE Unit capital is the investor’s subscriptions. In MF it is not treated as a liability. Investments made on behalf of the investors are assets side of the balance sheet. There are liabilities of short-term nature.
FUNDS NET ASSET = ASSET – LIABILITIES NAV = Net Assets Issued Units I.e. NAV= (market value of investments + other accrued income + other assets – accrued expenses – other payables –other liabilities)/ (no. Of units outstanding as at the NAV date)
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THE FACTOR AFFECTING THE NAV ARE AS FOLLOWING: 1. Capital gains or losses on the sale or purchase of investment Securities. 2. Dividend and income earned on the assets 3. Capital appreciation in the underlying value of the stocks holds in the portfolio 4. Other assets and liabilities 5. Number of units sold or purchased
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Facts About Mutual Fund Equity Instruments like shares form only a part of the securities held by Mutual Funds. Mutual Funds also invest in debt securities, which are relatively much safer. The biggest advantage of Mutual Funds is their ability to diversify the risk. Mutual Funds are there in India since 1964. Mutual Funds market is much evolved in U.S.A and is there for last 60 years. Mutual Funds are the best solution for people who want to manage risk and get good returns. The size of Mutual Funds market in India is Rs. 107728 crores and that in U.S.A is many times higher. According to the SEBI - NCAER Survey of Indian Investors about 15 million or 8.7% of the households have invested in Mutual Funds and there are nearly 23 million unit holders in India. 30% of investors fall in the income group of investors having monthly income up to Rs. 10,000/-. In U.S.A there are more deposits in the mutual funds than in bank deposits. The truth is, as investors we should always pay attention to our mutual funds and continue to monitor them.
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MUTUAL FUND
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Introduction to Mutual Fund 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 in these investments and the capital appreciation realized by the scheme is shared by its unit holders in proportion to the number of units owned by them. 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 invest able surplus of 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. A mutual fund is answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a fulltime 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 fact, the mutual fund vehicle exploits economies of scale in all three areas –research, investment and transaction processing.
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A draft offer document is to be prepared at the time of launching the fund. Typically, it pre specifies the investment objective of the fund, the risk associated, the cost 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 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 of the fund. In the Indian context, the sponsors promote the Asset Management Company also, in which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC).
E.g. Birla Global 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.
As per SEBI regulations, mutual funds can offer guaranteed returns for a maximum period of one year. In case returns are guaranteed, the name of the guarantor and how the guarantee would be honored is required to be disclosed in the offer document.
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Mutual Fund Cycle
(Fig no 5.-Mutual Fund Cycle) From the above cycle, it can be observed that how the money from the investors flow and they get returns out of it. With a small amount of fund, investors pool their money with the funds managers. Taking into consideration the market strategy the funds managers invest this pool of money into reliable securities. With ups and downs in market returns are generated and they are passed on to the investors. The above cycle should be very clear and also effective. The fund manager while investing on behalf of investors takes into consideration various factors like time, risk, return, etc. so that he can make proper investment decision.
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Critical view about Mutual Fund Benefits If mutual funds are emerging as favorite investment vehicle, it is because of the many advantages they have over other forms and avenues of investing, particularly for the investors who has limited resources available in terms of capital and ability to carry out details research and market monitoring. The following are the major advantages offered by mutual funds to all investors. PROFESSIONAL EXPERTISE Fund managers are professionals who track the market on an on going basis. With their mix of professional qualification and market knowledge, they are better placed than the average investor to understand the markets. DIVERSIFICATION Since a mutual fund scheme invests in number of stocks and/or debentures, the associated risks are greatly reduced. RELATIVELY LESS EXPENSIVE When compared to direct investments in the capital market, mutual funds cost less. This is due to savings in brokerage costs, demat costs, depository costs etc. LIQUIDITY Investments in mutual funds are completely liquid and can be redeemed at Net Assets Value (NAV) related price on any working day. TRANSPARENCY You will always have access to up-to-date information on the value of your investment in addition to the complete portfolio of investments, the proportion allocated to different assets and the fund manager’s investment strategy.
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ď ś FLEXIBILITY Through features such as regular investment plans, regular withdrawal plans and dividend investment plans, you can systematically invest or withdraw funds according to your needs and convenience. ď ś SEBI REGULATED All mutual funds are registered with SEBI and function within the provisions and regulations that protect the interests of investors.
While most investment options provide most of these features, only Mutual Funds provide all of these options.
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Limitations NO CONTROL OVER COST Any investor in a mutual fund has no control over the overall cost of investing. He pays investment management fees as long as he remains with fund, albeit in return for the professional management and research. Fees are payable even in declining stage. A mutual fund investor also pays fund distribution costs, which he would not incur in direct investing. However, this shortcoming only means that there is a cost to obtain the benefits of mutual fund services.
NO TAILOR-MADE PORTFOLIOS Investors who invest on there own can build their own portfolios of shares and bonds and other securities. Investing through funds means he delegates this decision to the fund managers. The very high-net-worth individuals or large corporate investors may find this to be a constraint in achieving their objectives. However, most mutual fund managers help investors overcome this constraint by offering families of funds- a large number of different schemes – within their own management company. An investor can choose form different investment plans and construct a portfolio of his own.
MANAGING A PORTFOLIO OF FUNDS Availability of a large number of funds can actually mean too much choice for the investor. He may again need advice on how to select a fund to achieve his objectives, quite similar to the situation when he has to select individual shares or bonds to invest in.
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ď ś ENTRY AND EXIT COST Mutual funds are a victim of their own success. When a large body like a fund invests in shares, the concentrated buying and selling often results in adverse price movement i.e. at the time of buying, the fund ends up paying a high price and by selling it realizes a lower price. For obvious reasons, this problem is even more severe for funds investing in small capitalization stocks. However, given the large size of debt market, excluding UTI, most debt funds do not face this problem.
ď ś CHANGE OF INDEX COMPOSITION The indices changing over the world to reflect changing market conditions. There is an inherent survivorship bias in this process, with the bad stocks bided out and replaced by emerging blue chips. This is a severe problem in India with the sensex having being changing twice in last 5 years, with each change being quite substantial. Another reason for change index composition is Mergers and Acquisitions. The weight age of the shares of a particular company in the index changes if it acquires a large company not a part of the index.
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Why Investor Needs Mutual Fund Mutual funds offer benefits, which are too significant to miss out. Any investment has to be judged on the yardstick of return, liquidity and safety. Convenience and tax efficiency are the other benchmarks relevant in mutual fund investment. In the wonderful game of financial safety and returns are the tows opposite goals and investors cannot be nearer to both at the same time. The crux of mutual fund investing is averaging the risk. Many investors possibly don’t know that considering returns alone, many mutual funds have outperformed a host of other investment products. Mutual funds have historically delivered yields averaging between 9% to 25% over a medium to long time frame. The duration is important because like wise, mutual funds return taste bitter with the passage of time. Investors should be prepared to lock in their investments preferably for 3 years in an income fund and 5 years in an equity funds. Liquid funds of course, generate returns even in a short term.
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Mutual Fund Risk Mutual funds face risks based on the investments they hold. For example, a bond fund faces interest rate risk and income risk. Bond values are inversely related to interest rates. If interest rates go up, bond values will go down and vice versa. Bond income is also affected by the changes in interest rates. Bond yields are directly related to interest rates falling as interest rates fall and rising as interest rates. Similarly, a sector stock fund is at risk that its price will decline due to developments in its industry. A stock fund that invests across many industries is more sheltered from this risk defined as industry risk. Followings are glossary of some risks to consider when investing in mutual funds.
Country Risk
The possibility that political events (a war, national election), financial problems (rising inflation, government default), or natural disasters will weaken a country’s economy and cause investments in that country to decline.
Income Risk
The possibility that a fixed-income fund’s dividends will decline as a result of falling overall interest rates.
Market Risk
The possibility that stock fund or bond fund prices overall will decline over short or even extended periods. Stock and bond markets tend to move in cycles, with periods when prices rise and other periods when prices fall.
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Risk Return Reward in Mutual Fund
Equity Fund Balance Fund MIP
Short Term Fund
Income Fund
Liquid Fund
(Fig no 6: - Risk Return in Mutual Fund)
This graph shows risk and return impact on various mutual funds. There is a direct relationship between risks and return, i.e. schemes with higher risk also have potential to provide higher returns.
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TYPES OF MUTUAL FUNDS
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Types of Mutual Fund There are a wide variety of Mutual Fund schemes that cater to your needs, whatever your age, financial position, risk tolerance and return expectation. Whether as the foundation of your investment program or as a supplement, Mutual Fund schemes can help you meet your financial goals. The different types of Mutual Funds are as follows:
Diversified Equity Mutual Fund Scheme
A mutual fund scheme that achieves the benefits of diversification by investing in the stocks of companies across a large number of sectors. As a result, it minimizes the risk of exposure to a single company or sector.
Sectoral Equity Mutual Fund Scheme
A mutual fund scheme, which focuses on investments in the equity of companies across a limited number of sectors – usually one to three.
Index Funds
These funds invest in the stocks of companies, which comprise major indices such as the BSE Sensex or the S&P CNX Nifty in the same weight age as the respective indices.
Tax Saving Equity Schemes
Schemes investing predominantly in equity which offer tax rebates to 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). Currently rebate u/s 88 can be availed unto a maximum investment of Rs 10,000. A Lock-in of 3 years is mandatory.
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Monthly Income Plan Scheme
A mutual fund scheme which aims at providing regular income (not necessarily monthly, don't get misled by the name) to the unit holder, usually by way of dividend, with investments predominantly in debt securities (up to 95%) of corporate and the government, to ensure regularity of returns, and having a smaller component of equity investments (5% to 15%) to ensure higher return.
Income schemes
Debt oriented schemes investing in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments.
Floating-Rate Debt Fund
A fund comprising of bonds for which the interest rate is adjusted periodically according to a predator-mined formula, usually linked to an index.
Gilt Funds
These funds invest exclusively in government securities.
Balanced Funds
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. They generally invest 40-60% in equity and debt instruments.
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Structure of Mutual Fund
AMC
Savings
Investments
Trust Units
Unitholder s
Returns
Registrar
SEBI
Trust Custodian
AMC
(Fig no 7 - Structure of Mutual Fund)
Fund Sponsor Any person or corporate body that establishes the Fund with a net worth of Rs. 10 crores and has paid out consistent returns to its investors for last three years consistently and registers it with SEBI can be a fund sponsor. The fund sponsor forms a trust and appoints board of trustees. He appoints Custodian and Asset Management Company (AMC) either directly or through trust in accordance with SEBI regulations. SEBI regulations also define that a sponsor must contribute at least 40 % to the net worth of the asset management company.
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Trustees Trust is created through the document called Trust deed that is executed by the fund sponsor and registered with SEBI. Board of trustees- a body of individuals or a trust company-a corporate body may manage the trust cum Mutual Fund. These are protector of unit holders interests.2/3 of the trustees will be individuals and will not be associated with the sponsors. Following are the rights of trustees: Approve each of the schemes floated by the assets Management Company. Right to request any necessary information from assets Management Company. Right to take corrective action if they believe that of fund’s business. Right to dismiss the assets Management Company. Ensure that any shortfall in net worth of the assets Management Company is made up. Following are the obligations of trustees: Enter in to an investment management agreement with the assets Management Company. Ensure that the fund’s transactions are in accordance with the trust deed. Furnish to SEBI on a half yearly basis, a report on the fund’s activities.
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Ensure that no change in the fundamental attributes of any scheme or the trust or any other change, which would affect the interest of unit holder, happens with informing to unit holder. Review the investor complaints received and redressed of the same by assets Management Company.
Asset Management Company This acts as investment manager of the trust under the board supervision and direction of trustees. In has to be approved and registered with SEBI. This will float and manage different investment schemes in the name of trust and in accordance with SEBI regulations. These acts in the interest of holders and reports to the trustees. At least 50% of the directors on the board are independent of the sponsor or the trustees. Following are the obligations of Assets Management Company: Float investment schemes only after getting approval from the trustees and SEBI. Send quarterly reports to trustees. Make the required disclosures to the investors in the area such as calculation of NAV and repurchase price. Must maintain a net worth of at least Rs.10 crores at all the times Will not purchase or sale securities through any broker with the brokerage of 5 % or more of the aggregate purchases and sale of securities made by the Mutual Fund in all its schemes. Assets Management Company cannot act as trustees of any other Mutual Fund. Do not undertake any other activity conflicting with managing the fund.
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Following are the bodies appointed by the trustees/AMC.
Custodian is the responsible person for physical handling and safe keeping of the securities. He should be independent of the sponsor and registered with SEBI.
Indian capital market is moving away from physical certificates for securities to dematerialized form with a depository. He holds dematerialized security holdings of Mutual Fund.
Custodian Often an independent organization, it takes custody of securities and other assets of mutual fund. Its responsibilities include receipt and delivery of securities, collecting income-distributing dividends, safekeeping of the units and segregating assets and settlements between schemes. Their charges range between 0.15-0.2 percent of the net value of the holding. Custodians can service more than one fund.
Depository Indian capital markets are moving away from having physical certificates for securities, to ownership of these securities in ‘dematerialized’ form with a Depository. Thus, a mutual fund’s dematerialized securities holdings will be held by a Depository through a Depository Participant. A fund’s physical securities will continue to be held by a Custodian. Thus, deliveries of a fund’s securities are given or received by a custodian or a depository participant, at the instruction of the AMC, although under the overall direction and responsibility of the Trustees.
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The other various assets management companies’ details are as under: A) Bank sponsored a. BOB Asset Management Co. Ltd. b. Canbank Investment Management Services Ltd. c. PNB Asset Management Co. Ltd. d. SBI Funds Management Ltd. e. UTI Asset Management Company (P) Ltd. B) Institutions a. GIC Asset Management Co. Ltd. b. IDBI Principal Asset Management Co. Ltd. c. IL & FS Asset Management Co. Ltd. d. Jeevan Bima Sahayog Asset Management Co. Ltd. C) Private Sector 1. Foreign a. Principal Asset Management Co. Ltd. b. Fidelity Asset Management Co. Ltd. 2. Indian a. Benchmark Asset Management Co. Ltd. b. Cholamandalam Asset Management Co. Ltd. c. Escorts Asset Management Ltd. d. J.M. Capital Management Ltd. e. Kotak Mahindra Asset Management Co. Ltd. f. Sundaram Asset Management Company g. Reliance Capital Asset Management Ltd.
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3. Joint Ventures - Predominantly Indian a. Birla Sun Life Asset Management Pvt. Co. Ltd. b. Credit Capital Asset Management Co. Ltd. c. DSP Merrill Lynch Fund Managers Limited d. First India Asset Management Private Ltd. 4. Joint Ventures – Predominantly Foreign a. Alliance Capital Asset Management (India) Pvt. Ltd. b. Deutsche Asset Management (India) Pvt. Ltd. c. Dundee Investment Management & Research (Pvt.) Ltd. d. HSBC Asset Management (India) Private Ltd. e. ING Investment Management (India) Pvt. Ltd. f. Morgan Stanley Investment Management Pvt. Ltd. g. Prudential ICICI Management Co. Ltd. h. Sun F & C Asset Management (I) Pvt. Ltd I. Templeton Asset Management (India) Pvt. Ltd.
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Regulatory Aspects
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AMFI (Association of Mutual fund in India) AMFI not a Self Regulatory Organization (SRO). It’s made to promote mutual fund in the masses and give recommendation in order to uphold the interest of the investor.
Objectives of AMFI: To define and maintain high professional and ethical standards in all areas of operation of mutual fund industry To recommend and promote best business practices and code of conduct to be followed by members and others engaged in the activities of mutual fund and asset management including agencies connected or involved in the field of capital markets and financial services. To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI on all matters concerning the mutual fund industry. To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the Mutual Fund Industry. To develop a cadre of well-trained Agent distributors and to implement a Programme of training and certification for all intermediaries and other engaged in the industry. To undertake nation wide investor awareness Programme so as to promote proper understanding of the concept and working of mutual funds.
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SEBI (Security Exchange Board of India) Securities and Exchange Board of India ("SEBI"), the Capital Markets regulator has clearly defined rules, which govern mutual funds. These rules relate to the formation, administration and management of mutual funds and also prescribe disclosure and accounting requirements. Such a high level of regulation seeks to protect the interest of investors. All Mutual Funds are registered with SEBI and they function within the provision of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.
RBI (Reserve Bank of India) Reserve bank of India was the regulator of Mutual Fund before SEBI. It regulated mutual fund initially and there were only few schemes in the market. But now with coming of SEBI, it has now become the main regulator of the Mutual Fund. RBI now only governs Bank Sponsored Mutual Fund.
Ministry of Finance The Ministry of Finance, which is charged with implementing the government policies, ultimately supervises both the RBI and the SEBI. Besides being the ultimate policy making and supervising entity, the MOF has also been playing the role of an Appellate Authority for any major disputes over SEBI guidelines on certain specific capital market related guidelines – in particular any cases of insider trading or mergers and acquisitions.
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Company Law Board Mutual fund Asset Management Companies and corporate trustees are companies registered under the Companies Act, 1956, and are therefore answerable to regulatory authorities empowered by the Companies Act. The primary legal interface for all companies is the Register of Companies (RoC). The Department of Company Affairs in turn supervises roCs. The DCA forms part of Company Law Board, which is part of the Ministry of Law and Justice of the Govt. of India. The RoC ensures that the assets management company or the Trustee Company as the case may be is in compliance with all Companies Act provisions. All assets management company accounts and records are filed with the Roc, who may demand additional information and documents from the company. The RoC plays the role of a watchdog with respect to regulatory compliance by companies. The Company Law Board (CLB) is the apex regulatory authority under the Companies Act. While the CLB guides the DCA, another arm of the CLB called the Company Law Bench is the Appellate Authority for corporate offences. The Company Law Board (CLB) is a body specially constituted by the Central Government for carrying out judicial proceedings with respect to company affairs. Since mutual fund assets Management Company are companies, the CLB’s role assumes importance. As the members of assets management companies or Trustee companies will usually be the sponsors and their joint venture partners or associates, it is unlikely that mutual fund investors will have anything to do with any of these regulators. The authorities would generally regulate the assets management companies whose shareholders may have recourse to them in specific cases.
Investors Rights 69
Proportionate right to beneficial ownership of scheme’s assets Right to obtain information from trustees Entitled to receive dividend warrants within 30 days of declaration of dividend Inspect major documents of the fund Appointment of the assets management company can be terminated by 75% of the unit holders of the scheme present and voting Right to approve of changes in fundamental attributes of a close ended scheme (75 % of unit holders should approve) - right to be informed so in open ended schemes so that they can redeem Right to receive a copy of annual financial statements of fund and periodic transaction statements 75% of the unit holders can resolve to wind up the scheme
Legal Limitations to Investors Unit holders can not sue the trust Can initiate legal proceedings against trustees Sponsor of mutual funds have no obligation to meet any shortfall in the assured return - unless explicitly guaranteed in the offer document No rights to a prospective investor
Investor Obligations Carefully study the offer document before investing Monitor his investment in a scheme by referring financial statements, performance updates and research reports sent by the assets management company.
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RESEARCH
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Purpose of the Research
With liberalization, privatization and globalization there has been a major change in the Indian Mutual Funds Industry. The momentum is on and one is sure to see similar hectic activity at the offices of the new entrants especially after the 90’s as private sector gained entry in the Indian markets. With the private sector penetration, a large number of schemes have also been introduced due to which the average consumer has become vary sensitive to the new schemes coming its way. So to ensure about the various consumer attitudes, a survey was undertaken. De facto, to ensure what the “consumer thinks” & “what it thinks the best” we undertook a consumer survey, to get a clear picture of the future of the Mutual Funds companies who are busy wooing the customers, with their lucrative schemes, to survive the rat race & emerge as no.1 in this field.
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Research Objective Research Objectives addresses the purpose of the investigation. It is here that you layout exactly what is being planned by the proposed research.
The Research
Objectives flows naturally from the problem statement, giving the sponsor specific, concrete, and achievable goals. It is best to list the objectives either in order of importance or in general terms first, moving to specific terms. Research Objective is the basis for judging the Research process. It is the final step giving exact definition of problem.
ď ś Analyzing mutual fund awareness in retail investors of HDFC assets Management Company in Surat.
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RESEARCH METHODOLODY
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Research methodology is a systematic plan or schedule or program of the research done. It describes all the procedures of the research.
Research Design Research design can be described as an out line of a research project working or a pattern. In a research design there are series of prior decision that together provide a master plan for completing a research project. Research design is proved to be a bridge between what has been established and what is to be done in conduct of the studies. Research design should be compressive and it should provide which method to be used and what work to be done. Research design describes as a master plan a series of key decisions that serves a model for conducting a research project. There are the main components of research design. Objective of research
Data inputs
Analysis of data collected The research design was exploratory type and the focus was on getting mutual fund’s employees views for various products, expectations from market.
Exploratory Research: Exploratory study goes beyond description and attempts to explain the reasons for the phenomenon that the descriptive study only observed. The researcher uses theories or at least hypotheses to account for the forces that caused a certain phenomenon to occur.
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Sources of Data The gathering of data may range from a simple observation at one location to a grandiose survey of multinational corporations at sites in different parts of the world. The method selected will largely determine how the data are collected. DATA is the facts presented to the researcher from the study’s environment. Characteristics of the data are as follows:
Data are more metaphorical than real
Data are processed by our senses-often limited in comparison to The senses of other living organisms.
Capturing data are said to be trustworthy because they may be Verified.
Data classify their verity by closeness to the phenomena
There are two kinds of data that can be collected for research purpose. Based on the requirement in the research appropriate data is collected. Both the kinds of data are shown below in the figure: Error: Reference source not found
1) Primary data source Primary data are collected and gathered for the first time. Primary data are sought for their proximity to the truth and controls over error. Advantages of primary data are:
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Researchers can collect precisely the information they want.
They usually can specify the operational definitions used and can eliminate, or at least monitor and record the extraneous influences on the data as they are gathered.
2) Secondary data source Someone else collects secondary data. So, it becomes secondary information for the research. Secondary data have had least one level of interpretation inserted between the event and its recording. Reasons for using the secondary data are listed below: They fill a need for specific reference or citation on some point Secondary data are an integral part of a larger research study Secondary data may be used as the sole basis for a research study, since In many research situations one cannot conduct primary research Because of physical, legal, or cost influences. Analyzing the requirement of data, it was found that primary data is more important for achieving Research Objective.
Primary data is collected with the help of
interviews.
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Sampling Plan Collecting the required information from the right source is very important. Sources from which the data are collected differ as per the required of researcher. Basically there are two types of data collection sources:
1) Sampling Unit: The sampling unit primarily consisted of investors like businessman, professionals, salaried employees and others. The sample unit is taken from the Surat city of Gujarat region.
2) Sample Size: Though large sample give more reliable results than small samples but increases the cost, time and non-sampling error. Keeping in view these constraints 100 respondents were chosen. Attempts have been made to see that samples are chosen from different areas of Surat. I have taken 100 responds as a sample size for this particular project.
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The following table shows area wise distribution of sample size. AREA UDHNA MORABHAGAL ADAJAN RANDER ROAD RALWAY STATION ROAD PARLE POINT GHODDOD ROAD PIPLOD MAJURAGATE RING ROAD BHAGAL KATARGAM VARACHA CITY LIGHT ROAD NANPURA PANDESARA VED ROAD PAL BHESTAN TOTAL
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SAMPLE 17 3 15 17 5 5 8 2 2 4 4 4 2 6 2 1 1 1 1 100
Data Collection Method “This step involves making a very specific plan about how you will conduct your research and collect your data.”
1) Surveys & Questionnaires Survey The means by which quantitative research is conducted. Questionnaire A prepared set of questions designed to generate data necessary for accomplishing the objectives of the research project.
I used survey method for data collection. Information was collected by personal interviews through questionnaire.
Following types of measurement scales were used in the questionnaire. Simple category scale: - (Q-2, Q-4, Q-8, Q-9) Multiple choice single response scales: - (Q-6) Multiple choice multiple response scale:-(Q-1, Q-3, Q-5, Q-7)
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DATA ANALYSIS AND FINDINGS
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Q-1 which investment avenues are you aware of?
INVESTMENT AVANUES EQUITY/MUTUAL FUND POST OFFICE F.D. OTHERS
FREQUENCY 100 94 86 11
PERCENTAGE 34.36% 32.30% 29.55% 3.79%
11 100
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EQUITY/M.F. POST OFFICE F.D. OTHERS
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(Fig no 9: - Define investments avenues) Interpretation: From the above charts we can interpret that awareness of equity/mutual fund, post office (NSC, KVP, and PPF), fixed deposits is more compare to others like GOVT ISSUED Instrument, GOVT Backed Instrument, Real Estate, gold etc. so HDFC assets Management Company needs to focus more on those investors who are more invest in KVP, NSC, PPF and fixed deposits.
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Q-2 do you invests in mutual fund? YES 97
NO 3
120
NO OF PEOPLE
100
97
80 60
Series1
40 20
3
0 YES
NO PREFERNCE
(Fig no 10: - Define investments in mutual fund)
From the above chart it is getting clear that now a days people are like to invest their money in mutual fund of different assets management company, out of 100 people sampled 97 are investing in the mutual fund.
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Q-3 If yes, in which assets class do you want to invest in Mutual Fund?
TYPES OF SCHEMES EQUITY DEBT LIQUID
RESPONSE PERCENTAGE 86 72.27% 27 22.69% 6 5.04%
RESPONSE 100
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NO OF PEOPLE
80 60 RESPONSE 40
27
20
6
0 EQUITY
DEBT
LIQUID
SCHEMES
(Fig no 11: - Define schemes preferred by investors) From the above chart it is getting clear that from 100 peoples sample 86(72.27%) people are invest in equity assets class and 27(22.69%) people choose to invests in debt class but only just 6(5.04%) peoples choose to invests in liquid class.
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Q-4 Do you invest in HDFC assets management company Limited?
YES 56
60
NO 44
56
50 NO OF PEOPLE
TOTAL 100
44
40 30
Series1
20 10 0 YES
NO PREFERNCE
(Fig no 12: - Define investment in HDFC assets Management Company)
From the above chart it is getting clear that out of 100 people sampled, 56 peoples are invest in HDFC assets management company and 44 peoples are not invests in HDFC assets management company.
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Q-5 If yes, in which scheme would you invest in HDFC assets Management company limited? NO OF INVESTOERS
SCHEMES OF HDFC EQUITY FUND CAPITAL BUILDER FUND PRUDENCE FUND TAX SAVER FUND CORE AND SATELITE FUND TOP 200 FUND BALANCED FUND GROWTH FUND OTHERS FUND
43 2 17 35 3 16 1 16 5
NO OF INVESTOERS
16
1
16
5
43
3
2 17
35 EQUITY FUND
CAPITAL BUILDER FUND
PRUDENCE FUND
TAX SAVER FUND
CORE AND SATELITE FUND
TOP 200 FUND
BALANCED FUND
GROWTH FUND
OTHERS FUND
(Fig no 13: - Define scheme in which investors invest in HDFC assets Management Company) From the above chart we can see that in HDFC assets Management Company’s EQUITY FUND maximum number (43) of people are invest. In TAX SAVER FUND 35 number of people invests. In both TOP 200 FUND and GROWTH FUND 16 numbers of people are invests but in BALANCED FUND, CAPITAL BUILDER FUND, CORE AND SATELITE FUND only 1,2 and 3 people are invest so investors are not invested in these 3 schemes. In PRUDENCE FUND 17 numbers of people are invested.
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Q-6 By which medium you invest in HDFC assets Management company limited? MEDIUM OF INVESTMENT DISTRIBUTOR BANK ONLINE
NO OF PEOPLE 8 48 0
NO OF PEOPLE
50 45 40 35 30 25 20 15 10 5 0
48
NO OF PEOPLE 8 0 DISTRIBUTOR
ONLINE MEDIUMS
(Fig no 14: - Define mediums choose by investors for invest in HDFC assets management company) From the above chart it’s getting cleared that most of the peoples (48) are invest by bank and only 8 peoples are invest by distributors. Nobody invests through online. So here HDFC assets Management Company has to provide facility by which investors invest their money with out any middle man in mutual fund schemes through online. Notes: - here out of 100 responds, 44 responds are not invest in HDFC assets Management Company. These responds are not considered in these questions.
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Q-7 why do you prefer investing in HDFC assets Management company limited? PREFENCE CRITERIA BETTER FUND HOUSE EXCELLENT CUSTOMER SERVICE PROVIDER CONSISTANT RETURN OTHERS
NUMBER
1 43
44
NUMBER 43 15 44 1
BETTER FUND HOUSE
EXCELLENT CUSTOMER SERVICE PROVIDER CONSISTANT RETURN
15
OTHERS
(Fig no 15: - Define Preference criteria of investors)
From the above pie - chart it can be seen that majority of the people that is 44 peoples give first rank to consistent return and 43 peoples invest in HDFC assets management company because HDFC assets management company is a better fund house and 15 peoples believes that HDFC assets Management Company provides EXCELLENT CUSTOMER SERVICE.
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Q-8 In which type of product /schemes would you prefer while Invested in equity schemes of HDFC assets management Company limited?
TYPES OF SCHEMES OPEN ENDED CLOSE ENDED
RESPONSE 53 3
RESPONSE
NO OF PEOPLE
60
53
50 40 30
RESPONSE
20 10
3
0 OPEN ENDED
CLOSE ENDED
TYPES OF SCHEMES
(Fig no 16: - Define type of product /schemes investors prefer for investments) From the above chart it is getting clear that most of peoples (53) prefer to invest in OPEN ENDED equity schemes and only just 3 peoples want to invest in CLOSE ENDED equity schemes of HDFC assets Management Company. Notes: - here out of 100 responds, 44 responds are not invest in HDFC assets Management Company. These responds are not considered in these questions.
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Q-9 do you know about on going new fund offer of HDFC Assets Management company limited?
AWARENESS OF NFO YES NO TOTAL
NUMBER 58 42 100
PERCENTAGE 58% 42% 100%
NUMBER
42 YES NO 58
(Fig no 17: - Define awareness level about on going NFO of HDFC assets Management Company.) The above pie - chart shows that around 58% people aware of on going new fund offer of HDFC assets Management Company and only 42% people are unaware from on going new fund offer of HDFC assets management company.
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FINDINGS
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Findings Almost 56% are investing in HDFC assets management company’s schemes. Out of the total respondent almost 30% said that they invest in fixed deposit and Insurance. Where as 34% said that they invest in Shares and mutual funds, where as 32% says that they invest in post office schemes. 97% of the investor was found who is invested their savings in different schemes of mutual fund. 53 respondents prefer to invest in a open ended schemes of HDFC assets management company, where as remaining only 3 respondents prefer to invest in a close ended of HDFC assets management company. It is found that awareness level about Mutual Funds is 97% in Surat city of Gujarat. Out of the total respondent 72.27% are investing in equity schemes. Where as remaining 22.69% prefer debt and 5.04% prefer to invest in liquid schemes. HDFC assets Management Company are also highly popular for their consistent return and 43 responds believes that HDFC assets Management Company is better fund house. While only just 15 responds believes that HDFC assets Management Company provides EXCELLENT CUSTOMER SERVICE.
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Out of the total respondents almost 48 responds are investing through bank, only 8 responds investing their money by distributor and nobody invested by online. The 58% of the respondent were aware about the ongoing NFO of HDFC assets management company and 42% were not aware about the ongoing NFO of HDFC assets management company. In HDFC assets Management Company’s EQUITY FUND maximum number (43) of people are invested and In TAX SAVER FUND 35 number of people are invests.
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LIMITATIONS
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Limitations of research This exploratory research is done focusing on the investment scenario of Surat city of Gujarat region only and therefore findings and suggestions given on the basis of this research and cannot be considered for the entire Mutual Fund Industry of India. Some of the people, out of various sectors that I had visited for study, did not give me cooperative response. Due to small market and time limit I could take only 100 responses. Another limitation is that due to lack of knowledge and education many investors don’t know the basic ideas behind mutual fund. Due to Time constraint I could not analyze more. My own inexperience in research area might have affected the study.
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CONCLUSIONS
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Conclusions Half of the respondents are investing in different schemes of mutual fund companies. The investors prefer investing more in banks and post office, which shows that investors want security, and assured returns. Others than Banks and post office the next preference of investors who go for risky preposition in shares and Mutual Funds. That is basically due to misconception that Mutual Fund Companies usually invest in equity market, which shakes trust of people in Mutual Fund. Majority of investors invested in open-ended schemes. The awareness level about HDFC assets Management Company is moderate but still the awareness should be created because 44% peoples still not invest in HDFC assets Management Company. As the investor prefers safe investment and want consistent return, they invest in debt schemes (22.69%). The investors prefer HDFC assets Management Company more because of the tax benefit and consistent return. Mutual funds are also preferred because of the cost effectiveness and higher income by investing in equity schemes. The banks mostly make the investments through the agent’s followed.
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ď ś Professional and Business class, which is considered to be the most knowledgeable class of the region prefers Mutual Funds less compare to service class. ď ś The time frame of the investment by majority of the investors is open-ended schemes in which their money is not locked for 3 to 5 years.
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RECOMMENDATION S
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Recommendations The company should try to make aware people about their different schemes through the road show; seminars and presentation that it is not just equity based schemes but also debt and liquid or balanced schemes also promoted by company. Company has to put hoardings, banners, pamphlets in that area where peoples can watch easily. The customers should be made aware that if the time frame of the investment is more than 3 years Equity option is the best tool for investing in mutual fund by this investors getting good and high returns for their investments. The company should be conducting special training and motivation Programme for their distributors and also for investors so that they are being motivated to work, their quality of performance and contribution in sales is maintained. Company has to provide application forms and other promotional materials to their distributors time to time and company has to maintain better relationship with their distributors by these they can give good contribution in investments. None of responds invest their money in different schemes of company By Online, so company has opportunity to launch online services for their distributors and retail investors. Company’s core and satellite fund, balanced fund, capital builder fund are preferred by very few investors because this schemes not perform well so
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company has to think about their companies in which they invest investor’s money so they have to change portfolio of investments.
ď ś Most of the people still preferred to invest in post office schemes and fixed deposits so company has to focus on these investors.
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ANNEXURE
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Questionnaire
NAME: ADDRESS: CONTACT NO: (O)
(R)
(M)
1) Which investment avenues are you aware of? Equity /Mutual fund Post Office (NSC, KVP, PPF) Fixed Deposits Others If others please specify 2) Do you invest in mutual funds? Yes No 3) If yes, in which assets class do you want to invest in mutual funds? Equity
Debt
Liquid
4) Do you invest in HDFC mutual fund? Yes No 5) If yes, in which scheme would you invest in HDFC MUTUAL FUND? Equity
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Capital builder Prudence fund Tax saver
Core & satellite Top 200 fund Balanced fund Growth Others 6) By which medium do you invest in HDFC mutual fund scheme? Distributor Bank Online 7) Why do you prefer investing in HDFC MF? Better fund house Excellent customer service provider Consistent return Other If other please specify 8) Which type of product/scheme would you prefer while investing in Equity Scheme of HDFC mutual fund? Open-ended
Close ended
9) Do you know about on going new fund offers of HDFC AMC? Yes
No
Remarks if any other please specifies: -
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Thank you for your time.
Glossary
Net Asset Value (NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. Sale Price The price you pay when you invest in a scheme. Also called Offer Price. It May include a sales load. Repurchase Price The price at which a close-ended scheme repurchases its units and it may Include a back-end load. This is also called Bid Price. Redemption Price The price at which open-ended schemes repurchase their units and closeEnded schemes redeem their units on maturity. These prices are NAV Related. Repurchase or ‘Back-end’ Load A charge collected by a scheme when it buys backs the units from the unit Holders.
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Expense Ratio: The Expenses of a scheme include management fees and all the fees associated with the scheme's daily operations. Expense Ratio refers to the annual percentage of fund's assets that is paid out in expenses and can affect the performance of the scheme. Exit Load: It is the load charged by the fund when one redeems the units from the fund. It reduces the price of the units to less than the NAV and is expressed as a percentage of NAV. Face Value: The original issue price of one unit of a scheme, generally Rs 10. Lock-in period: The cooling period after investment in fresh units during which the investor Cannot redeem the units.
No Load: It refers to the fund that does not charge any load for buying or selling its units, i.e. the investor can transact at the NAV.
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List of table
Sr. No.
Name of Table
Page No.
1
Offices of HDFC assets management company limited
17
2 3 4 5 6
Other various assets management companies’ details Area wise distribution of sample size. Define investments avenues Define investments in mutual fund Define schemes preferred by investors Define investment in HDFC assets management company Define scheme in which investors invest in HDFC assets management company Define medium choose by investors for invest in HDFC assets management company Define PREFENCE CRITERIA of investors Define type of product /schemes investors prefer for investments. Define awareness level about on going NFO of HDFC assets management company.
64 79 82 83 84
7 8 9 10 11 12
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85 86 87 88 89 90
List of Graph Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Name of Graph Office locations of HDFC Assets Management Company Different Types of Products Growth of Asset Over The year Types of customers Mutual Fund Cycle Risk Return in Mutual Fund Structure Of Mutual Fund Classification Of Data Define investments avenues Define investments in mutual fund Define schemes preferred by investors Define invest in HDFC assets management company Define scheme in which investors invest in HDFC assets management company Define medium choose by investors for invest in HDFC assets management company Define Preference criteria of investors Define type of product /schemes investors prefer for investments. Define awareness level about on going NFO of HDFC assets management company.
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Page No. 22 24 39 40 49 56 60 76 82 83 84 85 86 87 88 89 90
Bibliography Books
Cooper and schinder Research Methodology New Delhi Tata McGraw-Hill Ltd 2001 Fact sheet of HDFC assets Management Company limited.
Websites www.hdfcfund.com www.amfiindia.com www.valuereserchonline.com www.moneycontrol.com
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CERTIFICATE This is to certify that Mr. Badami Kalpesh D. has satisfactorily completed the project work entitled, “Mutual fund Awareness in Retail Investors Of HDFC Assets management company in Surat� Based on the declaration made by the candidate and my association as a guide for carrying out this work, I recommended this project report for evaluation as a part of the MBA programmer of Veer Narmad South Gujarat University.
Place:
_______________
Date:
(Dr. R. S. Shah)
This project is forwarded for evaluation to the Veer Narmad South Gujarat University.
Place: Date:
____________________ Director of GRIMS (Dr. R. S. Shah)
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