Mutual funds and other investment tools comparitive analysis and investment strategies by Sanjay Gupta

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

SUMMER INTERNSHIP PROGRAMME PROJECT REPORT ON MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES 2008

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MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

A REPORT ON MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Table of Content 1. Acknowledgement……..……………………………………………………………..4 2. Abstract……………………………………………………………………………………..5 3. Objective, Limitation. Reference……………………………………………….6 4. Satndard Chartered Bank…………………………………………………………..7 5. Investments……………………………………………………………………………..13 6. Survey Analysis………………………………………………………………………...25 7. Savings Account…………………………………………………………………….….34 8. ULIP…………………………………………………………………………………….…….36 9. Mutual Funds…………………………………………………………………….……..46 10.

Taxation in India……………………………………………………………….……….65

11.

Trend of Stocks……………………………………………………………….…………75

12.

Annexures I……………………………………………………………………………….79

13.

Annexure II……………………………………………………………..…………………80

14.

Annexure III……………………………………………………………………………….82

15.

Conclusion………………………………………………………………………………….84.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

ABSTRACT The Project includes the study of the products available in the market like ULIP, Mutual Funds, Saving account, Taxation in India and about the stocks available in the market. To analyze the features of these products, there advantages etc. A Survey was condusted to gain the primey data to judge the investors facet before investing in any of the investment tools and thus to scrutinize the important aspects for the investors before investing that further helpd in analyzing the relation between the features of the products and the investors’ requirements.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

OBJECTIVE The Objective of the Report is to map the information required to assess 1. Knowledge and a profound understanding of the products like ULIP, Saving accounts, mutual funds about taxation in India. 2. Study various aspects to analyze the Performance of the Products. 3. To study various provisos • Predicition of the investor’s outlook- To realize the vital facet to glance on before investing in a Scheme. I.e. - Individual Risk Tolerance, Investing capacity, Relation among investors demographic property, age, Job etc. with their investing point of view.

LIMITATIONS 1. Secondary Data-Useful Financial insights are not easily available. 2. Time Constraint- Time was not sufficient to research on all the investment tools available. 3. Primary data- The survey sample was not very large for analysis and the major population in the sample group was middle class group making deviation in the results and the inaccuracy of the results because of respondents response.

SOURCES • • •

The brouchers available from the banks for studying the features of products. Research Websites- Amfi.com, Mutualfundsindia.com, Valueresearchonline.com, investopedia.com. Primary data for Surveys etc. 5

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

STANDARD CHARTERED BANK Leading the way in Asia, Africa and the Middle East In its unique position as an international bank with strong franchise, Standard Chartered combines an in-depth knowledge of local markets with global product expertise to offer effective financial solutions. The bank capitalises on its onshore presence across Asia, Africa and the Middle East to offer customers convenient and reliable access to the widest range of currency markets, to date local market information, country-specific global risk management strategies, and customised capital raising and liquidity management solution. With 150 years of emerging market experience, our in-depth understanding of the local market is unrivaled by most other financial institutions, especially in the currencies of Asia, the Middle East and Africa. We are able to meet the needs of local corporates, multinational companies, development organisations, investment and financial institutions, and central banks around the world. Understanding that each customer's needs are unique, Standard Chartered customises Client Solutions for risk management, yield enhancement, liquidity management and debt financing: • • • • • • • • •

Structured yield enhancement products to match risk appetites and investment requirements Solutions for currency and interest rate exposures Access to more than 100 onshore and offshore illiquid and restricted currencies US Dollar Liquidity Fund for effective cash management Local currency and G3 currency fixed income and loan syndications Asset Securitisation Structured trade and export financing for importers and exporters Project financing services Corporate advisory services

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Features International Network, Local Presence

With an international network which spans the major financial centres (New York, London, Hong Kong and Singapore) and the world's emerging markets (India, the Middle East, Africa), we are uniquely placed to meet our customers' needs wherever they are in the world.

Innovative Client Solutions

We leverage a global perspective to develop creative and effective financial solutions based on our in-depth local market knowledge and understanding of our customers' needs.

One-Stop Range of Products and Services

We have a full range of foreign exchange and risk management solutions to meet the needs of clients across the world.

Standard Chartered Bank in India Standard Chartered Bank is the largest international banking Group in India with 78 branches in 30 cities.

The Bank is having a combined customer

base of 2.5 million in retail banking and over 1200 corporate customers. The key businesses of Standard Chartered Bank in India include consumer banking - primarily credit cards, mortgages, personal loans and wealth management - and - wholesale banking, where the Bank specializes in the provision of cash management, trade, finance, treasury and custody services. Standard Chartered was the first to issue global credit card in India, the 8

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

first to issue Photocard, the first Picture Card and was the first credit card issuer to be awarded the ISO 9002 certification. Some other product innovations of Standard Chartered Bank in India include the 'Sapnay' credit card, the international debit card that provides free access to over 1500 Visa ATM's, a first in the banking industry, Mileage, an overdraft facility against the security of a car and Smart Credit, a personal line of credit for sa;aried customers. The name is derived from Standard & Chartered. Standard Bank of British South Africa merged with Chartered Bank of India, Australia and China in 1969. Chartered Bank opened its first overseas branch in India, at Kolkata, on 12 April 1858. During that time Kolkata was the most important commercial city and was the hub of jute and indigo trades. The merger with the Standard Bank of British South Africa in 1969 and the acquisition of Grindlays Bank in 2000 were two key events that have played an important role in making the Bank the largest international bank in India.

MORE THAN BANKING: Corporate Social Responsibility (CSR) is at the core of the values of Standard Chartered Bank. The Bank is committed to the communities and environments in which it operates. The Bank strongly supports the trend towards

delivering

environmentally

shareholder

responsible

value

manner.

‘Living

socially, with

HIV’

ethically is

and global

community initiat ive of Standard Chartered that is aimed at raising awareness of HIV/AIDS amongst employees through workshops and amongst stakeholders by providing thought leadership. Under ‘Seeing is believing’, a programme that aims to restore sight to one million people globally by 2006, the Bank has raised funds to help 8000 people to see. 9

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

In partnership with Sight Savers International and VISION2020 the Bank is now involved in two flagship projects at Vishakhapatnam and Muzaffarpur, both aimed at the elimination avoidable blindness. Furthermore, in support of the communities ravaged by the Asian Tsunami Crisis in 2004 the Standard Chartered Group committed US$ 1 million to India. The Bank is utilizing these funds for the rehabilitation of two villages adopted near Chennai. In 2004, Standard Chartered initiated the phenomenally successful Standard Chartered Mumbai Marathon - an event dedicated to charity fund raising. The two marathons held so far have forged partnerships with customers and charities and deepened the Bank’s ties with the community, with over US$ 1 million being raised in 2005.

PRODUCTS OFFERED Standard Chartered bank provides different products and services in order to cater the needs of the customers which can be broadly classified into the following categories: 1. PERSONAL

BANKING:

cater

the

diverse

financial

needs,

Standard Chartered offers a wide range of premium banking products and services through its network of 81 branches in 31 cities across the country.As a privileged customer of this bank, the customers can always be assured of a banking service that is flexible enough to tailor-make a product suite to take care of his specific banking needs. 2. SME BANKING: SME Banking provides integrated financial solutions to small and medium businesses, through a relationship management approach. Its

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

customer focused product offerings include working capital finance, trade services, foreign exchange, and cash management. 3. COMMERCIAL BANKING: Standard Chartered has maintained a long local presence, since 1858, with particular emphasis on relationship banking. Significant networks have been established with vendors and financial-related organisations to enable it to offer the customers a comprehensive range of flexible financial services, with special focus on transactional banking products. Supported by state-of-the-art operations, Standard Chartered is pro-active in improving every part of services. Electronic Delivery system has been put in place to ensure that transactions are handled speedily. It has its Cash Product Specialists and dedicated Customer Service Centres to provide its customers with effective solutions. In the project, I studied the products offered by the Standard Chartered bank, its features, functions, scope and working. Thereby to understand the workings and functions of Standard Chartered Bank, the scope of this project has been limited to the detailed study of only three products offered by this bank under the above mentioned categories: 1. Savings Account. 2. Unit Linked Insurance Plan (ULIP). 3. Mutual Funds. 4. Taxation in India. 5. Stock Trends.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

INVESTMENTS Savings form an important part of the economy of any nation. With the savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents a plethora of avenues to the investors. Though certainly not the best or deepest of markets in the world, it has reasonable options for an ordinary man to invest his savings. Investments, unlike works of art, cannot afford the luxury of experimenting. Investing is not guesswork. It takes more than just a 'tip', it needs training to plan, instinct to pick and sheer intellect to make it work for the investor. Human nature is fickle, his wants keep changing. An investment can be described as perfect if it satisfies all the needs of all investors. So, the starting point in searching for the perfect investment would be to examine investor needs. If all those needs are met by the investment, then that investment can be termed the perfect investment. Most investors and advisors spend a great deal of time understanding the merits of the thousands of investments available in India. Little time, however, is spent understanding the needs of the investor and ensuring that the most appropriate investments are selected for him.

The Investment Needs of an Investor

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

The investment needs of an investor are simply his lifestyle needs converted into financial terms. These include

the normal living expenses,

accommodation, food, as well as education, health, recreation, transport, special occasions like marriages, festivals etc. These needs are defined not only in current terms but also over the rest of the life. These needs tend to remain the same over the years. It is the current lifestyle and the lifestyle desired in future that determines the attitude of investor towards investments. By and large, most investors have eight common needs from their investments: 1. Security of Original Capital; 2. Wealth Accumulation; 3. Comfort Factor; 4. Tax Efficiency; 5. Life Cover; 6. Income; 7. Simplicity; 8. Ease of Withdrawal; 9. Communication. •

Security of original capital: The chance of losing some capital has been a primary need. This is perhaps the strongest need among investors in India, who have suffered regularly due to failures of the financial system.

•

Wealth accumulation: This is largely a factor of investment performance, including both short-term performance of an investment and long-term performance of a portfolio. Wealth accumulation is the ultimate measure of the success of an investment decision.

•

Comfort factor: This refers to the peace of mind associated with an investment. Avoiding discomfort is probably a greater need than receiving comfort. Reputation plays an important part in delivering the comfort factor.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

•

Tax efficiency: Legitimate reduction in the amount of tax payable is an important part of the Indian psyche. Every rupee saved in taxes goes towards wealth accumulation.

•

Life Cover: Many investors look for investments that offer good return with adequate life cover to manage the situations in case of any eventualities.

•

Income: This refers to money distributed at intervals by an investment, which are usually used by the investor for meeting regular expenses. Income needs tend to be fairly constant because they are related to lifestyle and are well understood by investors.

•

Simplicity: Investment instruments are complex, but investors need to understand what is being done with their money. A planner should also deliver simplicity to investors.

•

Ease of withdrawal: This refers to the ability to invest long term but withdraw funds when desired. This is strongly linked to a sense of ownership. It is normally triggered by a need to spend capital, change investments or cater to changes in other needs. Access to a long-term investment at short notice can only be had at a substantial cost.

•

Communication: This refers to informing and educating investors about the purpose and progress of their investments. The need to communicate increases when investments are threatened.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

It is also pertinent to differentiate between needs and wants. Wants can be described as transient needs. Wants focus on the short-term, and often lead to long-term investment disappointment. •

Security of original capital is more important when performance falls.

•

Performance is more important when investments are performing well.

•

Failures engender a desire for an increase in the comfort factor.

Perfect investment would have been achieved if all the above-mentioned needs had been met to satisfaction. But there is always a trade-off involved in making investments. As long as the investment strategy matches the needs of investor according to the priority assigned to them, he should be happy. The Ideal Investment strategy should be a customized one for each investor depending on his risk-return profile, his satisfaction level, his income, and his expectations. Accurate planning gives accurate results. And for that there must be an efficient and trustworthy roadmap to achieve the ultimate goal of wealth maximization.

Investment Planning Investment Planning involves identifying your financial goals throughout your life, and prioritising them. Investment Planning is important because it helps in deriving the maximum benefit from the investments. Success as an investor depends upon ability to choose the right investment options. This, in turn, depends on the requirements, needs and goals. For

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

most investors, however, the three prime criteria of evaluating any investment option are liquidity, safety and return. Investment Planning also helps to decide upon the right investment strategy. Besides individual requirement, investment strategy would also depend upon age, personal circumstances and risk appetite. These aspects are typically taken care of during investment planning. Investment Planning also helps in striking a balance between risk and returns. By prudent planning, it is possible to arrive at an optimal mix of risk and returns that suits particular needs and requirements. Investment means putting the money to work to earn more money. Done wisely, it can help you meet financial goals like buying a new house, paying for college education of children, of enjoying a comfortable retirement etc. Investing even a small amount can produce considerable rewards over the long-term, especially if you do it regularly. But one needs to decide about how much he / she wants to invest and where to invest. Choosing the Right Investment Options The choice of the best investment options will depend on personal circumstances as well as general market conditions. For example, a good investment for a long-term retirement plan may not be a good investment for higher education expenses. In most cases, the right investment is a balance of three things: Liquidity, Safety and Return. Liquidity – Accessiblty of money How easily an investment can be converted to cash, since part of invested money must be available to cover financial emergencies.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Safety - The risk involved The biggest risk is the risk of losing the money that has been invested. Another equally important risk is that investments may not provide enough growth or income to offset the impact of inflation, which could lead to a gradual increase in the cost of living. There are additional risks as well (like decline in economic growth). But the biggest risk of all is not investing at all.

Return

–

The

expectation

from

the

investments

Investments are made for the purpose of generating returns. Safe investments often promise a specific, though limited return. Those that involve more risk offer the opportunity to make - or lose - a lot of money.

The Investment Process As investors, we would all like to beat the market handily, and we would all like to pick "great" investments on instinct. However, while intuition is undoubtedly a part of the process of investing, it is just part of the process. As investors, it is not surprising that we focus so much of our energy and efforts on investment philosophies and strategies, and so little on the investment process. It is far more interesting to read about how Peter Lynch picks stocks and what makes Warren Buffett a valuable investor, than it is to talk about the steps involved in creating a portfolio or in executing trades. Though it does not get sufficient attention, understanding the investment process is critical for every investor for several reasons:

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

1. The investment process outlines the steps in creating a portfolio, and emphasizes the sequence of actions involved from understanding the investors risk preferences to asset allocation and selection to performance evaluation. By emphasizing the sequence, it provides for an orderly way in which an investor can create his or her own portfolio or a portfolio for someone else. 2. The investment process provides a structure that allows investors to see the source of different investment strategies and philosophies. By so doing, it allows investors to take the hundreds of strategies that they see described

in the common press and in investment

newsletters and to trace them to their common roots. 3. The investment process emphasizes the different components that are needed for an investment strategy to by successful, and by so doing explain why so many strategies that look good on paper never work for those who use them.

FIVE STEP INVESTMENT PLAN Investing is a science, not an art,. We suggest a five-stage investment plan that may be practiced by investors looking for multiplying their hard-earned money.     

Need Analysis and Profiling Internalizing and Evaluating the Available Avenues Mapping and Matching the Profile Designing an Optimum Portfolio Continuous Monitoring and Portfolio Management

The first step is performing a Need Analysis check. The requirements and expectations of the investor should be determined. The needs should be separated from the desires. The facts that should be taken into account are their age, their profession, the number of dependents, and their income. By doing this check, the risk profile of the investor should me designed. 18

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

The next step would be internalizing the needs. Various investment avenues should be analyzed. The risk-return profile of investment products is evaluated in this step. Every investment product varies according to its return potential and riskiness. Investment products giving a high rate of return are generally risky and volatile. The products giving a lower rate of return usually are less risky. Therefore all the available avenues should be evaluated. The next step would be mapping the risk-return profile of the investor on to the investment portfolio. The investment products are matched with the risk-return profile of the investor. All the investment alternatives that offer expected rate of return are selected for consideration. Then an optimum portfolio is designed for the investor. The basket of investment avenues selected in the previous step are given due weightage and appropriate amount of money is invested in each of the investment avenue so as to get maximum return with minimum possible risk. Finally a continuous watch on the portfolio is extremely important. Fundamental analysis of the investment products done in the previous stages would only help in selecting the right product but the right time of entry or exit from a particular stream is evaluated by doing a technical analysis. For this professional portfolio management is a must.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Investment Strategies in India Conventionally, Indian investors were investing in the following avenues: Fixed Deposits – They cover the fixed deposits of varied tenors offered by the commercial banks and other non-banking financial institutions. These are generally a low risk prepositions as the commercial banks are believed to return the amount due without default. By and large these FDs are the preferred choice of risk-averse Indian investors who rate safety of capital & ease of investment above all parameters. Largely, these investments earn a marginal rate of return of 6-8% per annum. Government Bonds – The Central and State Governments raise money from the market through a variety of Small Saving Schemes like national saving certificates, Kisan Vikas Patra, Post Office Deposits, Provident Funds, etc. These schemes are risk free as the government does not default in

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

payments. But the interest rates offered by them are in the range of 7% 9%. Money-back insurance - Insurance in India is mostly sold and bought as investment products. They are preferred because of their add-on benefits like financial life-cover, tax-savings and satisfactory returns. Even if one does not manage to save money and invest regularly in financial instruments, with insurance, the policyholder has no choice. If he does not pay his premiums on time, his insurance cover will lapse. Money-back Insurance schemes are used as investment avenues as they offer partial cash-back at certain intervals. This money can be utilized for children’s education, marriage, etc. Endowment Insurance – These policies are term policies. Investors have to pay the premiums for a particular term, and at maturity the accrued bonus and other benefits are returned to the policyholder if he survives at maturity. Bullion Market – Precious metals like gold and silver had been a safe heaven for Indian investors since ages. Besides jewellery these metals are used for investment purposes also. Since last 1 year, both Gold and Silver have highly appreciated in value both in the domestic as well as the international markets. In addition to its attributes as a store of value, the case for investing in gold revolves around the role it can play as a portfolio diversifier. Stock Market – Indian stock markets particularly the BSE and the NSE, had been a preferred destination not only for the Indian investors but also for the Foreign investors. This is evident from the fact that FIs are buying huge stakes on the Indian bourses. Although Indian Markets had been 21

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

through tough times due to various scams, but history shows that they recovered very fast. Many types of scrip had been value creators for the investors. People have earned fortunes from the stock markets, but there are people who have lost everything due to incorrect timings or selection of fundamentally weak companies. Real Estate Approximately one fourth of all homes sold in 2006 have been purchased as an investment. Returns are almost guaranteed because property values are always on the rise due to a growing world population. Residential real estate is more than just an investment. There are more ways than ever before to profit from real estate investment.

Mutual Funds - There is a collection of investors in Mutual funds that have professional fund managers that invest in the stock market collectively on behalf of investors. Mutual funds offer a better route to investing in equities for lay investors. A mutual fund acts like a professional fund manager, investing the money and passing the returns to its investors. All it deducts is a management fee and its expenses, which are declared in its offer document. Unit Linked Insurance Plans - ULIPs are remarkably alike to mutual funds in terms of their structure and functioning; premium payments made are converted into units and a net asset value (NAV) is declared for the same. In traditional insurance products, the sum assured is the corner stone; in ULIPs premium payments is the key component.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

A Glance on the standpoint of Investors Risk tolerance, Investors point of view is the most important factor to consider before investing in any of the investmnet pool. Thus to stumble on the Risk, investment duration, time horizon, job, age and income relation, a survey was conducted asking questions targeting our point that was to analyze the investors investing strategies, risk avertness etc. Primary data which was congregated by a Survey with a survey sample of 50. The Graphs shows the investment and other factors Relations: Risk versus Income Fig

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Analysis 24

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

100% of the investors of Income group 1-2 Lakh invest in low Risk Schemes, i.e they invest their money for longer time. 40% invest in Low and 60% invest in Medium Risk level Schemes in income group of 2-3 Lakh. Under income group of 3-5 Lakh 22% invest in High risk oriented schemes, 33% in Low Risk oriented schemes and 44% in Medium Risk oriented schemes. In High income group of 5-8 Lakh 33% of the investors invest in High Risk oriented schemes, 44% in Medium Risk oriented scheme and 22% in low risk oriented schemes. The highest income level group in the survey does not invest in low Risk schemes while maximum of them invest in Medium Risk level (66%) and rest 44% invest in High risk level schemes.

Income Vs Investment Fig

Analysis Investors with high income Level can invest more sums per month than as compared to the lower Income level investors. 100% of the investors in income group of 1-2 Lakh can invest 1-5 thousand, 50% Investors in income group of 2-3 Lakh can invest 1-5 thousand and 50% can invest 5-10 thousand. 11.1% of Investors in income group of 3-5 Lakh can invest 1-5 thousand and rest invests 5-10 thousand monthly. Higher income group invests more per month 25

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Risk Vs Job Fig

Fig. Analysis Through the survey it was established that Self employed are less Risk oriented and thus prefer least riskier Investments, thus can go for Long term Investments. 60% of self employed investors prefer Low risk investments and rest 20% each in low and high risk oriented schemes. The Private Service category ones are Medium risk oriented. 30% are risk averted,55% are medium risk bearing category and 15% are high risk bearing ones. Even the governmnet employed investors are low risk oriented ones. 50% of them invest in low risk schemes, 25% eacg in high and medium risky schemes.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Risk Vs Age Fig

Analysis Under Age group of 20-25 18.18% invests in low risk schemes, 63.63% in Medium risk while 18.18% in high risk oriented schemes. Under age group of 26-30, 16.66% prefer low risk, 50% prefer medium and 33.33% prefer high risk. While 66% of highest group age invest in Low Risk Level schemes and rest invests in medium one. Thus we see that if age alone is considered to judge the risk factors, the risk bearing potential decreases with increase in age. Thus according to his/her risk avertness the investors can look upon the appropriate schemes for them and can invest into accordingly.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Income Vs purpose of Investments

Maximum number of the investors are opting the Life insurance investments and for the Tax Saving Investments. Specifically low income group are heading for these two options only, but the higher income group investors still going for child care and health insurance.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Age Vs Investment

Younger age investors are showing more variation in the data about 65% of them is showing 5-10000 investment per month. Medium age group investors are more interested in low investment per month. While higher age group again showing variations with maximum in 5- 10000 and above 20000 investment per month.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Age Vs Horizon of Time

The young investors for apparent reasons are investing in for higher duration while the investors under high age group are investing in relatively less durations. The investors in medium age are more interested in gaining quick returns for one reason could be their ongoing expenditure requirements.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Age Vs Purpose of Investments

62% of the young investors are opting the tax saving investments while45% are opting for Life insurance and age group of 40-50 are majorly opting for tax saving while the investors in highest age group of our survey preffered mostly Life insurance investments for them.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Purpose of Investment Vs Horizon of Time

Investments for the purpose of Tax Savings are distributed over almost all horizon of time like 11-15 years, 6-10years, 1-2 years etc. according to the requiremnets of the investors. While the Life Insurance purpose investments grab attention for 21-35 years and 11-15 years.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

SAVINGS ACCOUNT An account primarily opened for and operated by individuals, wherein the numbers of transactions are few and which give the customer liquidity, with the facility to earn some interest on the residual balances. Standard Chartered bank offers 4 types of Savings account matching different needs of customers namely: 1. Axcess Plus :The Standard Chartered Bank have launched the Axcess Plus premium product placed in the

saving account as a market with maintenance of minimum

quarterly balance of 10,000/- The product is supposed to be targeted to a specific group elite of customers. This will help to increase the volume and as such the profitability of the company. The name axcess plus means that the account is accessible anywhere anytime, as well as it will be an innovative and convenient services for the customers needs. 2. Super Value 3. Parivaar account 4. Saral Account ELIGIBILITY (IN GENERAL) •

Indian Residents

•

NRI’s

•

Clubs, Associations, Trusts and Registered Societies

•

HUF (Hindu Undivided Family)

•

Foreign Nationals (QA-22) 33

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

PRODUCT FEATURES (IN GENERAL) •

Account can be in sole name or in joint names

•

Minimum balance: Minimum Quarterly balance of a specific amount is to be maintained failing to which a specific fees per quarter has to be paid.

•

Account can be operated at any branch across the country.

The details are in the table shown in AnnexureI and AnnexureII.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

ULIP-Unit Linked insurance Plan ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life insurance policy which provides a combination of risk cover and investment. The dynamics of the capital market have a direct bearing on the performance of the ULIPs. It provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time. ULIP is life insurance solution that provides for the benefits of protection and flexibility in investment. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV). ULIP came into play in the 1960s and is popular in many countries in the world. The reason that is attributed to the wide spread popularity of ULIP is because of the transparency and the flexibility which it offers.

As times progressed the plans were also successfully mapped along with life insurance need to retirement planning. In today’s times, ULIP provides solutions for insurance planning, financial needs, financial planning for children’s future and retirement planning. These are provided by the insurance companies or even banks. Investments made in ULIP has tax exemption under section 80C of the Indian Income Tax Act, 1961 and also returns will be covered under section 10(10D). Most insurers offer a wide range of funds to suit one’s investment objectives, risk profile and time horizons. Different funds have different risk profiles. The potential for returns also varies from fund to fund. The following are some of the common types of funds available along with an indication of their risk characteristics.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

General Description Equity Funds

Nature of Investments

Risk Category

Primarily invested in company stocks with the general aim of capital appreciation

Medium to High

Income, Fixed Interest and Bond Funds

Invested in corporate bonds, government securities and other fixed income instruments

Medium

Cash Funds

Sometimes known as Money Market Low Funds — invested in cash, bank deposits and money market instruments

Balanced Funds

Combining equity investment with fixed interest instruments

Medium

ULIP provides multiple benefits to the consumer. The benefits include: • Life protection • Investment and Savings • Flexibility • Adjustable Life Cover • Investment Options • Transparency • Options to take additional cover against • Death due to accident • Disability • Critical Illness • Surgeries • Liquidity • Tax planning

Market linked insurance plans invest the premium in to the equity, debt and cash markets by the way of allocating units, which like any other mutual fund have a NAV and the customer is free to switch between one fund class to another depending on the risk factor he wishes to be in. ULIPs offer a better return than the traditional endowment plans and offer a great deal of flexibility along with great returns making them the finest product offering.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Charges ULIPs offered by different insurers have varying charge structures. Broadly, the different types of fees and charges are given below. However it may be noted that insurers have the right to revise fees and charges over a period of time. 1 Premium Allocation Charge This is a percentage of the premium appropriated towards charges before allocating the units under the policy. This charge normally includes initial and renewal expenses apart from commission expenses. 2 Mortality Charges These are charges to provide for the cost of insurance coverage under the plan. Mortality charges depend on number of factors such as age, amount of coverage, state of health etc 3 Fund Management Fees These are fees levied for management of the fund(s) and are deducted before arriving at the Net Asset Value (NAV). 4 Policy/ Administration Charges These are the fees for administration of the plan and levied by cancellation of units. This could be flat throughout the policy term or vary at a predetermined rate. 5 Surrender Charges A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions. 6 Fund Switching Charge Generally a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

7 Service Tax Deductions Before allotment of the units the applicable service tax is deducted from the risk portion of the premium. Investors may note that the portion of the premium after deducting for all charges and premium for risk cover is utilized for purchasing units.

Important Issues for Investors Verification Before signing in the proposal One has to verify the approved sales brochure for • All the charges deductible under the policy • Payment on premature surrender • Features and benefits • Limitations and exclusions • Lapsation and its consequences • Other disclosures • Illustration projecting benefits payable in two scenarios of 6% and 10% returns as prescribed by the life insurance council.

Premium Used to Purchase Units The full amount of premium paid is not allocated to purchase units. Insurers allot units on the portion of the premium remaining after providing for various charges, fees and deductions. However the quantum of premium used to purchase units varies from product to product. The total monetary value of the units allocated is invariably less than the amount of premium paid because the charges are first deducted from the premium collected and the remaining amount is used for allocating units. Bajaj Allianz Life Insurance have developed a number of ULIP products which range from single premium to a regular premium option along with 38

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

investment funds ranging from index funds to mid-cap funds and debt market linked funds. Refund of premiums if not satisfied with the policy, after purchasing it The policyholder can seek refund of premiums if he disagrees with the terms and conditions of the policy, within 15 days of receipt of the policy document (Free Look period). The policyholder shall be refunded the fund value including charges levied through cancellation of units subject to deduction of expenses towards medical examination, stamp duty and proportionate risk premium for the period of cover. To invest additional contribution above the regular premium One can invest additional contribution over and above the regular premiums as per their choice subject to the feature being available in the product. This facility is known as “TOP UP” facility. Switching the investment fund after taking a ULIP policy “SWITCH” option provides for shifting the investments in a policy from one fund to another provided the feature is available in the product. While a specified number of switches are generally effected free of cost, a fee is charged for switches made beyond the specified number. Partial encashment/withdrawal Products may have the “Partial Withdrawal” option which facilitates withdrawal of a portion of the investment in the policy. This is done through cancellation of a part of units.

Discontinuation of payment of premium a) Discontinuance within three years of commencement – If all the premiums have not been paid for at least three consecutive years from inception, the insurance cover shall cease immediately. Insurers may give an opportunity for revival within the period allowed; if the policy is not revived within that period, surrender value

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

shall be paid at the end of third policy anniversary or at the end of the period allowed for revival, whichever is later. b) Discontinuance after three years of commencement -- At the end of the period allowed for revival, the contract shall be terminated by paying the surrender value. The insurer may offer to continue the insurance cover, if so opted for by the policy holder, levying appropriate charges until the fund value is not less than one full year’s premium. When the fund value reaches an amount equivalent to one full year’s premium, the contract shall be terminated by paying the fund value.

ULIP – STANDARD CHARTERED The flexible Unit linked life insurance plans at Standard Chartered bank provides the opportunity to participate in market-linked returns while enjoying the valuable benefits of life insurance. Insurance Plans for Standard Chartered Bank customers is issued by Bajaj Allianz Life Insurance Company Limited.

Bajaj Allianz Bajaj Allianz Life Insurance Company Limited is a Union between Allianz SE, one of the world’s largest Life Insurance companies and Bajaj Auto, one of the biggest 2- &- 3 wheeler manufacturers in the world. Allianz SE is a leading insurance conglomerate globally and one of the largest asset managers in the world, managing assets worth over a Trillion Euros (Over R. 55, 00,000 crores). Allianz SE has over 115 years of financial experience in over 70 countries. Bajaj Auto is one of the most trusted name is Indian auto for over 55 years. At Bajaj Allianz customer delight is our guiding principle. Ensuring worldclass solutions by offering customized products with transparent benefits, supported by best technology is our business philosophy. Market linked insurance plans invest the premium in to the equity, debt and cash markets by the way of allocating units, which like any other mutual 40

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

fund have a NAV and the customer is free to switch between one fund class to another depending on the risk factor he wishes to be in. ULIPs offer a better return than the traditional endowment plans and offer a great deal of flexibility along with great returns making them the finest product offering. We at Bajaj Allianz Life Insurance have developed a number of ULIP products which range from single premium to a regular premium option along with investment funds ranging from index funds to mid-cap funds and debt market linked funds.

CAPITAL UNIT GAIN – A UNIT LINKED PLAN: Capital UnitGain is a unit linked endowment regular premium plan with the benefit of life protection offered by Bajaj Allianze. By choosing an appropriate premium level and term, individual can match the maturity date of the plan to a specific savings need such as child’s education, wedding, retirement etc. It has unmatched flexibility to meet any emergency or any financial need. Bajaj Allianz Capital UnitGain gives up to 97% allocation from the first year onwards to ensure that your investment income gets accelerated from the first year itself. With Bajaj Allianz Capital UnitGain one can get to choose from a wide range of high quality investment funds coupled with flexible investment management. This is the one-stop solution to investment, taxsaving and protection needs. The Key Features of the Capital UnitGain Plan are: • Option of choosing any sum assured between minimum and maximum limits to match insurance needs.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

• Option of choosing from a host of additional rider benefits: UL Accidental Death Benefit, UL Accidental Permanent Total/Partial Disability Benefit, UL Critical Illness Benefit and UL Hospital Cash Benefit • Increase savings by paying top up premiums. • Same premium allocation for all policy years with higher allocation for top up premiums. • Individuals choice of adopting own investment strategy to grow the funds under the policy. • Choice of 5 investment funds with flexible investment management, with the option of changing funds at any time and also invest in the newer funds that would be introduced from time to time. • Partial withdrawals without any surrender charges. • Flexibility to increase / decrease the regular premiums

Regular Premium Market linked insurance plans invest the premium in to the equity, debt and cash markets by the way of allocating units, which like any other mutual fund have a NAV and the customer is free to switch between one fund class to another depending of the risk factor he wishes to be in. ULIPs offer better returns than the traditional endowment plans and offer a great deal of flexibility along with great returns making them the finest product offering. We at Bajaj Allianz Life Insurance have developed a number of ULIP products which range from single premium to a regular premiums option along with investment funds ranging from index funds to mid-cap funds and debt market linked funds. New UnitGain Supper Ensure fully and get MAX allocation along with a host of additional benefits to choose from. A flexible unit linked plan that allows partial & full withdrawal after 3 years.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Additional benefits:  UL Accidental Death Benefit and UL Disability Benefit.  UL Critical Illness Benefit and UL Hospital Cash Benefit.  3 funds to choose from & flexibility to pay top-up any time. Unit Gain plus Gold A Unique plan with the combination of protection and prospects of earning attractive returns with investments in various mixes of securities that makes a perfect plan to last you a lifetime of prosperity and happiness. High Allocation upto 85%. Guaranteed Life Cover with a choice of 6 Investmenst Funds. Additional Benefit Riders:  UL Accidental Death Benefit.  UL Critical Illness benefit.  UL Hospital Cash Benefit.  UL Family Income Benefit.  UL Waiver of Premium benefit.

New FamilyGain A Flexible Investment plan with Pure Stock Fund- (a unique ethical fund that invests in environment responsive companies and also suits religious guidelines.)  Guaranteed Life Cover: Sum Assured + Value of Units.  Partial and full withdrawals after 3 years.  UL Accidental Death Benefit and UL Accidental Permanent Total/Partial Disability Benefit.  UL Critical Illness Benefit and UL Hospital Cash Benefit.  UL Family Income benefit and UL Waiver of Premium Benefit.

New UnitGain Plus Flexible investment plans with an option of withdrawing money whenever needed.  Guaranteed life cover.  Choice of 5 investment funds.  3 free switches allowed every year.  Partial and full withdrawls after 3 years.  Unmatched flexibility to meet your changing lifestyle and insurance requirements. 43

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Century Plus A limited premium payment term option with a unique combination of protection and attractive returns.  98% allocation in year 1 and year 2 and 100% allocation 3rd year onwards.  Guaranteed life cover with twin-benefits of sum assured plus fund value.  Get Loyalty Units of 7% annualised premium from sixth year onwards.  Additional 0.25% Loyalty Units on regular premium fund value for annual premium equal to or above Rs. 1 Lac

New UnitGain An investment plan that creates value for every rupee you invest.

YoungCare Bajaj Allianz YoungCare offers you a unique way to reassure yourself that you have taken care of the ones you cherish. This investment plan is a Gift of a lifetime to your loved one, as it offers a guaranteed Sum Assured and continued pay premium on your behalf, in case of your unfortunate death.

YoungCare Plus Bajaj Allianz YoungCare Plus offers you a unique way to reassure yourself that you have taken care of the ones you cherish. This investment plan is a Gift of a lifetime to your loved one, as it offers a guaranteed Sum Assured, continued pay premium on your behalf, in case of your unfortunate death and critical illness benefit.

Single Premium Unit Linked Single Premium Plans require the premium to be paid only once.

New UnitGain Premier SP New UnitGain Premier SP is an unique insurance cum investment plan that provides your investment a zing from the start, by allocating 105% of the single premium paid from day one, thereby ensuring that you get MORE.  105% allocation.  Guaranteed life cover.  Flexible withdrawal option u/s 10 (10) D.

New UnitGain Plus SP The Only Single premium plan that gives you Maxx Allocation      

98% Allocation. Guaranteed Life Cover. Choice of 4 Investment funds. 3 free switches allowed everyear. Partialand Full withdrawls after 3 years. Now minimum premium as low as Rs10,000 only. 44

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

MUTUAL FUNDS A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised 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 basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Mutual Fund Operation Flow Chart

ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organisational set up of a mutual fund

Mutual funds Mutual fund is vehicle that facilitates a number of investors to pool their money and have it jointly managed by a professional money manager Sponsor Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. The Sponsor is not responsible or 46

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund. Trustee Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.

Asset Management Company (AMC) The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. At least 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 crores at all times.

Transfer Agent The AMC if so authorised by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Regulatory Authorities To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations. SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody. According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry. AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

MUTUAL FUNDS The flow chart below describes broadly the working of a mutual fund:

CONCEPT OF MUTUAL FUNDS

TYPES OF MUTUAL FUND SCHEMES

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Wide varieties of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.

BY STRUCTURE 1. Open - Ended Schemes: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. 2. Close - Ended Schemes: A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. 50

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

3. Interval Schemes: Interval Schemes are that scheme, which combines the features of openended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

By investment objective: Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation. Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50). Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

The risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can expect higher returns and vise versa if he pertains to lower risk instruments, which would be satisfied by lower returns. For example, if an investors opt for bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases in the same proportion. Thus investors choose mutual funds as their primary means of investing, as Mutual funds provide professional management, diversification, convenience and liquidity. That doesn’t mean mutual fund investments risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets which involves a higher risk but can expect higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives market which is considered very volatile.

BY NATURE 1. Equity fund: These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

fund manager’s outlook on different stocks. The Equity Funds are subclassified depending upon their investment objective, as follows: • • • •

Diversified Equity Funds. Mid-Cap Funds. Sector Specific Funds. Tax Savings Funds (ELSS). Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix.

2. Debt funds: The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as: Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government. Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities. MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes. Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures. Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds. 53

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameter viz, Each category of funds is backed by an investment philosophy, which is predefined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.

Types of returns There are three ways, where the total returns provided by mutual funds can be enjoyed by investors. Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

Advantages of Investing Mutual Funds: 1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments. 54

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. 3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors. 4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want. 5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.

Disadvantages of Investing Mutual Funds: 1. Professional Management- Some funds doesn’t perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor him self, for picking up stocks. 2. Costs – The biggest source of AMC income, is generally from the entry & exit load which they charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon. 3. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. 4. Taxes - when making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability. 55

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

THE MUTUAL FUNDS 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 the. the history of mutual funds in india can be broadly divided into four distinct phases

First phase – 1964-87 Unit trust of India (uti) was established on 1963 by an act of parliament. it was set up by the reserve bank of india and functioned under the regulatory and administrative control of the reserve bank of india. in 1978 uti was delinked from the rbi and the industrial development bank of india (idbi) took over the regulatory and administrative control in place of rbi. the first scheme launched by uti was unit scheme 1964. at the end of 1988 uti had rs.6,700 crores of assets under management.

Second phase – 1987-1993 (entry of public sector funds) 1987 marked the entry of non- uti, public sector mutual funds set up by public sector banks and life insurance corporation of india (lic) and general insurance corporation of india (gic). sbi mutual fund was the first non- uti mutual fund established in june 1987 followed by canbank mutual fund (dec 87), punjab national bank mutual fund (aug 89), indian bank mutual fund (nov 89), bank of india (jun 90), bank of baroda mutual fund (oct 92). Lic established its mutual fund in June 1989 while gic had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of rs.47, 004 crores.

Third phase – 1993-2003 (entry of private sector funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual 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.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

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. 121,805crores. The unit trust of india with rs.44, 541 crores of assets under management was way ahead of other mutual funds.

Fourth phase – since February 2003 In February 2003, following the repeal of the unit trust of india act 1963 uti was bifurcated into two separate entities. one is the specified undertaking of the unit trust of india with assets under management of rs.29,835 crores as at the end of january 2003, representing broadly, the assets of us 64 scheme, assured return and certain other schemes. the 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. 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 september, 2004, there were 29 funds, which manage assets of rs.153108 crores under 421 schemes.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

The graph indicates the growth of assets over the years

RESEARCH ON MUTUAL FUNDS Mutual Funds over the years have gained immensely in their popularity. Apart from the many advantages that investing in mutual funds provide like diversification, professional management, the ease of investment process has proved to be a major enabling factor. However, with the introduction of innovative products, the world of mutual funds nowadays has a lot to offer to its investors. With the introduction of diverse options, investors needs to choose a mutual fund that meets his risk acceptance and his risk capacity levels and has similar investment objectives as the investor. With the plethora of schemes available in the Indian markets, an investors needs to evaluate and consider various factors before making an investment decision. Since not everyone has the time or inclination to invest and do the analysis himself, the job is best left to a professional. 58

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Since Indian economy is no more a closed market, and has started integrating with the world markets, external factors which are complex in nature affect us too. Factors such as an increase in short-term US interest rates, the hike in crude prices, or any major happening in Asian market have a deep impact on the Indian stock market. Although it is not possible for an individual investor to understand Indian companies and investing in such an environment, the process can become fairly time consuming. Mutual funds (whose fund managers are paid to understand these issues and whose Asset Management Company invests in research) provide an option of investing without getting lost in the complexities. Most importantly, mutual funds provide risk diversification: diversification of a portfolio is amongst the primary tenets of portfolio structuring, and a necessary one to reduce the level of risk assumed by the portfolio holder. Most of the investors are not necessarily well qualified to apply the theories of portfolio structuring to their holdings and hence would be better off leaving that to a professional. Mutual funds represent one such option. Lastly, Evaluate past performance, look for stability and although past performance is no guarantee of future performance, it is a useful way to assess how well or badly a fund has performed in comparison to its stated objectives and peer group. A good way to do this would be to identify the few best performing funds (within your selected investment objectives) over various periods, say 3 months, 6 months, one year, two years and three years. Shortlist funds that appear in the top 5 in each of these time horizons as they would have thus demonstrated their ability to be not only good but also, consistent performers.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Analysis The analysis on Risk and Return are done on the following basis:

Standard Deviation Standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility. Standard deviation is a statistical measurement that sheds light on historical volatility. For example, a volatile stock will have a high standard deviation while the deviation of a stable blue chip stock will be lower. A large dispersion tells us how much the return on the fund is deviating from the expected normal returns.

Sharpe Ratio The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been.

Treynor’s performance index: A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless investment per each unit 61

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

of market risks. In other words, the Treynor ratio is a risk-adjusted measure of return based on systematic risk. It is similar to the Sharpe ratio, with the difference being that the Treynor ratio uses beta as the measurement of volatility. : R −R   P f   Treynor =  βP

Where: Ti = Treynor’s performance index Rp = Portfolio’s actual return during a specified time period Rf = Risk-free rate of return during the same period βp = beta of the portfolio Whenever Rp> Rf and βp > 0 a larger T value means a better portfolio for all investors regardless of their individual risk preferences. In two cases we may have a negative T value: when Rp < Rf or when βp < 0. If T is negative because Rp < Rf, we judge the portfolio performance as very poor. However, if the negativity of T comes from a negative beta, fund’s performance is superb. Finally when Rp- Rf, and βp are both negative, T will be positive, but in order to qualify the fund’s performance as good or bad we should see whether Rp is above or below the security market line.

The Investors for Mutual Fund Mutual Funds are becoming a very popular form of investment characterised by many advantages that they share with other forms of investments and what they possess uniquely themselves. The primary objectives of an 62

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

investment proposal would fit into one or combination of the two broad categories, i.e., Income and Capital gains. How mutual fund is expected to be over and above an individual in achieving the two said objectives, is what attracts investors to opt for mutual funds.

Mutual Funds are suitable for the investors who call for:

•

Expertise Supervision: Making investments is not a full time assignment

investors.

many

investors

hardly

have

professional attitude towards their investment. This investment is suitable for those invetsors. When investors buy mutual fund scheme, an essential benefit one acquires is expert management of the money he puts in the fund. The professional fund managers who supervise fund’s portfolio take desirable decisions viz., what scrips are to be bought, what investments are to be sold and more appropriate decisions. •

Regular Income or Ease of Liquidity- A distinct advantage of a mutual fund over other investments is that there is always a market for its unit/ shares. Moreover, Securities and Exchange Board of India (SEBI) requires the mutual funds in India have to ensure liquidity. Mutual funds units can either be sold in the share market as SEBI has made it obligatory for closed-ended schemes to list themselves on stock exchanges. For open-ended schemes investors can always approach the fund for repurchase at net asset value (NAV) of the scheme. Such repurchase price and NAV is advertised in newspaper for the convenience of investors as to timings of such buy and sell. They have extensive research facilities at their disposal, can spend full time to investigate and can give the fund a constant

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

supervision. The performance of mutual fund schemes, of course, depends on the quality of fund managers employed. •

Risk reluctancy- Mutual funds are relatively safer and stable, the reason being it provides Diversification which is the idea of putting not putting all the eggs into one basket. By investing in many companies the mutual funds can protect themselves from unexpected drop in values of some shares. The small investors can achieve wide diversification on his own because of many reasons, mainly funds at his disposal. Mutual funds on the other hand, pool funds of lakhs of investors and thus can participate in a large basket of shares of many different companies. Majority of people consider diversification as the major strength of mutual funds. Risk in investment is as to recovery of the principal amount and as to return on it. Mutual fund investments on both fronts provide a comfortable

situation

for

investors.

The

expert

supervision,

diversification and liquidity of units ensured in mutual funds reduce the risks. Investors are no longer expected to come to grief by falling prey to misleading and motivating ‘headline’ leads and tips, if they invest in mutual funds

•

Safety of Investments-Besides depending on the expert supervision of fund managers, the legislation in a country (like SEBI in India) also provides for the safety of investments. Mutual funds have to broadly follow the laid down provisions for their regulations, SEBI acts as a watchdog and attempts whole heatedly to safeguard investors interests

•

Tax Shelter: Depending on the scheme of mutual funds, tax shelter is also available. As per the Union Budget-2003, income 64

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

earned through dividends from mutual funds is 100% tax-free at the hands of the investors.

•

Minimize Operating Costs: Mutual funds having large invisible funds at their disposal avail economies of scale. The brokerage fee or trading commission may be reduced substantially. The reduced operating cost visibly increases the income available for investors. Investing in securities through mutual funds has many advantages like – option to reinvest dividends, strong possibility of capital appreciation, regular returns, etc

The test of their economic efficiency as financial intermediary lies in the extent to which they are able to mobilize additional savings and channeling to more productive sectors of the economy.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Taxation in India India has a well developed tax structure with a three-tier federal structure, comprising the Union Government, the State Governments and the Urban/Rural Local Bodies. The power to levy taxes and duties is distributed among the three tiers of Governments, in accordance with the provisions of the Indian Constitution. The main taxes/duties that the Union Government is empowered to levy are Income Tax (except tax on agricultural income, which the State Governments can levy), Customs duties, Central Excise and Sales Tax and Service Tax. The principal taxes levied by the State Governments are Sales Tax (tax on intra-State sale of goods), Stamp Duty (duty on transfer of property), State Excise (duty on manufacture of alcohol), Land Revenue (levy on land used for agricultural/non-agricultural purposes), Duty on Entertainment and Tax on Professions & Callings. The Local Bodies are empowered to levy tax on properties (buildings, etc.), Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User Charges for utilities like water supply, drainage, etc. Since 1991 tax system in India has under gone a radical change, in line with liberal economic policy and WTO commitments of the country. Some of the changes are: • • •

Reduction in customs and excise duties Lowering corporate Tax Widening of the tax base and toning up the tax administration

Direct Taxes Personal Income Tax Individual income slabs are 0%, 10%, 20%, 30% for annual incomes upto Rs 50,000, 50,000 – 60,000, 60,000 - 1,50,000 and above 1,50,000 respectively.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Corporate Income Tax For domestic companies, this is levied @ 35% plus surcharge of 5%, where as for a foreign company (including branch/project offices), it is @ 40% plus surcharge of 5%. An Indian registered company, which is a subsidiary of a foreign company, is also considered an Indian company for this purpose.

Depreciation and interest deductions: Depreciation rates Assets Buildings Plant and Machinery

Rates (%) 5-100 25-100

Furniture and Fittings

Vehicles (Other than for commercial use)

Pollution Control Equipment

Energy Saving Devices

Ships

Intangible assets

Withholding Tax for NRIs and Foreign Companies: Withholding Tax Rates for payments made to Non-Residents are determined by the Finance Act passed by the Parliament for various years. The current rates are: 1. Interest - 20% of Gross Amount 2. Dividends - 10% 67

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

3. Royalties - 20%. 4. Technical Services - 20%. 5. Any other Services - Individuals - 30% of net income Companies/Corporates - 40% of net income The above rates are general and in respect of the countries with which India does not have a Double Taxation Avoidance Agreement (DTAA).

Double Taxation Relief: India has entered into DTAA with 65 countries including countries like U.S.A., U.K., Japan, France, Germany, etc. These agreements provides for relief from the double taxation in respect of incomes by providing exemption and also by providing credits for taxes paid in one of the countries. These treaties are based on the general principles laid down in the model draft of the Organisation for Economic Cooperation and Development (OECD) with suitable modifications as agreed to by the other contracting countries. In case of countries with which India has double taxation avoidance agreements, the tax rates are determined by such agreements and are indicated for various countries as under:

General Tax Incentives for Industries: •

100% deduction of profits and gains for ten years is available in respect of the following: o

Any enterprise carrying on the business of developing, maintaining and operating infrastructure facilities viz., roads, highways, bridges, airports, ports, rail systems, industrial towns, inland waterways, water supply projects, water treatment systems, irrigation projects, sanitation and sewage projects, solid waste management systems. Undertakings engaged in generation or generation and distribution, transmission or distribution of power, which commence these activities before 31.3.2006. 68

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

• •

100% deduction for seven years for undertakings producing or refining mineral oil. 100% deduction from income for first five years and 30% (for persons other than companies: 25%) in subsequent five years is available in respect of the following: o

o o o

•

Any company engaged in scientific and industrial research and development activities, approved by the prescribed authority, before 31.3.2003. Any undertaking which develops, operates, maintains an Industrial Park or Special Economic Zone before 31.3.2006. Notified Industrial Undertakings set up in the North Eastern region including seven north-eastern states and the state of Sikkim. Undertakings developing and building housing projects approved by the local authority before 31.3.2001and which are completed before 31.3.2003.

Company which starts providing telecommunication services whether basic or cellular including radio paging, domestic satellite service, network or trunking, broad band network and internet services before 31.3.2003. Industrial undertakings located in certain specified industrially backward states and districts. Undertakings which begin to operate cold chain facilities for agricultural produce before 31.3.2003. Undertakings engaged in the business of handling, storage, transportation of food grains.

50% deduction for a period of five years is available to undertakings engaged in the business of building, owning and operating multiplex theatres or convention centres constructed before 31.3.2005. Tax exemption of 100% on export profits for ten years upto F.Y. 2009-10, for new industries located in EHTPs and STPs and 100% Export Oriented Units. For units set up in Special Economic Zones (SEZs), 100% deduction of export income for first five years followed by 50% for next two years, even beyond 2009-10.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

•

• •

Tax exemption of 100% of Export profits for ten years for new industries located in Integrated Infrastructure Development Centres or Industrial Growth Centres of the North Eastern Region. Deduction of 50% of export profits from the gross total income. The deduction would be restricted to 30% for financial year 2003-04 and no deduction is allowable subsequently. Deduction from the gross total income of 50% of foreign exchange earnings by hotels and tour operators. The deduction would be restricted to 30% for financial year 2003-04 and no deduction is allowable subsequently. 50% deduction of export income due to export of computer software or film software, television software, music software, from the gross total income. The deduction would be restricted to 30% for financial year 2003-04 and no deduction is allowable subsequently. Deduction in respect of certain inter-corporate dividends to the extent of dividend declared. Exemption of any income by way of dividend, interest or long term capital gains of an infrastructure capital fund or an infrastructure capital company from investment made by way of shares or long term finance in any enterprises carrying on the business of developing, maintaining and operating infrastructure facility.

Sales Tax Central Sales Tax (CST) CST is 4% on manufactured goods.

Local Sales Tax (LST) Where a sale takes place within a state, LST would be levied. Such a tax would be governed by the relevant state tax legislation. This is normally up to 15%.

Excise Duty Excise duty on most commodities ranges between 0 to 16%. Only on seven items duty is imposed at 32%, viz., motor cars, tyres, aerated soft drinks, air conditioners, polyesters filament yarn, pan masala and chewing tobacco. Duty is charged at 30% on petrol with additional excise duty at Rs. 7 per 70

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

litre. The said rates are subject to exemptions and deductions thereon as may be notified from time to time. Central VAT (CENVAT) is applicable to practically all manufactured goods, so as to avoid cascading effect on duty. Small Scale Sector is exempted from payment of excise duty from annual production upto Rs.10 million.

Customs Duty The rates of basic duties vary from 0 to 30%. Salient features are: o o

o o o

o o

Peak customs duty reduced from 220% (in 1991) to 30% (in 2002). The general project import duty (for new projects and substantial expansion of existing projects) reduced from 85% to 25%. Import duty under EPCG Scheme is 5%. R&D imports - 5% customs duty. Export made with imported inputs get concessions in form of duty drawback, duty entitlement pass book scheme and advance licence. Many type of industries such as 100% EOU and units in free trade zone get facility of zero import duty. An Authority for Advance Ruling for foreign investor.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Past Trend of Stocks HCC

The is

stock

working consistently with no high and low spins. Thus is low risky stock. But the retunrs from the stock has not augmented in the period.

Gammon India

The stock is risky one because of high variation in the value. But the overall performance of the stock has improved.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

IVRCL INFRA

The stock is performing pretty good thereby giving good returns. But the performance is consistent with no high variations thus is risk averted one.

Nagarjuna const.

The stock is not performing well, as the returns are decreaing. The scheme is moreover less risky scheme.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Punj Lloyd

The stock is performing average as compared to the other schemes. But the returns have increased overall.

Simplex Infra

The stock has shown huge variation in the value thus is risky one, but the returns are good as compared to the others.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Patel Eng.

The stock has declined in the value over the time. But since the variation is less, the stock is for risk averted investors.

JP Associates

The stock is giving fewer returns as compared to the other ones and even the variation in the value is verry high thus is a risky stock to invest into.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

DLF

The stock is giving verry good returns as compared to the others but the variation in the returns is verry high.

Tata Power

The stock is performing superiorly and is consantly increasing giving the highest returns.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

SAIL

The stock is consistent over the time period withnot fewer returns. And is verry less risky because of less swing in the retuns.

C&C Const.

The returns of the stock are consistently increasing though the retunrns are less but the stock is improving.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Unitech The stock is not working well in the market the returns being reducing over the time and is giving high deviations.

Tata Steel The stock is performig good with returns increasing and the returns are lessrisky because of less variations in the value.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

LT The market capitalization of the stock is verry large thus the overall returns is verry lare as compared tpo the others. The retuns are almost consistent over the time with less variations thus is less risky and high worth stock.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Annexure I Saving accounts features: Savings Account Name Accounts CHARGES FOR OPENING THE ACCOUNT

AXcessPlus Savings Account NIL

AVERAGE QUARTERLY (DAILY)BALANCE REQD.

Rs.10000 Rs. 1500/qtr (Bal<Rs.5000) Rs.750/qtr(Rs.10000>Bal>Rs.50 00) Rs.1000 per yr. Rs.500 (within 6 months)

PENALTY FOR UNSUFFICIENT AQB DORMANT A/C CHARGES ACCOUNT CLOSURE DEMAND DRAFT DRAWN AT OWN BANK(min fee Rs.50 & max Rs.1500) CANCELLATION DRAWN AT OTHER BANK( Min Fee Rs.250) PAY ORDER STATEMENTS STATEMENT OF ACCOUNT,(E-STMT) CHARGES FOR DUPLICATE STATEMENT MONTHLY STATEMENT CHARGES ISSUE BALANCE CONFIRMATION CERTIFICATE CARDS DEBIT CARD ANNUAL FEE DEBIT CARD REPLACEMENT FEE ATM INTERCHANGE(NON PARTNER) SERVICES NETBANKING INTERBRANCH/ INTERCITY BANKING BILLPAY PHONE BANKING MOBILE BANKING(SMS) CHARGES FOR OPENING THE ACCOUNT AVERAGE QUARTERLY (DAILY)BALANCE REQD. PENALTY FOR UNSUFFICIENT AQB DORMANT A/C CHARGES ACCOUNT CLOSURE DEMAND DRAFT DRAWN AT OWN BANK(min fee Rs.50 & max Rs.1500) CANCELLATION DRAWN AT OTHER BANK( Min Fee Rs.250) PAY ORDER STATEMENTS STATEMENT OF ACCOUNT,(E-STMT) CHARGES FOR DUPLICATE STATEMENT MONTHLY STATEMENT CHARGES ISSUE BALANCE CONFIRMATION CERTIFICATE CARDS DEBIT CARD ANNUAL FEE DEBIT CARD REPLACEMENT FEE ATM INTERCHANGE(NON PARTNER) SERVICES NETBANKING INTERBRANCH/ INTERCITY BANKING BILLPAY PHONE BANKING MOBILE BANKING(SMS)

0.25% Rs 250

SuperValue Savings Account NIL Rs 50,000 Rs. 1250/qtr (Rs.5000<=Bal<10k) Rs.1250/qtr(Rs.10000>Bal>Rs.5000) Rs.1000 per yr. Rs.500 (within 6 months)

FREE Rs.250

0.30%

0.25%

Rs.75

FREE

FREE/qtr Rs.100 Rs.100 Free for 1st Yr yr,250/yr

FREE/qtr Rs.100 FREE Free for 1st Yr yr,250/yr

Rs.200 per year Rs.200 Free for first 4 transactions per month/ Rs.50 for beyond 4 trans.

FREE Rs.200

FREE Rs.50 FREE FREE NOT AVAILABLE NIL Rs.10000 Rs. 1500/qtr (Bal<Rs.5000) Rs.750/qtr(Rs.10000>Bal>Rs.50 00) Rs.1000 per yr. Rs.500 (within 6 months)

0.25% Rs 250

NIL Rs 50,000 Rs. 1250/qtr (Rs.5000<=Bal<10k) Rs.1250/qtr(Rs.10000>Bal>Rs.5000) Rs.1000 per yr. Rs.500 (within 6 months)

FREE Rs.250

0.30%

0.25%

Rs.75

FREE

FREE/qtr Rs.100 Rs.100 Free for 1st Yr yr,250/yr

FREE/qtr Rs.100 FREE Free for 1st Yr yr,250/yr

Rs.200 per year Rs.200 Free for first 4 transactions per month/ Rs.50 for beyond 4 trans.

FREE Rs.200

FREE Rs.50 FREE FREE NOT AVAILABLE

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Annexure II Saving account comparison Average Quaterly Balance (AQB)/ADB(average daily balance) Charges on non maintainance of balance Quaterly AQB<Rs. 5000 Rs. 5000<= AQB< Rs. 7,500 Rs. 7,500<= AQB< Rs. 10,000 GENERAL CHARGES ACCOUNT STATEMENTS QUATERLY STATEMENTS ADDITIONAL STATEMENTS (UPTO 6 MONTHS) HALF YEARLY STATEMENTS MONTHLY STATEMENTS MONTHY E-STATEMENTS PAYEE DETAILS PASS BOOK CHEQUE BOOK PERSONALIZED CHEQUE BOOK MULTICITY CHEQUE BOOK ATM USAGE CHARGES BANK's ATM's IN INDIA OTHER VISA ATM's WITHIN INDIA

Balance enquiry withdrawal limit (non gold) withdrawal limit (gold) DEBIT CARD ANNUAL FEES REPLACEMENT OF DEBIT CARD GOLD DEBIT CARD ANNUAL FEE debit card spending limit(gold) DEBIT CARD SPENDING LIMIT (NON GOLD) STANDING INSTRUCTIONS Setting up Charges Execution fee BANKER's REPORT Signature Verification TDS certificates OUTSTATION CHEQUE COLLECTION CHEQUE DRAWN ON ANY OF OUR BRANCHES CHEQUE DRAWN ON ANOTHER BANK OUR BRANCH LOCATIONS SPEED COLLECTION LOCATIONS OTHER COLLECTION LOCATIONS

FOREIGN CURRENCY CHEQUE

Standard Chartered(AXESSPLUS SAVINGS A/C) Rs. 10,000

FREE)

ABN AMBRO(flex plus)

10,000

Rs. 1,500 Rs. 1,250 Rs. 750

Rs. 500 p.m. Rs. 400 p.m. Rs. 300 p.m.

FREE FREE Rs. 165 (FOR 1 MONTH

free Rs. 25

free free free Rs. 200

FREE

FREE FREE FREE FREE 1st 4 TRANSACTIONS PER MONTH Rs. 50 PER TRANSACTION

Rs. 20 FREE ON ALL TRANSACTIONS

free Rs. 50 per transaction(MASTER CARD/cirrus and UTI bank's ATMs) Rs. 5 Rs. 50000 Rs. 100000

Rs. 200 Rs. 100

Rs. Rs. Rs. Rs. Rs.

Rs. 100 Rs. 25 Rs. 50 Rs. 25 PER EXTERNAL DOCUMENT

180 200 400 100000 50000

Rs. 50

addition

Rs. 250 Rs. 50 free or Rs. 50 for minimum Rs. 50 or .25%

FREE

FREE Rs. 50 0.3% MINIMUM FEES OF Rs. 150+OTHER ADDITIONAL CHARGES MINIMUM FEES Rs. 100 OR 0.25%

25%

minimum Rs. 150 or .

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

HANDLING CHARGES FROM OTHER BANKS LOCAL CURRENCY CHEQUE COLLECTION FOREIGN CURRENCY CHEQUE COLLECTION REMITTANCES NATIONAL ELECTRONIC FUND TRANSFER INWARD OUTWARD REAL TIME GROSS SETTLEMENT TRANSFER INWARD OUTWARD (MIN. Rs. 250, MAX Rs. 1000) PAY ORDER/DD DRAWN ON OUR BRANCHES DD DRAWN ON CORROSPONDENT BANKS FOREIGN CURRENCY DD CANCELLATION/REVALIDAT ION DD/DEMAND ORDER LOST/DUPLICATE INSTRUMENT

Rs. 50 Rs. 100

FREE

minimum Rs 150 or . 25% (to correspondent banks)

FREE

Rs. 100 0.25% FREE UPTO 2 PER MONTH(MIN FEE Rs. 50 MAX Rs. 1500 OR 0.10%) 0.15% Rs. 750

0.25% 0.25% Rs. 50 minimum Rs. 50 or .25% Rs. 200 Rs. 50

Rs. 250 Rs. 250+ BANK CHARGES EXTRA

FUNDS TRANSFER TRANSMISSION IN FOREIGN CRRENCY REMITTANCES UPTO USD 50,000 OR EQUIVALENT REMITTANCES ABOVE USD 50,000 OR EQUIVALENT REMITANCES FROM ABROAD TRAVELLERS CHEQUES ISSUANCE(MINIMUM Rs. 100) ENCASHMENT ADDITIONAL FEATURES doorstep banking courier pick up and delivery(non cash) cash delivery(1000-100000) demand draft delivery

Rs. 250 Rs. 500 Rs. 1000 Rs. 250

Rs. 250

1% Rs. 100

1 per day free(Rs. 25 per transaction) 1 per day free (Rs. 50 per transaction) Rs. 50 per transaction

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

AnnexureIII

Features Bajaj Allianz (Ulip) ICICI Policy Name Capital Unit Gain Life time Plus Age Minimum age at entry 0 Yrs (Risk at age 7) TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES MUTUAL FUNDS ANDcommences OTHER INVESTMENT Maximum age at entry 60 Yrs Risk covered for age between 7-70 years 0-75 Premium Amount (minimum) Annual Rs.10000 Half-Yearly Available Quarterly Available Monthly Rs.1000 (Rs.5000 for top up) Single premium payment Available Available Maximum Assured Amount Y times the annual prem. depending on age Annual Premium* (Term/2) Age Y (times) 0-30 100 31-35 85 36-40 70 41-45 50 46-55 30 56-60 20 0.5 times the Policy Term times Annualised Minimum Assured Amount Premium. Annual Premium* (Term/2) annual premium Regular Premium allocation Allocation charge in % Allocation rate <Rs. 35000 95% Rs.35000-Rs.99999 95% Rs. 100000-Rs.149999 95% 95%(Uptil Rs.150000-Rs.2499999 Rs.199999), 96% Rs.2500000-Rs.9999999 96% Rs.10000000-Rs.4999999 97% Rs.5000000&above 97% Benefits offered Death Benefit Sum Assured or Fund Value Before Age of 7 yrs Fund value Sum assured less partial withdrawls/ fund value on Between age of 7 yrs & 60 yrs as on date of intimation Sum assured less partial withdrawls/ fund value on On & after 60 yrs as on date of intimation Maturity Benefit Fund value Fund Value Minimum partial withdrawl amount Rs.5000 Rs.2,000 (at bid price) Investment Options Liquid Fund- Risk profile –Low Flexi Growth II Bond Fund- Risk profile- Moderate Maximiser II Equity Growth Fund- Risk Profile- Very High Flexi Balanced II Equity Index Fund II- Risk profile- High Balancer II Accelerator Mid-Cap Fund – Risk profile- Very High Protector II Preserver Minimum Balance across all funds Rs.10000 Rs.10000 Tax Benefits Sec 80(c) Save upto Rs.33660 each Save upto Rs.33660 each year as prem. Upto Rs.100000 year as prem. Upto Rs.100000 are allowed as a deduction are allowed as a deduction Sec 10(10(d)) Benefits are tax free Benefits are tax free Charges Annual Mortality charges Depending on your age Depending sum Assured charged every month Annual Administration charges Rs.600p.a. per policy Rs.60 per month 2.75%p.a.of the NAV for Equity growth fund & Annual Fund Management charges Accelerator MidCap Fund 1.5%p.a. Flexi Growth II 2.25%p.a.for Equity Index Fund II 1.5%p.a. Maximiser II Cont: Cont: 1.75%p.a.for Liquid Fund Bond Fund 1.0%p.a. Flexi Balanced II 84 1.0%p.a. Balancer II 0 .75%p.a.Protector II 0.75%p.a. Preserver No. of free switches annually 3 Charges for additional switches Rs.200/ 5% of switch amount (which ever is lower) Rs.100 of switch amount

0 65

20000

73% 73% 99% 99%

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

Conclusion The investors while investing Selecting a tool may seem like a daunting task, but knowing your objectives and risk tolerance is half the battle. Thus the investors should study the tools before investing in and should match the scheme with their preferences. Before acquiring shares in any fund, an investor must first identify his or her goals and desires for the money being invested. Are long-term capital gains desired, or a current income is preferred. Will the money be used to pay for college expenses, or to supplement a retirement that is decades away? Identifying a goal is important because it will enable the investor dramatically whittle down the list so many tools available in the the public domain. In addition, investors must also consider the issue of risk tolerance. If the investor is able to afford and mentally accept dramatic swings in portfolio value then he should go for riskier investments. Or, if a more conservative 85

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

investment warranted from the scheme. Therefore Identifying objective preferences and risk tolerance is as important as identifying a goal. To finish, I would like to state that this project gave me a lot of assistance to get a hold on the basic knowledge about the products like ULIP, saving accounts and Mutual Funds in detailed manner and also all the mechanism, maneuver related to it.

Age •

The segment (18-25) can be a potential customer segment for the bank as most of the people are falling in the income group of less than Rs.15000 per month.The company can target this segment by offering its ULIP product both as an insurance and investment product, which can provide high returns as the investments and provide the insurance cover too, as a large segment doesn’t have an insurance cover. The return in new Capital Unit Gain Plan is around 20% which is quite good enough. Mutual Fund Schemes can also be offered to those respondents in this age group who are risk takers as in mutual funds small amounts can invested. The need is to make this segment aware of the products like ULIP (which is promising return of 20-25% p.a.) and tap as many customers as possible. Also Positioning of the Mutual Funds should be such that attracts customers.

•

In order to tap the 25-35 years segment ULIP can be promoted as an investment option rather than an insurance product. Mutual funds need to be promoted as only a small segment is investing in mutual funds. Mutual funds and ULIP both can be the best investment option for this segment.

•

As the segment 35-45 years is an investing and risk taking segment, Mutual funds promising higher returns can be promoted in this segment. The product ULIP is also highly acceptable by this segment, so both of these products can be promoted as a best investment options promising high returns and low risks. People in this age group 86

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

can also invest in real estate as by this age people are in the position to invest large lump sum money for this investment. •

In the segment of 46 & above age group people be targeting for the Mutual funds as can be seen that very few people are investing M.Fs. this is because this segment consists of risk averters as this segment have invested in Fixed Deposits and government securities and insurance than any other investment product as safety is the most important factor which is being considered while investing by this segment. But these people are neutral for these investments. These thus these products can be promoted as safe investments and better than F.D’s only then this segment can be tapped.

Income •

•

The income bracket less than Rs.15000 per month are basically safe investors and have not and do not prefer investing in mutual funds and ULIP. Thus positioning of these products should be such that people are attracted towards this scheme. Emphasis on marketing of the products should be given. Respondents under income bracket Rs.15000-Rs.30000 have mainly invested in insurance. But when survey was done and their preferences were asked these respondents strongly preferred investing in these strategies. Income Bracket of Rs.30000-Rs.50000 is the strong contenders for investing their money and these people have invested in real estate, insurance and fixed deposits. Moreover there is mixed preferences for their investments thus proper segmentation of the sample should be done accordingly marketing strategies should be adopted. Though there is a small percentage of respondents in income bracket above Rs.50000 who least prefer investing in mutual fund. But this is the segment which can be well targeted and their portfolio should be such that gives them more returns. The case of ULIP is different as people strongly prefer investing in this

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

investment strategy. Thus emphasis for selling ULIP in this income bracket.

Occupation

The survey conducted has resulted in the observation that the business class should be targeted for ULIP and Mutual funds as they strongly prefer investing in these two products. These products should be positioned as safe investment and then been sold it to service class and retirees as these investors are the safe investor.

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

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