Project Report on Jm Financial by Sanjay Gupta

Objectives For every problem there is a research. As all the researches are based on some and my study is also based upon some objective and these are as follows: ➢ ➢ ➢ ➢ ➢

To give a comprehensive view of mutual fund industry in India. Comparative study of returns given by various AMC. To understand the risk profile of the customer. To know the awareness of investors about schemes provided by various AMCs. To find out the Preferences of the investors for Asset Management Company.

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To know the Preferences for the portfolios.

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To know why one has invested or not invested in JM Mutual fund.

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To find out the most preferred channel.

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To find out what should do to boost Mutual Fund Industry.

This project provides better understanding to the reader by giving insights on Indian Mutual Fund Industry through comparative analysis of different Asset Management Companies and their schemes in India. To do a comparative analysis of six major Mutual Funds of India namely JM Financial Mutual Fund Kotak Mutual Fund HDFC Mutual Fund 1

UTI Mutual Fund Reliance Mutual Fund ICICI Prudential Mutual Fund

Research Methodology This report is based on primary as well secondary data, however primary data collection was given more importance since it is overhearing factor in attitude studies. One of the most important users of research methodology is that it helps in identifying the problem, collecting, analyzing the required information data and providing an alternative solution to the problem .It also helps in collecting the vital information that is required by the top management to assist them for the better decision making both day to day decision and critical ones.

Data sources: Research is totally based on primary data. Secondary data can be used only for the reference. Research has been done by primary data collection, and primary data has been collected by interacting with various people. The secondary data has been collected through various journals and websites.

Sampling: Sampling procedure: The sample was selected of them who are the customers/visitors of JM Financial, irrespective of them being investors or not or 2

availing the services or not. It was also collected through personal visits to persons, by formal and informal talks and through filling up the questionnaire prepared. Sample size: The sample size of my project is limited to 150 people only. Out of which only 120 people had invested in Mutual Fund. Other 30 people did not have invested in Mutual Fund. Sample design: Data has been presented with the help of bar graph, pie charts, line graphs etc.

Limitation: ➢ Some of the persons were not so responsive. ➢ Possibility of error in data collection because many of investors may have not given actual answers of my questionnaire. ➢ Sample size is limited. ➢ Size may not adequately represent the whole market. ➢ Some respondents were reluctant to divulge personal information which can affect the validity of all responses. ➢

The research is confined to a certain part of Jaipur.

Chapter-1 Introduction

CONCEPT Individuals or institutions when have surplus money, i.e. savings, would like to invest with the common and logical motive of growing money by getting returns on the investments. There are various avenues to park money towards fulfillment of your objective of return on investment.

One can invest money either where you can get assured returns & hence the risk is low but returns also are low compared to the high risk investments. The other way is through investing in shares i.e. equity market. Generally the returns on equity investments are higher than debt investment but risk also is higher. To get good returns one really needs to understand the economy and performance of companies where you are investing money. For a common man it may be cumbersome while managing own profession, job or business. Hence the concept of mutual fund has evolved to manage the funds i.e. on behalf of the investor; fund managers will be taking decisions to maximize the investor’s returns. A Mutual fund is a common pool of money into which investors place their contributions that are to be invested in accordance with a stated objective. The ownership of the fund is thus joint or “mutual”; the fund belongs to all investors. A single investor’s ownership of the fund is in the same proportion as the amount of the contribution made by him bears to the total amount of the fund. A mutual fund uses the money collected from investors to buy those assets, which are specifically permitted by its stated investment objective. Thus, an equity fund would buy mainly equity assets-ordinary shares, preference shares, warrants, etc. a bond fund would mainly buy debt instruments, such as debentures, bonds, or government securities. It is these assets, which are owned by the investors in the proportion of their investments. When an investor subscribes to a mutual fund, he or she buys a part of the assets or the pool of funds that are outstanding at that time. It is no different from buying “shares” of a joint stock 6

company, in which case the purchase makes the investor a part owner of the company and its assets. In fact, in the USA, a mutual fund is constituted as an investment company and an investor “buys in to the fund” meaning he buys the shares of the fund. In India, a mutual fund id constituted as a trust an investor subscribes to the “units” issued by the fund, which is where the term Unit Trust comes from. . Mutual funds issues units to the investors in accordance with quantum of money invested by them. Investors of Mutual funds are known as Unit Holders. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. The profits and losses are shared by the investors in proportion to their investments. Mutual funds normally come out with a number of schemes with different investments objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India which regulates securities markets before it can collect funds from public. However, whether the investor gets funds shares or units is only a matter of legal distinction. In any case, a mutual fund shareholder or unit holder is a part owner of the fund’s assets. The term unit-holder includes the mutual fund account-holder or closed-end fund shareholder. A unit holder in Unit Trust of India US-64 scheme is the same as a UTI Master shareholder or an investor in an alliance Each share or unit that an investor holds needs to be assigned a value. Since the units held by investor evidence the ownership of 7

the assets, the value of the total assets of the fund when divided by the total number of units issued by the mutual fund gives us the value of one unit. This is generally called the Net Asset Value (NAV) of one unit or one share. The value of an investor’s part ownership is the determined by the NAV of the number of units held. Example: If the value of a fund’s assets stands at Rs 1000 and it has 10 investors who have bought 10 units each, the total numbers of units issued are 100, and the value of one unit is Rs 10 (1000/100). If a single investor in fact owns 3 units, the value of his ownership of the fund will be Rs 30 (1000/100*3). Note that the value of the fund’s investments will keep fluctuating with the market price movements, causing the NAV also fluctuate. For example, if the value of our funds assets increased from Rs 1000 to Rs 1200, the value of our investors holding of 3 units (1200/100*3) Rs 36. The investment value can go up and down, depending on the market value of the fund’s assets.

Advantages of Mutual Funds If mutual funds are emerging as the favorite investment vehicle, it is because of the many advantages they have over other forma and avenues of investing, particularly for the investor who has limited resources available in terms of capital and ability to carry out detailed research and market monitoring. The following are the major benefits offered by mutual funds to all investors: i) Portfolio Diversification Mutual Funds spread the investment across different securities (stocks, bonds, money market instruments, real estate, fixed deposits etc.) by investing in a number of companies across a broad cross-section of industries and sectors (auto, textile, 8

information technology etc.). This kind of a diversification may add to the stability of your returns and reduces the risk with far less money than you can do on your own. For example during one period of time equities might underperform but bonds and money market instruments might do well enough to offset the effect of a slump in the equity markets. ii) Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. iii) Professional Management Qualified investment professionals who seek to maximize returns and minimize risk monitor investor's money. The investment professional has experience in making investment decisions. It is the Fund Manager's job to (a) find the best securities for the fund, given the fund's stated investment objectives; and (b) keep track of investments and changes in market conditions and adjust the mix of the portfolio, as and when required. iv) Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. 9

v) Affordability Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. vi) Variety Mutual funds offer a tremendous variety of schemes. This variety is beneficial in two ways: first, it offers different types of schemes to investors with different needs and risk appetites; secondly, it offers an opportunity to an investor to invest sums across a variety of schemes, both debt and equity. vii) Tax Benefits In case of Individuals and Hindu Undivided Families a deduction up to Rs. 9,000 from the Total Income will be admissible in respect of income from investments specified in Section 80L, including income from Units of the Mutual Fund. Units of the schemes are not subject to Wealth-Tax and Gift-Tax. viii) Transparency Open-ended mutual funds disclose their Net Asset Value (NAV) daily and the entire portfolio monthly. This level of transparency, where the investor himself sees the underlying assets bought with his money, is unmatched by any other financial instrument.

Disadvantages of Mutual Funds While the benefits of investing through mutual funds far outweigh the disadvantages, an investor and his advisor will do well to be aware of few shortcomings of using the mutual fund as an investment vehicle. i) No Tailor-made-Portfolios Investing through funds means, the investor delegates the decision of investing through which securities to fund manager. The very high-net-worth individuals or large corporates may find this as a constraint in achieving their objectives. However this constraint can be overcome to some extent by offering families of schemes to investor, within the same fund. ii) No control over costs Investor pays the investment management fees as long as he remains within the fund. Fees are usually payable as a percentage of the value of his investments, whether the fund value is rising or declining. The investor also pays the fund distribution cost, which he would not incur in direct investment. iii) Managing a Portfolio of Funds Availability of a large number of options from mutual funds can actually mean too much choice for the investor. He may again need advice on how to select a fund to achieve his objectives.

History of the Indian Mutual Fund Industry The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phases:First Phase â&#x20AC;&#x201C; 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 de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management. Second Phase â&#x20AC;&#x201C; 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 â&#x20AC;&#x201C; 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. 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 13

the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds. Fourth Phase â&#x20AC;&#x201C; 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, 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.

The graph indicates the growth of assets over the years.

Major Mutual Fund Companies in India: JM Financial Asset Management Private Limited JM Financial Asset Management Private Limited, JM Financial groupâ&#x20AC;&#x2122;s asset management company for its mutual fund business, is one of Indiaâ&#x20AC;&#x2122;s oldest private sector mutual fund houses, having commenced operations in 1994. Our distributor-base of 10,000 covers 52 locations in India. We offer a range of 30 products across the entire risk-return spectrum, serving the needs of more than 4 lakh investors, both institutional and individual. Kotak Mahindra Mutual Fund Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of Kotak Mahindra Bank Limited (KMBL). It is presently having more than 1,99,800 investors in its various schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk - return profiles. It was the first company to launch dedicated gilt scheme investing only in government securities.

HDFC Mutual Fund HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act, 1956, on December 10, 16

1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated June 30, 2000. HDFC Mutual Fund was setup with two sponsors namely Housing Development Finance Corporation Limited and Standard Life Investments Limited.

Unit Trust of India Mutual Fund UTI Asset Management Company Private Limited, established in Jan 14, 2003, manages the UTI Mutual Fund with the support of UTI Trustee Company Private Limited. UTI Asset Management Company presently manages a corpus of over Rs.67252 Crores. The sponsors of UTI Mutual Fund are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds, Income Funds, Asset Management Funds, Index Funds, Equity Funds and Balance Funds.

ICICI Prudential Mutual Fund The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two sponsors, Prudential Plc. and ICICI Ltd. The Trustee Company formed is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Management Company Limited incorporated on 22nd of June, 1993.

Reliance Mutual Fund Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities.

ABN AMRO Mutual Fund ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorporated on November 4, 2003. Deutsche Bank AG is the custodian of ABN AMRO Mutual Fund.

Birla Sun Life Mutual Fund Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Sun Life Financial is a global organization evolved in 1871 and is being represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual Fund follows a conservative long-term approach to investment. Recently it crossed AUM of Rs. 10,000 crores. 18

Bank of Baroda Mutual Fund (BOB Mutual Fund) Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the AMC of BOB Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the custodian.

HSBC Mutual Fund HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India) Private Limited as the sponsor.

ING Vysya Mutual Fund ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It is a joint venture of Vysya & ING. The AMC, ING Investment Management Pvt. Ltd. was incorporated on April 6, 1998.

State Bank of India Mutual Fund State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes out of which 15 have already yielded handsome returns 19

to investors. State Bank of India Mutual Fund has more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread over 18 schemes.

Tata Mutual Fund Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsors for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset Management Limited and Tata Trustee Company Pvt. Ltd. Tata Asset Management Limited's is one of the fastest in the country with more than Rs. 7,703 Crores (on April 30, 2005).

Standard Chartered Mutual Fund Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated with SEBI on December 20, 1999.

Franklin Templeton India Mutual Fund The group, Franklin Templeton Investments is a California (USA) based company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world. Investors can buy or sell the Mutual Fund through their financial advisor or through mail or through their website. They have Open end Diversified Equity schemes, Open end Sector 20

Equity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer.

Morgan Stanley Mutual Fund India Morgan Stanley is a worldwide financial services company and its leading in the market in securities, investment management and credit services. Morgan Stanley Investment Management (MISM) was established in the year 1975. It provides customized asset management services and products to governments, corporations, pension funds and non-profit organizations. Its services are also extended to high net worth individuals and retail investors. In India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMF).

Escorts Mutual Fund Escorts Mutual Fund was setup on April 15, 1996 with Escorts Finance Limited as its sponsor. The Trustee Company is Escorts Investment Trust Limited. Its AMC was incorporated on December 1, 1995 with the name Escorts Asset Management Limited.

Alliance Capital Mutual Fund

Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital Management Corp. of Delaware (USA) as sponsor. The Trustee is ACAM Trust Company Pvt. Ltd. and AMC, the Alliance Capital Asset Management India Private Ltd. with the corporate office in Mumbai.

Chola Mutual Fund Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the Trustee Company and AMC is Cholamandalam AMC Limited.

LIC Mutual Fund Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882. . The Company started its business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund.

GIC Mutual Fund

GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a Government of India undertaking and the four Public Sector General Insurance Companies, viz. National Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The Oriental Insurance Co. Ltd (OIC) and United India Insurance Co. Ltd. (UII) and is constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882.

The Bodies of the Mutual Fund Industry The players in the Indian Mutual Funds Industry are similar to some extent to the players in other financial services industry. The players are as follows:

SEBI The Securities Exchange Board of India (SEBI) is the regulatory authority for all the mutual funds sponsored by the public/private sector banks, financial institutions, private sector companies, non- banking finance companies and foreign institutional investors. SEBI has laid down the rules and regulations regarding the obligations of the entities involves in a 23

mutual fund, its establishment and launch of different schemes, investments and valuation, financial reporting, conduct and operations of mutual funds.

Asset Management Company (AMC) Its role is highly significant in the mutual funds operation. They are the fund managers i.e. they invest the investors money in various securities after proper research and analysis. They also look after the administrative functions of a mutual fund for which they charge management fee.

Intermediaries They act as a link between the mutual fund companies and the investors. The intermediaries include brokers, sub- brokers, and investment houses. The other intermediary- registrar and transfer agents perform activities, which are associated with maintaining records concerning units already issued or to be issued by the company. The registrar also performs other activities such as dividend payment, investor grievance, etc. Investors Investors subscribe to the units issued by the mutual funds in the hope of getting a return commensurate with the risk involved. SEBI protects the interest of the investors through the guidelines laid down under SEBI (Disclosure and Investor 24

Protection) Guidelines, 2000. The mutual fund investor mainly includes individual, HUF, corporate and trusts.

Mutual Fund Operation Flow Chart

ORGANISATION OF A MUTUAL FUND There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund:

Types of Mutual Fund Schemes Wide variety of Mutual Fund Schemes exists 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 i) Open-ended Funds 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) 27

related prices. Hence, the unit capital of the schemes keeps changing each day. Such schemes thus offer very high liquidity to investors and are becoming increasingly popular in India. Please note that an open-ended fund is NOT obliged to keep selling/issuing new units at all times, and may stop issuing further subscription to new investors. On the other hand, an open-ended fund rarely denies to its investor the facility to redeem existing units.

ii) Closed-ended Funds 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. Closed-ended schemes are usually more illiquid as compared to open-ended schemes and hence trade at a discount to the NAV. This discount tends towards the NAV closer to the maturity date of the scheme. iii) Interval Funds Interval funds combine the features of open-ended and close-ended schemes. They may be traded on the stock exchange 28

or may be open for sale or redemption during pre-determined intervals at NAV based prices.

By Investment Objective i) Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time. ii) Income Funds The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income. iii) Balanced Funds The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These

are ideal for investors looking for a combination of income and moderate growth. iv) Money Market Funds The aim of money market funds is 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. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods.

Other Schemes i) Sectoral Schemes Sectoral Funds are those, which invest exclusively in a specified industry or a group of industries or various segments such as 'A' Group shares or initial public offerings. In these funds or schemes the investor invests in the securities of only those sectors or industries which are specified in the offer documents. E.g. Pharmaceuticals, software, Fast Moving Consumers goods (FMCG), petroleum stocks, etc. the return on these funds is dependent on the performance of the respective sector/industries. While these funds may give higher returns, they are more risky compared to the diversified funds. Investors need to keep a watch on the performance of these sectors and must exit at an appropriate time. They may seek an advice of an expert. 30

ii) Tax saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds, provided the capital asset has been sold prior to April 1, 2000 and the amount is invested before September 30, 2000. iii) Index Funds Index Funds replicate the portfolio of a particular index such as the BSE sensitive index, S&P NSE 50 index (Nifty).These schemes invest in the securities in the same weight age comprising of an index. NAV’s of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as “Tracking Error” in technical terms. Necessary disclosure in this regard is made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. iv) Special schemes Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc. Gilt Fund These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and economic factors as is the case with income or debt oriented schemes.

RISK V/S. RETURN

Advertisements of Mutual Funds ➢ Advertisements through Holdings/Posters It is essential for the investors to read the Offer Documents & Risk Factors before investing in the mutual funds scheme to take well informed investment decisions. Considering that the investors get very little time to read the advertisements through hoardings/posters, etc. while passing by, it is clarified that such advertisements may carry only the following statement apart from copy of advertisement: “Mutual Fund investments are subject to market risks, read the offer document carefully before investing” The above statement shall be displayed in black letters of at least 8 inches height or covering 10% of the display area on white blackboard. The compliance officers shall ensure that the statement appearing in such advertisements are in legible font.

➢ Advertisements through Audio-Visual Media Advertisements through audio-visual media like television, a statement “Mutual Fund investments are subject to market risks, read the offer document carefully before investing” shall be displayed on the screen for at least 2 seconds, in a clearly legible font-size 34

covering at least 80% of the total screen space and accompanied by a voice-over reiteration. The remaining 20% space can be used for the name of the mutual fund or logo or name of scheme, etc.

➢ Performance Advertisements •

Disclosure of Benchmarks in Advertisements: All performance advertisements disclosing return statistics shall mention the returns on the benchmark indices, during the same time periods.

•

Performance of Money Market Schemes: The investors in cash/liquid/money market schemes have short investment horizon therefore the mutual funds while advertising simple annualized returns of such schemes based on a period of 30 days can also advertise simple annualize returns based on 15 days period.

•

Impact of Distribution Taxes: While advertising returns by assuming reinvestment of dividends, if distribution taxes are excluded while calculating the returns, this should also be disclosed.

•

Pay-out of Dividends: While advertising pay-out dividends, it shall be disclosed that after the payment of dividend, the NAV will fall to the extent of the payout 35

and distribution taxes (if applicable), in the main body of the advertisement.

➢ Fund of Fund’s Advertisement In case of Fund of Fund’s scheme, the mutual funds shall disclose in the offer document as well as in the advertisements that the investors are bearing the recurring expenses of the scheme in addition to the expenses of other schemes in which Fund of Fund’s scheme makes investment.

Distribution Model

AMC

IFAs Banks

Direct Sales

Brokers

Tied Agency

Internet

Institutional Brokers

Large

Corporate

HNW Customer

Retail Customer

Customer Segments

Multi - Channel Distribution

Distribution Channels In highly competitive environment, product innovation or development has become a necessity for mutual fund players to stay ahead. Increasing commoditization and growing needs of the customers are forcing players to shift to solution based models from production based ones. In either model, the role of distribution channel remains critical as it helps stave off competition by maintaining relationships, providing advisory services and customizing need-based solution Relationship plays a vital role while selling mutual fund products. An agent is essential channel between investors and mutual fund products. However it is difficult for AMCs to manage and monitor large agent force. So they take shelter in third-party distribution AMCs like KARVY, Niyojit Financial, and Integrated Enterprises etc. These AMCs in turn, appoint their agents to sell the MF to AMCs products. Agents advise the customer on the kind of product that caters to the needs of the client. To unload their work, the companies bear a huge market expense in the form of higher commission to lure investors. To control increasing operational costs, AMCs are opting for the services of large distributors to sell their products by leveraging their value chain, which comprises of a brokers, sub brokers and agents. However mutual fund players have to bear splurging marketing expenses to push their product against others. In addition mutual fund AMCs are also using banks and Non â&#x20AC;&#x201C; 38

Banking Financial AMCs (NBFC) as distribution channels to leverage their reach and huge client base. UTI is distributing its offerings through selected branches of Indian Bank, Corporation Bank, Bank of India an Allahabad Bank, besides, they are also appointing sales personnel to meet investors, educate them and sell their products and JM using Distribution houses like Niyojit Financial. The contribution of direct marketing to the total sales is miniscule, but the cost burden is huge. The post office is also used as a channel of Distribution by mutual funds AMCs, given the fact that the post office has the largest network then many other institution or bank in the country. As far as retail penetration is concerned, the post office plays a vital role because its offices are distributed through the country. Mutual fund industry is also using the internet to distribute their products because of the cost advantages and increased communication. However, the fact is that internet has its limits in providing customized advice to individuals; restrict its use on large scale.

Challenges in Distribution ➢ ➢ ➢ ➢ ➢ ➢

Lack of awareness Risk aversion Extensive availability of the central govt. assured return Delay (in Liquidity) Tardy inter-city payment system Transaction cost of establishing contact centers

It has been a big challenge for the Mutual Fund Industry. As most of the investors are still not aware how it functions. They sometime feel that it is a costly affair. Educating investors about the advantages of investing in mutual funds compared to riskfree savings instrument is a big task for the industry. According to the Securities Market Infrastructure- Leveraging Expert (SMILE), the transaction cost of establishing contact centers, delay in fund transfer and tardy inter-city payment system are the major impediments. So enhancing the reach through the existing distribution model will require more investments. As of now, mutual fund investments are confined to the metros, tier 1 and 2 cities (about 50 cities). A major reason for this is high cost of developing retail infrastructure. So, scaling up the operation by increasing investment in other cities doesnâ&#x20AC;&#x2122;t seem feasible. There is also a regulatory entanglement in fund realization. Allotment of units Net Asset Value (NAVs) is done before realization of funds, except in liquid and money market schemes. Such delay is quite pervasive in smaller towns, where it can be 35 days or more. Such hassle could prevent investors from investing in mutual funds. However, these problems are being resolved with appointment of registrars to meet the time-lines of recording the transactions. In addition, technological advancements of remittance instruments such as Electronic clearing Services (ECS), Electronic Funds Transfer (FT) and RealTime Gross settlement System (RTGS), is a making the process fast and reducing delay in fund transfer across cities. 40

The extensive availability of the central govt. assured return on small products are restricting the competition as well as penetration of wide variety of mutual fund products, particularly in the smaller towns where investors are not willing to take risk. This poses a great challenge for the industry to realize its potential.

Curbing unethical practices The industry faces challenge to control certain practices. AMCs are wooing the distributors by offering more commission to push their products. In the hope of getting more incentives, distributors may opt for unfair practices like false projections to sell unsuitable products, motivate the investors to shift from one fund to another, namely high net worth investors and persuade them to over invest. However, the clientâ&#x20AC;&#x2122;s concern and his needs should be of prime importance while selling. To curb such unethical practices, the Association of Mutual Funds in India (AMFI) has prescribed that agents/distributors must have AMFI certification. Such regulations are required to be more effective to stop such unethical practices.

Spreading the Mutual Fund Culture 41

Though the Indian Mutual Fund industry has a huge potential, it is yet to be realized. To realize its growth potential, industry will have to focus on its reach in the retail segment. According to Chairman of AMFI there are about 180 million households in India, of which just 11.8 millions invest in mutual funds, making it penetration of 6.7% in the urban areas 13.7% of the households invest in mutual funds; in rural areas this percentage is just 3.8%. So there is a need to focus on rural penetration for future growth. To achieve its growth, educating the customer about the mutual funds as a saving vehicle will be critical. More efforts are required from the regulators and the industry to manage the wealth of individuals to further propel the growth of the industry by popularizing the use of mutual funds. The govt. should properly regulate and monitor the regulation so that a favorable climate can be created. Regulations should be tightened to curb unethical practices. They should also develop a comprehensive risk management system so that it can induce more investment. The industry should focus on product innovation and maintain transparency, flexibility, service and innovation to realize its potential.

Offer Document When an AMC or a Fund Sponsor wishes to launch a new mutual fund scheme, they are required to formulate the details of the schemes and register it with SEBI before announcing the scheme and inviting the investors to subscribe to the fund. Launch of a new mutual fund scheme is called a New Fund Offer (NFO). The document containing the details of the new fund offer that the AMC or the Sponsor prepares and circulates to the prospective investors is called the Offer Document. Offer Document issued by mutual funds serve the same purpose of inviting investors and giving them the information about the new fund offer. The offer document of the closed-end fund is issued only once at the time of issue, as the units are normally not re-purchasable for investors. But, the open-end fund could issue and repurchase units on an ongoing basis. This means that the offer document of the open-end funds is valid for all the time, until amended, though it will be first issued at the time of launch of the scheme. SEBI requires the offer document of the open-end fund to be revised every two years.

Options Offered to Investors: â&#x17E;˘

Dividend Option: 43

The investor can choose to receive a part of the profits of the mutual fund at some intervals before their redemption. This option is Dividend Option. Investors who choose dividend option can again have 2 sub options:

➢

•

Dividend Payout Option: Investors who choose the dividend payout option on their investments will receive dividends as and when such dividends are declared by the scheme. Dividends are paid out to the investors in the form of warrants or are directly credited to the investor’s bank account.

•

Dividend Re-investment Option: Investors who opt for the dividend reinvestment option do not take the amount of dividend out of the scheme. They re-invest the dividends that are declared by the mutual funds back into the mutual funds itself, at a NAV that is prevalent immediately after the declaration of dividend or the NAV at the time of re-investment. This NAV is known as ex-div NAV.

Growth Option: The investors who do not want to receive any part of profits of the mutual fund before its redemption. Rather they want to retain the profits made in the pool and want their returns to grow by being compounded. Whenever they need

to get some money or profits back, they would sell a part of their units. This is Growth Option.

Investor Earning Opportunities: Dividend Payout

Dividend Reinvestmen t

Growth Option

Dividend

Yes

Change in NAV

Yes

Lock-in Period Options: Mutual funds usually do not have lock-in periods, during which investors cannot exit the fund. Mutual funds may create products with lock-in periods. Repurchase information can be found in the offer document. There are 2 normal situations when investors are restricted from exiting the fund: â&#x17E;˘ An open-ended fund may announce an initial offer period, during which time it will only sell units. There may be no repurchase during that period. The fund will announce a date from which further sales and repurchases will take place. â&#x17E;˘ Some specific funds scheme can be designed to have a minimum period of investment.

Example: Investments in special “Equity Linked Savings Scheme” are eligible for tax rebates. In order to enjoy the tax rebate, the investor is required to stay invested for a period of 3 years. In extra-ordinary situations, mutual funds can, with notice to the investors through a national daily, impose temporary lock-in periods. Investors have to check the offer document to see if the mutual fund has sought such a right for itself.

Regulations regarding Cutoff Timings ➢ All funds except liquid funds •

Purchases: 46

In respect of valid applications received upto 3 p.m. by the Mutual Fund, same day’s closing NAV shall be applicable. In respect of valid applications received after 3 p.m. by the Mutual Fund, the closing NAV of the next business day shall be applicable. •

Redemption: In respect of valid applications received upto 3 p.m. by the Mutual Fund, same day’s closing NAV shall be applicable. In respect of valid applications received after 3 p.m. by the Mutual Fund, the closing NAV of the next business day shall be applicable.

➢ Liquid funds •

Purchases: In respect of valid applications, closing NAV of the day immediately before the day on which funds are available for utilization by the fund shall be applicable. However, in respect of any application received after 1 p.m. by the Mutual Fund and the funds are available for utilization by the fund on the same day, closing NAV of the same day shall be applied.

• Redemption In respect of valid applications received upto 10:00 a.m. by the Mutual Fund, previous day’s closing 47

NAV shall be applicable. In respect of valid applications received after 10:00 a.m.by the Mutual Fund, same day’s NAV shall be applicable.

Net Asset Value Net Asset Value (NAV) represents a fund's per share market value. This is the price at which investors buy (bid price) fund shares from a fund company and sell them (redemption price) to a fund company. Dividing the total value of all the cash and securities in a fund’s portfolio, less any liabilities, by the number of shares outstanding, derives it. The NAV computation is undertaken once at the end of each trading day based on the closing market prices of the portfolio's securities. NAV: Net Assets of the Scheme/ Number of Units Outstanding Or (Market Value of Investment + Receivables + Other Accrued Income + Other Assets – Accrued Expenses – Other Payables – Other Liabilities)/Number of Units Outstanding on the Valuation Date For the purpose of NAV calculation, the day on which NAV is calculated by a fund is known as the Valuation Date. NAV of all schemes must be calculated and published at least every Wednesday for Closed-end schemes and daily for Open-end schemes. The day’s NAV must be posted on AMFI website by 8:00 p.m. that day. This applies to both Open-end & Closedend schemes.

Investment Plans The term “investment plans” generally refers to the portfolio flexibility that the funds to investors offering different ways to invest or reinvest. The different investment plans are an important consideration in the investment decision, because they determine the level of flexibility available to the investor. Also, the investment plan offered by a fund allows the investors freedom with respect to investing one time or at regular intervals, making transfers to different schemes within the same fund family, or receiving income at specified intervals or accumulating distributions. These are some of the investment plans offered by mutual funds in India: •

Automatic Reinvestment Plans (ARP): Many funds offer 2 options under the same schemethe Dividend Option & the Growth Option. The ARP allows the investor to reinvest the amount of dividends or other distributions made by the fund in the same fund & receive additional units, instead of receiving them in cash.

•

Systematic Investment Plan (SIP): These require the investor to invest a fixed sum periodically, thereby letting the investor save in a disciplined and phased manner. The mode of investment could be though direct debit to the investor’s salary or bank account. A modified version of SIP is the Voluntary Accumulation Plan (VAP) that allows the investor flexibility with respect to the amount and frequency of investment.

•

Systematic Withdrawal Plan (SWP): Such plans allows the investor to make systematic withdrawals from his fund investment account on a periodic basis, thereby providing the same benefit as regular income. The investor must withdraw a specific minimum amount with the facility to have withdrawal amounts sent to his residence by a cheque or credited directly into the bank account. The amount withdrawn is treated as redemption of units at the applicable NAV as specified in the offer document. The investor is usually required to maintain a minimum balance in his fund account under this plan.

•

Systematic Transfer Plan (STP): These plans allow the investor to transfer on a periodic basis a specified amount from one scheme to another with the same fund family- meaning two schemes managed by the same AMC and belonging to the same mutual fund. A transfer will be treated as redemption of units from the scheme from which the transfer is made, and as investment in units of the scheme into which the transfer is 50

made. Such redemption or investment will be at the applicable NAV for the respective schemes as specified in the offer document. The investor is usually required to maintain a minimum balance in his fund account under this plan for which the transfer is made.

Tax Provisions Income earned by any mutual fund registered with SEBI (Mutual Fund) Regulation, 1996 is fully exempt from tax under section 10 (23D) of the IT act.

➢ However, income distributed to unit-holders by a closed-end or debt fund is liable to a dividend distribution tax at a rate stipulated by the Government. This tax is not applicable to distributions made by open-end-equity-oriented funds (funds with more than 50% of their portfolio in Equity). ➢ Dividend Distribution Tax is payable by the fund on its distributions and out of its income, the investor pays indirectly since the fund’s NAV and the value his investment will come down by the amount of tax paid by the fund. Example: If a closed-end or a debt fund declares a dividend distribution of Rs.100, Rs.10.20 (Tax Rate 10.2%) will be the tax in the hands of the fund. While the investor will get Rs.100, the fund will have Rs.10.20 less to invest. The fund’s current cash flow diminish by Rs.10.20 paid as tax, and its impact will be reflected in the lower value of the fund’s NAV and hence investor’s investment on a compound basis in future periods. ➢ Since the tax is on distributions, it makes income schemes less attractive in comparison to growth schemes, as the objective of income schemes is to pay regular dividends. ➢ The fund cannot avoid the tax even if the investor chooses to reinvest the distribution back into the fund. Example: The fund will still pay Rs.10.20 tax on the announced distribution, even if the investor chooses to reinvest his dividends in the concerned scheme.

Tax Benefits to the Investor ➢

Dividends Received from Mutual Funds: • Income distributed by a fund is exempted in the hands of investors • No TDS on any income distribution by mutual fund

➢

Capital Gains on Sale of Units: • If the investor sells his units and earn ‘Capital Gains’, the investor is subject to the Capital Gains Tax as under: • If units are held for more than 12 months, they will be treated as short term capital asset, otherwise as long term capital asset.

Tax law definition of Capital Gains: • Sale Consideration – (Cost of Acquisition + Cost of Improvements + Cost of Transfer) • If the units were held for over one year, the investor gets the benefit of “Indexation”, which means his purchase price is marked up by an inflation index, so his capital gain amount is less than otherwise. Purchase Price of a long term capital asset after indexation is computed as: 53

Cost of Acquisition or Improvement: Actual Cost of Acquisition or Improvement * Cost Inflation Index for year of transfer/ Cost Inflation Index for year of Acquisition or Improvement or for 1981, whichever is later.

Restrictions on Investments ➢ A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments issued by a single issuer, which are rated not below investment grade by a credit rating agency authorized to carry out such activity under the Act. Such investment limit may be extended to 20% of the NAV of the scheme with the prior approval of the Board of Trustees and the Board of Asset Management Company. ➢ A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt instruments issued by a single issuer and the total investment in such instruments shall not exceed 25% of the NAV of the scheme. All such investments shall be made with the prior approval of the Board of Trustees and the Board of Asset Management Company. ➢ No mutual fund under all its schemes should own more than 10% of any company's paid up capital carrying voting rights. ➢ Such transfers are done at the prevailing market price for quoted instruments on spot basis. The securities so transferred shall be in conformity with the investment 54

objective of the scheme to which such transfer has been made. ➢ A scheme may invest in another scheme under the same asset management company or any other mutual fund without charging any fees, provided that aggregate inter scheme investment made by all schemes under the same management or in schemes under the management of any other asset management company shall not exceed 5% of the net asset value of the mutual fund. ➢ The initial issue expenses in respect of any scheme may not exceed 6% of the funds raised under that scheme. ➢ Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all cases of purchases, take delivery of relative securities and in all cases of sale, deliver the securities and shall in no case put itself in a position whereby it has to make short sale or carry forward transaction. ➢ Every mutual fund shall, get the securities purchased or transferred in the name of the mutual fund on account of the concerned scheme, wherever investments are intended to be of long-term nature. ➢ No mutual fund scheme shall make any investment in; • Any unlisted security of an associate or group company of the sponsor; or • Any security issued by way of private placement by an associate or group company of the sponsor; or 55

â&#x20AC;˘ The listed securities of group companies of the sponsor which is in excess of 30% of the net assets (of all the schemes of a mutual fund) â&#x17E;˘ No mutual fund scheme shall invest more than 10 per cent of its NAV in the equity shares or equity related instruments of any company. Provided that, the limit of 10% shall not be applicable for investments in index fund or sector or industry specific scheme. A mutual fund scheme shall not invest more than 5% of its NAV in the equity shares or equity related investments in case of openended scheme and 10% of its NAV in case of close-ended scheme.

Asset Allocation Principles Asset allocation means determining the percentage of your investment to be held in equities, bonds and money market/cash 56

instruments. It has been observed that 90% of a managed portfolio comes from right levels of asset allocation between stocks and bonds/cash. ➢ Benjamin Graham’s 50/50 Balance Benjamin Graham advocates 50/50 split between equities & bonds, the common approach to start with. When value of equities goes up, balance can be restored by liquidating part of the equity portfolio and vice versa. This is the basic defensive or conservative investment approach. But it is good to get half a return of a rising market and to avoid the full losses of a falling market.

➢ 50/50 Portfolio of Mutual Funds Bogle suggested the following combinations 1.

A Basic Managed Portfolio: 50% in diversified Equity Value Funds 25% in a Government Securities Fund 25% in High Grade Corporate Bond Funds

A Basic Indexed Portfolio: 50% in Total Stock Market/Index Funds 50% in Total Bond Market Value

A Simple Managed Portfolio: 85% in Balanced 60/40 Fund 57

15% in Medium Term Bond Fund 4.

A Complex Managed Portfolio: 20% in Diversified Equity Fund 20% in Aggressive Growth Funds 10% in Specialty Funds 30% in Long-Term Bond Funds 20% in Short-Term Bond Funds

A Readymade Portfolio: Single Index Fund with 60/40 Equity/Bond holding

➢ Strategic Asset Allocation Graham’s 50/50 is the basic asset allocation. Bogle recommends adjusting the percentages for each group in terms of their lifecycle phases. During the Accumulation Phase, an investor would be building assets by periodic investments of capital & reinvestment of all dividends received. During the Distribution Phase, he will stop adding assets and start receiving dividends as income. Considered with conjunction with the investor’s age, he recommends the following strategic allocations: 1.

Investor in Accumulation Phase:

Diversified Equity Balanced Fund

& 65 - 80%

Income & Gilt Funds

Liquid Funds Deposits 2.

15 – 30%

Bank 5%

Investor in Distribution Phase:

Diversified Equity Balanced Fund

& 15 – 30%

Income & Gilt funds

65 – 80%

Cash Funds

Bogle gives a nice rule of thumb for asset allocation: Debt portion of an investor’s portfolio should be equal to his age. For Example: A 30 year old investor will make 70/30 (Equity/Debt) Asset Allocation, and 50 year will make a 50/50 (Asset/Debt) Asset Allocation. ➢ Model Portfolios (By Jacobs) In preparing an Investment Portfolio, the advisor would have to deal with investors at different stages of their life-

cycle and with different needs. Therefore, Jacobs gives 4 different models:

Investor

Recommended Model Portfolio

Young, Unmarried 50% in Aggressive Equity Funds Professional 25% in High Yield Bond Funds, Growth & Income Funds 25% in Conservative Money Market Funds

Young Couple with Incomes & 2 Children

2 10% in Money Market 30% in Aggressive Equity Funds 25% in High Yield Bond Funds & Long Term Growth Funds 35% in Municipal Bond Funds

Other Couple, Income

Single 30% in Short-Term Municipal Funds 35% in Long-Term Municipal Funds 25% in Moderately Aggressive Equity 10% in Emerging Growth Equity

Recently Retired Couple 35% in Conservative Equity Funds for Capital Preservation/Income 25% in Moderately Aggressive Equity for Modest Capital Growth 40% in Money Market Funds

â&#x17E;˘ Wealth Cycle Classification Stage

Financial Needs

Accumulation Stage

Investing

for

Investment Preferences long

term Growth options and long term 61

identified financial goals

products. High risk appetite.

Transition Stage

Near term needs for funds as Liquid and pre-specified needs draw investments. closer appetite

Reaping Stage

Higher Liquidity requirement

Inter-Generational Stage

Long term investment of Low liquidity needs. Ability to inheritance take risk and invest for long term

Sudden Wealth Medium to Long term Stage

medium Lower

term risk

Liquid and medium term investments. Preference for income and debt products

Wealth preservation. Preference for low risk products.

Comparison of Investment Products Investors tend to constantly compare one form of investment with another. There are 2 kinds of comparisons possible among different investment options. 1.

By Nature of Investment: Investor look for the Best returns on different options. However, to determine which option is better, the comparison should be made in terms of other benefits that the investor ought to look for in any investment. Return

Safety Volatility Convenien ce

Liquidity

Equity

High

Low

High

FI Bonds

Moderate

High

Moderate

Corporate Moderate Debenture s

Moderate

Low

Company Fixed Deposits

Moderate

Low

Banks Deposits

Low

High

Low

High

PPF

Moderate

High

Low

Moderate

Life Insurance

Low

High

Low

Gold

Moderate

High

Moderate

Real Estate

High

Moderate

High

Low

Mutual Funds

High

Moderate

High

By Performance: The comparison on the basis of performance highlights the flexibility offered by mutual funds from the investorâ&#x20AC;&#x2122;s perceptive. An investor can choose from a wide variety of funds to suit his risk tolerance, investment horizon & investment objective.

Investment Objective

Risk Tolerance

Investment Horizon

Equity

Capital Appreciation

High

Long Term

FI Bonds

Income

Low

Medium-Long Term

Corporate Debentures

Income

High-MediumLow

Medium-Long Term

Company Fixed

Income

High-Medium-

Medium 64

Deposits

Low

Bank Deposits

Income

Generally Low

Flexible-All Times

PPF

Income

Low

Long Term

Life Insurance

Risk Cover

Low

Long Term

Gold

Inflation Hedge Low

Long Term

Real Estate

Inflation Hedge Low

Long Term

Mutual Funds Capital Growth, Income

High-MediumLow

Flexible-All Times

Risk Return Grid Risk Tolerance/Re turn Expected

Focus

Low

Debt

Suitable Products

Benefits offered MFs

Bank/ Liquidity, Company FD, Better Post-Tax Debt based returns Funds 65

Medium

Partially Debt, Balanced Partially Equity Funds, Some Diversified Equity Funds and some debt Funds, Mix of shares and Fixed Deposits

Liquidity, Better Post-Tax returns, Better Management, Diversification

High

Equity

Diversification, Expertise in stock picking, Liquidity, Tax free dividends

Capital Market, Equity Funds (Diversified as well as Sectoral)

Bank V/S Mutual Fund Returns

BANKS

MUTUAL FUNDS

Low

Better 66

Administrative Expenses

High

Low

Risk

Low

Moderate

Investment Options

Less

Network

High penetration

Low but improving

Liquidity

At a cost

Better

Quality of Assets

Not transparent

Transparent

Interest calculation

Minimum balance between 10th & 30th. of every month

Everyday

Guarantee

Maximum Rs.1 lakh on deposits

None

Recent Trends in the Mutual Fund Industry ➢ Funds betting on Natural Resources ○ Since Indian regulations do not permit mutual funds to invest directly in commodities, fund houses go for schemes that invest in stocks of mining companies. ○

At least five funds, keen on investing in natural resources, are set to hit the market, as per documents filed with the stock market regulator SEBI. There are two funds from ING and one each from Mirae Asset Management, Tata AMC and HSBC MF.

Systematic Transfer Plans lower Volatility Risk ○

Systematic Transfer Plan (STP) helps in reaching the financial goals by investing a fixed sum in the chosen fund for a pre-determined number of installments. STP offers an investor the security of a liquid fund while trying to enhance returns by investing a part of the funds in equity. This helps mitigate any risk arising from volatility or improve the fund’s returns in a boom. Thus, an investor can match his risk appetite with that of the equity scheme.

○ Most fund houses are already offering this STP facility to investors. An amount predetermined by the investor would be transferred periodically (daily, weekly,

monthly or quarterly) from this fund to any of the existing equity schemes. ○ STP is definitely going to gain ground as aspirations, possibilities and opportunities increase among the youth. However, fund managers feel, STP is yet to be promoted in India to its full extent. Investors need to be adequately informed about it.

➢ Mutual Fund industry to tap Entertainment space ○ To cash the bullish growth of the entertainment & media industry in the country financial institutions are rolling out a slew of mutual funds focusing on these spaces. ○ Many of the funds will cover a wide range of areas within the entertainment arena such as retail, shopping malls, mobile content providers, lifestyle beyond the conventional media like television, film, print advertising and multiplex. ○

Global media giants like Viacom, Walt Disney, BBC, J C Decaux and Astro are already in the country or looking at it. The industry has already witnessed deals such as Walt Disney-UTV, Blackstone-Eenadu and Adlabs-ADAG (Anil Dhirubhai Ambani Group).

➢ Brand name works for Mutual Funds

○

A brand image is very important for mutual funds and investors base their decisions on known and dependable brands. Brand-building exercises are mostly taken up by foreign players and big industrial houses which have deep pockets, while fund houses with lower corpus can only attract investors by showing good performance.

○ Fund mobilization trend in mutual funds space suggests that brand play an important role in helping fund houses attract investors initially although in the long term it boils down to the performance of the schemes. ○ Country's MF industry holds immense potential for the existing as well as the new players entering or those envisaging an entry into the space, but firms with a strong brand presence definitely has a competitive advantage.

➢

Mutual Fund Industry’s AUM increases by 24% in July ○

The asset base of the industry has grown by 24% to Rs. 7.20 lakh Crores.

○

Compared to the last month, July has been great for the mutual fund industry.

Impact on Mutual Fund Industry of the Union Budget Easing in Income Tax slabs 71

Threshold limit of Income Tax exemption for individuals rose as follows Up to Rs.160,000 - NIL Rs.160,001 to Rs.310,000 - 10% Rs.310,001 to Rs.510,000 - 20% Rs.510,001 and above - 30%

Impact This is expected to increase the disposable income in the hands of the individuals to some extent which could translate into increased retail investments in mutual funds.

Concentrating on infrastructure for Development The government of INDIA concentrating on infrastructure because this time infrastructure position is not at the good point. The government want to increase it. In this position reliance has launched the infrastructure fund new fund offer (NFO).

Impact People are investing in infrastructure. The infrastructure is developing. Reliance has received Rs. 2350 crore investment for the fund. 72

Decision of SEBI for Mutual Fund Industry No entry load for investing in the fund. Before this if anyone want to invest or buy the mutual fund that he has to pay the entry load for the fund. Example: If any person wants to buy JM Basic Fund of Rs.100000. Then he will pay 2250(2.25*100000/100) as a entry load for that fund than rest of amount Rs. 97750 will invest in scheme by company.

Chapter-2 Company Profile 74

Vision To be the most trusted partner for every stakeholder in the financial world. We believe: ➢ Earning trust is a process (it can be gained and lost every day!) ➢ Sharing trust creates great teams (whether between employees or between organizations) ➢ Being trust worthy is the most efficient way of generating and retaining long-term business ➢ Self–trust is the starting point of trusting others

Profile 75

JM Financial Trustee Company Private Limited JM Financial Trustee Company Private Limited (formerly known as J.M. Trustee Company Private Limited) Chairman: Mr. has been promoted by J.M. Financial & Investment Nimesh N. Kampani Consultancy Services Pvt. Ltd. and JM Financial Ltd. JM Financial Trustee Company Pvt. Ltd. is registered under the Companies Act, 1956 and was incorporated on 9th June 1994. The Sponsors have executed a Trust Deed on 1st September 1994 appointing JM Financial Trustee Company Pvt. Ltd. as Trustee Company of JM Financial Mutual Fund. JM Financial Asset Management Private Limited, JM Financial groupâ&#x20AC;&#x2122;s asset management company for its mutual fund business, is one of Indiaâ&#x20AC;&#x2122;s oldest private sector mutual fund houses, having commenced operations in 1994. Our distributorbase of 10,000 covers 52 locations in India. We offer a range of 30 products across the entire risk-return spectrum, serving the needs of more than 4 lakh investors, both institutional and individual.

Corporate Profile JM Financial Mutual Fund is one of India 's first private sector mutual funds-an integral part of the first wave that commenced operations in 1993-94. We are a part of JM Financial Group , which has a rich heritage,built over three decade. We are one of the many successful companies that have emerged out of JM Financial Group's strong foundation in financial services.

Our Group's origins can be traced back to the 1950s when the Kampani family began to get involved in India's then nascent capital markets. JM Financial & Investment Consultancy Services was founded on September 15, 1973. Under the leadership of Chairman Nimesh N. Kampani, the JM Financial Group has played a stellar and multi-faceted role in the development of India's capital markets. Apart from helping companies raise finance, the Group has also been instrumental in educating a burgeoning and prospering middle class about the advantages of investing in blue chip companies. JM Financial Asset Management Private Limited, the Asset Management Company of JM Financial Mutual Fund is sponsored by JM Financial Limited. JM Financial Asset Management Private Limited started operations in December 1994 with a simultaneous launch of three funds-JM Liquid Fund (now JM Income Fund), JM Equity Fund and JM Balanced Fund. Today, JM Financial Mutual Fund offers a bouquet of funds that caters to the diverse needs of both its institutional and individual investors. Our mission is to manage risk effectively while generating top quartile returns across all product categories. We believe that to cultivate investor loyalty, we must provide a safe haven for their investments. We are focussed on helping our investors realize their investment goals through prudent advice, judicious fund management, impeccable research, and strong systems of managing risk scientifically. We strive to give our family of investors many reasons to celebrate.

Awards Year

Name of Award

Details

2008

Outlook Money NDTV Profit Awards

Best Merchant Banker Runners Up

2007

Finance Asia Achievement Awards

Best India Deal – for Vodafone’s $12 billion acquisition of HTIL

2007

Finance Asia Achievement Awards

Best Secondary Offering – for ICICI’s $4.6 billion simultaneous follow-on of ADRs and domestic shares

2007

2006

ICRA Mutual Funds Awards

CNBC TV18 – CRISIL Mutual Fund Awards

Euro Money Awards of Excellence

2005

Finance Asia

Open Ended Sectoral– Healthcare-1 year performance (till 31.12. 2006), Gold - JM Healthcare Sector Fund Floating Rate Plan - JM Floater Short Term Plan

Best M&A House, India

Best Follow-on Offering - ICICI Bank USD1.75 billion concurrent ADR and domestic share sale

Finance Asia

Best India Deal - Reliance Industries USD 4.8 billion restructuring 2004

Finance Asia

Asset Asian Awards

Asia Money

Best India Deal - USD 1.2 billion Tata Consultancy Services IPO

Best Privatisation USD 2.4 billion ONGC follow-on offering

Best Deal in India - OIL & Natural Gas Corporation Best Overall Strategy â&#x20AC;&#x201C; Brokers

Best Overall Macroeconomic s â&#x20AC;&#x201C; Brokers 2002

2001

Crisil Best Fund Awards

Best Performing Open-end Debt Scheme - JM Income Fund

Crisil Best Fund Awards

Best Performing Open-end Debt Scheme - JM Income Fund

CSR (Corporate Social Responsibility) JM Financial Foundation (formerly JM Morgan Stanley Foundation, new name subject to approval by concerned 81

authorities), the philanthropic arm of the JM Financial Group believes in strengthening and uplifting the lesser privileged communities by enabling them to be self reliant. It does this by adopting a dual platform of ‘education for children’ & ‘health for all’. The Foundation has partnered with several NGOs to work on a number of outreach initiatives. Every year, JM Financial organises an annual Walkathon, to raise funds for the JM Financial Foundation. The event – a 6-km walk on Marine Drive, Mumbai, from NCPA Apartments to Mafatlal Bath and back, attracts enthusiastic participation from employees of the JM Financial group companies, other corporates, children and citizens. The funds raised have supported projects undertaken by KC Mahindra Trust’s Nanhi Kali, Sunbeam Foundation, Jai Vakeel School and Round Table India, among many others. The Group has Project Drishti, in aid of the blind. Every month, JM Financial employees collect all their old glossy magazines and brochures and donate these to a school meant for the visually challenged. The school uses this material for preparing Braille, a method used by the visually challenged to read and write. Braille is best on glossy material, which most magazines/ brochures use. The Group has also organised an Eye Donation Awareness camp in association with Eye Bank Donation and Coordination Centre, an NGO, to educate people about donating eyes and encourage them to do it. JM Financial Group encourages employee participation through its employee volunteering initiative `Sparsh’. The Group had tied up with Akanksha and HelpAge India for this initiative where

employees can volunteer as individuals and also form groups to assist these NGOs. JM Financial Group continues to contribute regularly towards several relief operations carried out during calamities or disasters that impact our society.

Market Share Market share of the JM Financial Asset Management Company Pvt. Ltd. is 8000 Crores. Total Asset Under Management is 7.20 lakh crores.

SWOT Analysis

Chapter-3 Main Chapter (Comparative Analysis)

Funds which have been compared are: ➢ JM Financial Category

Fund

Equity Fund Scheme

JM Equity – Dividend

Debt Fund Scheme

JM Floater Fund - Long Term Premium – Dividend

Tax Shield Scheme

JM Tax Gain Fund – Dividend

Income Plan

JM Income – Dividend

Balanced Fund

JM Balanced – Dividend

Gilt Fund

JM G Sec Dividend

Regular

Plan

–

➢ Kotak Category

Fund

Equity Fund Scheme

Kotak 30 – Dividend

Debt Fund Scheme

Kotak Floater - Long Term Monthly Dividend

Tax Shield Scheme

Kotak TaxSaver – Dividend

Income Plan

Kotak Income Plus - Monthly Dividend 88

Gilt Fund Balanced Fund

Kotak Gilt - Investment Regular Plan – Growth Kotak Balance – Dividend

➢ HDFC Category

Fund

Equity Fund Scheme

HDFC Equity Fund-Dividend

Debt Fund

HDFC Floating Rate Income Fund - Long Term Fund – Dividend

Balanced Fund

HDFC Balanced Fund-Dividend

Tax Shield Scheme

HDFC TaxSaver – Dividend

Income Plan

HDFC Income Fund – Dividend

Gilt Fund

HDFC Gilt Fund Long Term Plan – Dividend

➢ UTI Category

Fund

Equity Fund Scheme

UTI Equity Fund – Dividend

Debt Fund Scheme

UTI - MIS - Advantage Fund Monthly Dividend

ELSS Tax Saver

UTI Equity Tax Savings Plan – Dividend

Monthly Income Plan

UTI Monthly Income Scheme – Dividend

Balanced Fund

UTI Balanced Fund – Dividend

Gilt Fund

UTI Gilt Advantage Fund - Long Term - Provident Fund Plan Dividend

➢ ICICI Category

Fund

Equity Fund Scheme

ICICI Prudential Blended Plan Option A – Dividend

Debt Fund Scheme

ICICI Prudential Floating Rate Fund - Plan A – Dividend

Tax Shield Scheme

ICICI Prudential Dividend

Income Plan

ICICI Prudential Flexible Income Plan - Premium - Daily Dividend

Gilt Fund

ICICI Prudential Gilt Fund Investment Plan – Dividend

Balanced Fund

Tax

plan

–

ICICI Prudential Balanced – 90

Dividend

➢ Reliance Category

Fund

Equity Fund Scheme

Reliance Equity Fund – Dividend

Debt Fund Scheme

Reliance Floating Rate Fund – Dividend

Tax Shield Scheme

Reliance Tax Dividend

Income Plan

Reliance Income Fund - Retail -

Saver

Fund

–

Annual Gilt Fund

Reliance Gilt Securities Fund Retail – Dividend

Balanced Fund

Reliance Regular Savings Fund Balanced – Growth

Risk Risk can be defined as the potential for harm. But when anyone analyzing mutual funds uses this term, what is actually being talked about is volatility. Volatility is nothing but the fluctuation of the Net Asset Value (price of a unit of a fund). If there is high volatility, then there will be greater fluctuations in NAV.

Generally, past volatility is taken as an indicator of future risk and for the task of evaluating a mutual fund, this is an adequate approximation. How risk is measured? There are 2 ways in which you can determine how risky a fund is. ➢ Standard Deviation Standard Deviation is a measure of how much the actual performance of a fund over a period of time deviates from the average performance. Since Standard Deviation is a measure of risk, a low Standard Deviation is good. ➢ Sharpe Ratio The Sharpe Ratio of a fund measures whether the returns that a fund delivered were commensurate with the kind of volatility it exhibited. This ratio looks at both, returns and risk, and delivers a single measure that is proportional to the risk adjusted returns. Since Sharpe Ratio is a measure of risk-adjusted returns, a high Sharpe Ratio is good.

Measurement of Mutual Fund Performance • Standard Deviation

Standard Deviation allows you to evaluate the volatility of the fund. Volatility is often a direct indicator of the risks taken by the fund. The standard deviation of a fund measures this risk by measuring the degree to which the fund fluctuates in relation to its mean return, the average return of a fund over a period of time. A security that is volatile is also considered higher risk because its performance may change quickly in either direction at any moment. A fund that has a consistent four-year return of 3%, for example, would have a mean, or average, of 3%. The standard deviation for this fund would then be zero because the fund's return in any given year does not differ from its four-year mean of 3%. On the other hand, a fund that in each of the last four years returned -5%, 17%, 2% and 30% will have a mean return of 11%. The fund will also exhibit a high standard deviation because each year the return of the fund differs from the mean return. This fund is therefore more risky because it fluctuates widely between negative and positive returns within a short period. â&#x20AC;˘ Beta Beta is a fairly commonly used measure of risk. It basically indicates the level of volatility associated with the fund as compared to the benchmark. So quite naturally the success of Beta is heavily dependent on the correlation between a fund and its benchmark. A beta that is greater than one means that the fund is more volatile than the benchmark, while a beta of less than one 93

means that the fund is less volatile than the index. A fund with a beta very close to 1 means the fund's performance closely matches the index or benchmark. If, for example, a fund has a beta of 1.03 in relation to the BSE Sensex, the fund has been moving 3% more than the index. Therefore, if the BSE Sensex increased 10%, the fund would be expected to increase 10.30%.

â&#x20AC;˘ R-Squared The R-squared of a fund advises investors if the beta of a mutual fund is measured against an appropriate benchmark. Measuring the correlation of a fund's movements to that of an index, R-squared describes the 94

level of association between the fund's volatility and market risk, or more specifically, the degree to which a fund's volatility is a result of the day-to-day fluctuations experienced by the overall market. R-squared values range between 0 and 1, where 0 represents no correlation and 1 represents full correlation. If a fund's beta has an R-squared value that is close to 1, the beta of the fund should be trusted. On the other hand, an R-squared value that is less than 0.5 indicates that the beta is not particularly useful because the fund is being compared against an inappropriate benchmark.

Each dot represents a fundâ&#x20AC;&#x2122;s return plotted against the market returns in the same period. The line is the beta of the returns. While the beta is the same in both, it is far more Representative in the left graph than in the right graph.

Alpha Alpha = (Fund return-Risk free return) - Funds beta *(Benchmark return- risk free return). Alpha is the difference between the returns one would expect from a fund, given its beta, and the return it actually produces. An alpha of -1.0 means the fund produced a return 1% higher than its beta would predict. An alpha of 1.0 means the fund produced a return 1% lower. If a fund returns more than its beta then it has a positive alpha and if it returns less than it has a negative alpha. Once the beta of a fund is known, alpha compares the fund's performance to that of the benchmark's risk-adjusted returns. It allows you to ascertain if the fund's returns outperformed the market's, given the same amount of risk. The higher a funds risk level, the greater the returns it must generate in order to produce a high alpha.

Important Points: ➢ Don't just look at the NAV, also look at the risks-

returns Kotak 30 has 3 stars & Kotak Opportunities has 4 stars. That does not mean that their NAV is approximately the same. In fact, the NAV of Kotak 30 is 90.22 & NAV of Kotak Opportunities is 40.48 However, Kotak 30 took a below average risk and delivered an above average return, while Kotak Opportunities took an average risk to get the high returns. So, don’t just look at the NAV also consider the risks-returns of the fund. ➢ Higher rating does not mean better returns A fund with more stars does not indicate a higher return when compared with the rest. All it means is that you will get a good return without putting your money at too much risk. ICICI Prudential Liquid Fund has a 4-star rating while ICICI Prudential Growth Fund has a 3-star rating. However, the fund with the 3-star rating has a higher NAV (109.08) than the one with the 4-star rating (11.73). ➢ Higher rating does not mean more risk

HDFC Top 200 has an NAV of 140.47 while UTI Infrastructure has an NAV of 36.60 This does not necessarily mean that HDFC Top 200 is offering a higher risk since the return is higher.

In fact, according to the ratings, HDFC Top 200, a 5-star fund has a low risk while UTI Infrastructure, a 5-star fund has an average risk.

Comparison of the Schemes on the basis of Risk & Return Equity Fund Scheme 1) JM Equity – Dividend 2)

Kotak 30 – Dividend

3) HDFC Equity Fund-Dividend 4) UTI Equity Fund – Dividend 5) ICICI Prudential Blended Plan - Option A – Dividend 6) Reliance Equity Fund – Dividend

Risk Measures

Standar d Deviatio n

Beta

Alpha

RSquared

Rating

41.94

1.15

-9.48

0.93

Above 98

Avg. Kotak

32.43

0.90

1.94

0.97

Below Avg.

HDFC

36.38

1.00

3.34

0.95

Avg.

UTI

29.33

0.81

1.32

0.96

Below Avg.

1.38

0.09

2.30

0.00

Below Avg.

Reliance

29.54

0.81

0.15

0.94

Low

Compari son

ICICI

Kotak

ICICI

Return Measures 1 Month 6 Month

1 Year

5 Year

Since Inceptio n

8.29

51.21

5.45

28.16

17.96

Kotak

8.29

51.21

5.45

28.16

17.96

HDFC

8.53

80.84

23.67

30.72

14.78

11.96

56.69

15.38

23.37

9.10

ICICI

0.08

1.48

6.66

7.10

Reliance

7.10

54.31

12.83

10.36

Compari son

UTI

HDFC

JM/Kota k

UTI

Analysis According to Risk JM have high Beta and low Alpha and have above average rating in the Risk Measures. According to the list and rating JM is good for investment. But according to the Return HDFC have good return in 6 month, 1 year and in 5 year and UTI in 1 month and JM/Kotak since inception.

Debt Fund Scheme 1) JM Floater Fund - Long Term - Premium â&#x20AC;&#x201C; Dividend 2)

Kotak Floater - Long Term - Monthly Dividend

3) HDFC Floating Rate Income Fund - Long Term Fund â&#x20AC;&#x201C; Dividend

100

4) UTI - MIS - Advantage Fund - Monthly Dividend 5) ICICI Prudential Floating Rate Fund - Plan A – Dividend 6) Reliance Floating Rate Fund – Dividend

Risk Measures Standar d Deviatio n

Beta

Alpha

RSquared

Rating

0.24

0.01

1.81

0.00

Below Avg.

Kotak

0.27

0.51

2.15

0.49

Low

HDFC

0.73

0.15

4.02

0.01

Above Avg.

UTI

7.84

0.72

3.12

0.65

Above Avg.

ICICI

0.26

0.59

1.43

0.70

Above Avg.

Reliance

0.20

0.42

2.38

0.63

Below Avg.

101

Compari Reliance son

UTI

ICICI

Return Measures 1 Month 6 Month

1 Year

5 Year

Since Inceptio n

0.39

2.26

5.80

5.14

Kotak

0.39

2.68

7.17

5.54

HDFC

0.41

3.60

7.97

6.29

4.93

UTI

2.08

15.08

17.28

11.19

9.05

ICICI

0.31

2.19

5.82

5.11

Reliance

0.35

2.42

6.16

5.26

Compari son

UTI

Analysis

102

According to the Risk ICICI have low alpha and High RSquare & have above average rating in the Risk Measures. Other 2 schemes of HDFC and UTI also have above average rating but in the list ICICI is good for investment. According to the return in all 1 month, 6 month, 1 year, 5 year and since inception UTI is the best in the return basis and good for investment.

Tax Shield Scheme 1) 2)

JM Tax Gain Fund – Dividend Kotak Tax Saver – Dividend

3) HDFC Tax Saver Fund-Dividend 4) UTI Equity Tax Savings Plan – Dividend 5) ICICI Prudential Tax plan – Dividend 6) Reliance Tax Saver Fund – Dividend

Risk Measures 103

Standar d Deviatio n

Beta

Alpha

RSquared

Rating

6.68

1.07

-1.50

0.93

Above Avg.

Kotak

37.78

1.03

-1.35

0.92

Avg.

HDFC

34.29

0.94

-1.10

0.95

Below Avg.

UTI

32.21

0.89

-3.93

0.96

Low

ICICI

37.85

1.00

-4.17

0.87

Above Avg.

Reliance

29.54

0.81

0.15

0.94

Below Avg.

ICICI

UTI

Compari son

Return Measures 1 Month 6 Month

1 Year

5 Year

Since 104

Inceptio n Jm

2.00

55.78

-24.50

-30.45

Kotak

7.43

60.52

1.95

12.30

HDFC

10.35

73.46

19.37

30.70

21.20

8.19

54.77

2.97

18.44

14.61

10.22

75.99

8.29

27.34

18.03

8.25

60.53

19.18

12.03

HDFC

ICICI

HDFC

UTI ICICI Reliance

Compari son

Analysis According to the Risk JM have lowest standard deviation and highest beta have above average rating. ICICI also have lowest Alpha and have above average rating but according to the list JM is good for investment. According to the Return HDFC is good in return in 1 month, 1 year, and 5 year and since inception and ICICI in 6 month.

105

Income Plan JM Income – Dividend

1) 2)

Kotak Income Plus - Monthly Dividend

3) HDFC Income Fund – Dividend 4) UTI Monthly Income Scheme – Dividend 5) ICICI Prudential Flexible Income Plan - Premium - Daily Dividend 6) Reliance Income Fund - Retail - Annual

Risk Measures Standar d Deviatio n

Beta

Alpha

RSquared

Rating

3.13

0.23

-10.60

0.13

Avg.

Kotak

6.90

0.57

-6.28

0.53

Above Avg.

HDFC

0.73

0.15

4.02

0.01

Above Avg.

UTI

5.29

0.50

4.06

0.70

Below Avg.

ICICI

1.38

0.09

2.30

0.00

Below 106

Avg. Reliance

Compari son

29.54

0.81

0.15

0.94

HDFC

Reliance

Above Avg.

Return Measures 1 Month 6 Month

1 Year

5 Year

Since Inceptio n

-0.43

-4.55

-3.93

1.27

5.73

Kotak

2.49

7.40

2.08

6.04

5.03

HDFC

0.05

3.51

15.89

5.55

6.21

UTI

2.34

10.98

14.39

8.17

6.59

ICICI

0.39

2.74

7.05

6.09

4.03

Reliance

0.71

1.10

17.82

8.28

7.05

Kotak

UTI

Reliance

UTI

Reliance

Compari son

107

Analysis According to the Risk Reliance have highest Beta and Highest R-Squared and have above average rating. Kotak and HDFC also have above average rating and HDFC have lowest Standard deviation. But according to the list Reliance is good for investment. According to the Return UTI gave good return in 6 month and 1 year and Reliance in 1 year and since inception and Kotak in 1 month.

Balanced Fund 1) JM Balanced – Dividend 2)

Kotak Balance – Dividend

3) HDFC Balanced Fund – Dividend 4) UTI Balanced Fund – Dividend 5) ICICI Prudential Balanced – Dividend 6) Reliance Regular Savings Fund - Balanced – Growth

108

Risk Measures Standar d Deviatio n

Beta

Alpha

RSquared

Rating

34.85

1.27

-8.54

0.89

High

Kotak

25.55

0.96

-0.30

0.95

Avg.

HDFC

25.31

0.93

0.96

0.90

Below Avg.

UTI

25.64

0.97

-0.87

0.96

Avg.

ICICI

24.73

0.94

-3.95

0.96

Avg.

Reliance

29.54

0.81

0.15

0.94

Avg.

Compari son

ICICI

UTI/ICICI

Return Measures

109

1 Month 6 Month

1 Year

5 Year

Since Inceptio n

4.59

53.44

-3.18

13.26

7.71

Kotak

6.54

41.92

9.73

23.20

14.96

HDFC

5.90

50.21

14.75

18.70

13.31

UTI

7.12

48.22

14.76

16.84

10.65

ICICI

6.31

37.09

3.85

17.61

10.72

Reliance

7.15

65.36

31.47

13.89

Relianc e

Kotak

Compari son

Analysis According to the Risk JM have highest Beta and lowest Alpha and also have High rating. According to the rating and list JM is good for investment. According to the Return Reliance gave good return in 1 month, 6 month and 1 year and Kotak in 5 year and since inception.

110

Gilt Fund Scheme 1) JM G Sec Regular Plan – Dividend 2)

Kotak Gilt - Investment Regular Plan – Growth

3) HDFC Gilt Fund Long Term Plan – Dividend 4) UTI Gilt Advantage Fund - Long Term - Provident Fund Plan Dividend 5) ICICI Prudential Gilt Fund Investment Plan – Dividend 6) Reliance Gilt Securities Fund - Retail – Dividend

Risk Measures

Jm Kotak

Standar d Deviatio n

Beta

Alpha

RSquared

Rating

8.35

0.40

11.84

0.30

Below Avg.

12.52

0.59

3.22

0.29

Above Avg. 111

HDFC

12.01

0.50

-1.48

0.23

Avg.

UTI

14.23

0.62

2.19

0.25

Avg.

ICICI

14.61

0.63

8.75

0.24

High

Reliance

29.54

0.81

0.15

0.94

Above Avg.

Reliance

HDFC

Reliance

Compari son

Return Measures 1 Month 6 Month

1 Year

5 Year

Since Inceptio n

0.96

2.76

29.30

8.34

7.72

Kotak

0.59

0.08

20.90

7.10

10.95

HDFC

5.90

50.21

14.75

18.70

13.31

UTI

-0.51

-4.84

17.05

6.51

5.13

ICICI

0.09

0.39

29.04

9.27

8.18

Reliance

-0.01

-2.49

15.70 112

Compari son

HDFC

Reliance

Analysis According to the Risk Reliance have high Beta and High RSquared and have above average rating and Kotak also had above average rating also. According to return Reliance is good for investment. According to Return HDFC gave good return in 1 month, 6 month and 5 year and JM in 1 year and Reliance since inception.

113

Chapter-4 Analysis & Findings

Analysis & Findings 1. Age distribution of the Investors

114

Age

31-35

36-40

41-45

46-50

>50

Group

<= 30

No. of

Investor s

Findings: According to this chart out of 150 Mutual Fund investors the most are in the age group of 36-40 yrs. i.e. 25%, the second most investors are in the age group of 41-45yrs i.e. 20% and the least investors are in the age group of below 30 yrs. 115

2. Educational Qualification of investors

Educational Qualification

Number of Investors

Graduate/ Post Graduate

Under Graduate

Others

Total

150

Findings:

116

Out of 150 Mutual Fund investors 65% of the investors are Graduate/Post Graduate, 23% are Under Graduate and 12% are others (under HSC).

3. Occupation of the investors of Occupation

No. of Investors

Govt. Service

Pvt. Service

Business

Agriculture

Others

117

Findings: In Occupation group out of 150 investors, 37% are Pvt. Employees, 33% are Businessman, 23% are Govt. Employees, 3% are in Agriculture and 4% are in others.

1. Monthly Family Income of the Investors Income Group

No. of Investors

<=10,000

10,001-15,000

17 118

15,001-20,000

20,001-30,000

>30,000

Findings: In the Income Group of the investors, out of 150 investors, 36% investors that is the maximum investors are in the monthly income group Rs. 20,001 to Rs. 30,000, Second one i.e. 21% investors are in the monthly income group of more than Rs. 30,000 and the minimum investors i.e. 7% are in the monthly income group of below Rs. 10,000.

119

5. Investors invested in different kind of investments. Kind of Investments

No. of Respondents

Saving A/C

150

Fixed deposits

Insurance

100

Mutual Fund

120

Post office (NSC)

Shares/Debent ures

100

Gold/Silver

Real Estate

120

Findings: From the above graph it can be inferred that out of 150 people, 100% people have Saving A/c, 67% have insurance, 20% have Fixed Deposits, 80% have Mutual Fund, 20% have Post Office schemes, 67% have Shares or Debentures, 33% have Gold/Silver and 27% in Real Estate.

121

6. Preference of factors while investing Factors

No. of

(a)

(b) Low

(d)

Liquidity

Risk

Return

Trust

Responde nts

122

Findings: Out of 150 People, 33% People prefer to invest where there is High Return, 33% prefer to invest where there is Low Risk, 23% prefer easy Liquidity and 11% prefer Trust 7. Awareness about Mutual Fund and its Operations

123

Response

Yes

No. of

135

Respondents

Findings:

124

From the above chart it is inferred that 90% People are aware of Mutual Fund and its operations and 10% are not aware of Mutual Fund and its operations.

8. Source of information for customers about Mutual Fund Source of

No. of

information

Respondents

Peer Group

Bank

Financial Advisors

125

Findings: From the above chart it can be inferred that the Financial Advisor is the most important source of information about Mutual Fund. Out of 140 Respondents, 48% know about Mutual fund Through Financial Advisor, 20% through Bank, 13% through Peer Group and 12% through Advertisement. 9. Investors invested in Mutual Fund Response

No. of Respondents

YES

120

126

Findings: Out of 150 People, 80% have invested in Mutual Fund and 20% do not have invested in Mutual Fund.

127

10. Reason for not invested in Mutual Fund Reason

No. of Respondents

Not Aware

Higher Risk

Not any Specific

Reason

Findings:

128

Out of 30 people, who have not invested in Mutual Fund, 81% are not aware of Mutual Fund, 33% said there is likely to be higher risk and 17% do not have any specific reason. 11. Investors invested in different Assets Management Co. (AMC) Name of AMC

No. of Investors

UTI

HDFC

Reliance

ICICI Prudential

Kotak

Others

129

Findings: The Investors mostly preferred JM and Reliance Mutual Fund. Out of 120 Investors 79% have invested in each of them and 21% in others, only 21% have invested in JM and 15% in Reliance. 12. Reason for invested in JM Reason

No. of Respondents 130

Trust

Good Return

Agentâ&#x20AC;&#x2122;s Advice

Findings: Out of 25 investors of JM 40% have invested because of Trust, 40% invested on Agentâ&#x20AC;&#x2122;s Advice, 20% invested because of good return.

131

13. Preference of Investors for future investment in Mutual Fund Name of AMC

No. of Investors

UTI

HDFC

Reliance

ICICI Prudential

Kotak

Others

132

Findings: Out of 120 investors, 21% prefer to invest in Reliance, 17% in ICICI Prudential, 17% in SBIMF, 8% in others. 14. Channel Preferred by the Investors for Mutual Fund Investment Channel

Financial

Bank

AMC

Advisor No. of

Respondent s

133

Findings: Out of 120 Investors 60% preferred to invest through Financial Advisors, 25% through AMC and 15% through Bank.

134

15. Mode of Investment Preferred by the Investors Mode of

One time

Systematic Investment

Investment

Plan (SIP)

No. of

Respondents

Findings:

135

Out

Investment

120 and

Investors 35

65%

Preferred

preferred through

One

time

Systematic

Investment Plan.

16. Preferred Portfolios by the Investors Portfolio

No. of Investors

Equity

Debt

Balanced

136

Findings: From the above graph 46% preferred Equity Portfolio, 37% preferred Balance and 17% preferred Debt portfolio.

17.

Option

for

getting

Return

Preferred

the

Investors Option

Dividend

Payout

Reinvestme

Growth

nt No. of

Respondent s

137

Findings: From the above graph 71% preferred Growth Option, 21% preferred Dividend Payout and 8% preferred Dividend Reinvestment Option.

138

Chapter-5 Conclusion & Recommendatio ns

Conclusion 139

Running a successful Mutual Fund requires complete understanding of the peculiarities of the Indian Stock Market and also the psyche of the small investors. This study has made an attempt to understand the financial behavior of Mutual Fund investors in connection with the preferences of Brand (AMC), Products, Channels etc. I observed that many of people have fear of Mutual Fund. They think their money will not be secure in Mutual Fund. They need the knowledge of Mutual Fund and its related terms. Many of people do not have invested in mutual fund due to lack of awareness although they have money to invest. As the awareness and income is growing the number of mutual fund investors are also growing. “Brand” plays important role for the investment. People invest in those Companies where they have faith or they are well known with them. There are many AMCs in India but only some are performing well due to Brand awareness. Some AMCs are not performing well although some of the schemes of them are giving good return because of not awareness about Brand. Reliance, UTI, SBIMF, ICICI Prudential etc. They are well known Brand, they are performing well and their Assets under Management are larger than others whose Brand name is not well known like Principle, Sunderam, etc. Distribution channels are also important for the investment in mutual fund. Financial Advisors are the most preferred channel for the investment in mutual fund. They can change investor’s mind from one investment option to others. Many of investors directly invest their money through AMC. Only those people

140

invest directly who know well about mutual fund and its operations and those have time.

Recommendations The most vital problem spotted is of ignorance. Investors should be made aware of the benefits. Nobody will invest until and unless he is fully convinced. Investors should be made to realize that ignorance is no longer bliss and what they are losing by not investing. Mutual funds offer a lot of benefit which no other single option could offer. But most of the people are not even aware of what actually a mutual fund is? They only see it as just another investment option. So the advisors should try to change their mindsets. The advisors should target for more and more young investors. Young investors as well as persons at the height of their career would like to go for advisors due to lack of expertise and time. Mutual Fund Company needs to give the training of the Individual Financial Advisors about the Fund/Scheme and its objective, because they are the main source to influence the investors. By considering these four things they can take the customers into consideration-: 141

➢

Younger people aged under 30 will be a key new customer group into the future, so making greater efforts with younger customers who show some interest in investing should pay off.

➢ Customers with graduate level education are easier to sell to and there is a large untapped market there. To succeed however, advisors must provide sound advice and high quality. ➢ Systematic Investment Plan (SIP) is one the innovative products launched by Assets Management companies. SIP is easy for monthly salaried person as it provides the facility of do the investment in EMI. Though most of the prospects and potential investors are not aware about the SIP. There is a large scope for the companies to tap the salaried persons. ➢ And the last is the campaigning. The AMCs should campaign for awareness of people.

142

Appendices

143

Questionnaire 1. What is the Age distribution of the Investors? (a) <= 30

(b) 31-35

(c)

36-

40 (d) 41-45

(e) >50

2. What is the Educational Qualification of investors? (a) Graduate/ Post Graduate

(b)

Under

Graduate (c) Others 3. What is the Occupation of the investors? (a) Govt. Service

(b) Pvt. Service

(c)

Business (d) Agriculture

(e) Others

4. What is the Monthly Family Income of the Investors?

144

(a) <=10000

(b) 10,001-15,000

(c)

15,001-20,000 (d) 20,001-30,000

(e) >30,000

145

In which sector you want to Invest your money? (a) Savings A/c

(b) FD

(d) Mf

(e)

Post

office

(f)Shares/Debentures (g) Gold/Silver

(h) Real estate

6. What is the Preference of factors while investing? (a) Liquidity High return

(b) Low risk

(c)

(d) Financial advisors

7. Do You Aware about Mutual Fund and its Operations? (a) Yes

(b) No

8. Which is the best Source of information for customers about Mutual Fund? (a) Advertisement (c)Bank

(b) Peer group (d) Financial advisors 146

9. Do you have Mutual Fund? (a) Yes

(b) No

10.Why you don’t want invest in Mutual Fund? (a) Not aware

(b) Higher risk

specific reason 11.Which mutual fund do you have already? (a) JM Financial (d) Reliance

(b) UTI

(e) Kotak

(f)

ICICI

Prudential (g) Others 12.Why you don’t want to invest in mutual funds? (a) Not aware

(b) Less return

(c)

Agent’s advice 13.In which AMC do you want to invest in future? (a) JM Financial

(b) UTI

(d) Reliance

(e) Kotak

(f)

ICICI

Prudential (g) Others 14.Which Channel do Preferred to by the Mutual Fund? (a) Financial Advisor

(b) Bank

(c)

AMC 15.Which Mode do you prefer to invest in mutual fund? (a) One time Investment

(b) Systematic

Investment plan 16.Which Portfolio do you prefer for the Investment? (a) Equity Balanced

(b) Debt (d) Income

(f) Gilt 17.Which Option do you take for getting Return? (a) Dividend Payout (b) Dividend Reinvestment

(c)

Growth 148

149

List of Tables

II.

III.

Investment Earning Opportunity 35 Investment in accumulation phase 46 Investment in Distribution phase 46

IV.

Model Portfolios

Wealth Cycle classification

VI.

Comparison of Investment product

VII.

Risk & Return grid

Bank V/S Mutual Fund

VIII. IX.

Awards

62-64

X.Funds Which have been Compared on the basis of 150

Risk & Return 71 XI.

69-

Comparison of the Schemes 77-88

151

Glossary AMC - Asset Management Company Appetites - A feeling of craving something Burgeoning - Grow and flourish Curb - To put down by force or authority Delegates - A person appointed or elected to represent others Derives - Develop or evolve from a latent or potential state Divulge - Make known to the public information that was previously known only to a few people or that was meant to be kept a secret Entanglement - An intricate trap that entangles or ensnares its victim Evidence - Your basis for belief or disbelief; knowledge on which to base belief Impediments - Something immaterial that interferes with or delays action or progress Letting - Make it possible through a specific action or lack of action for something to happen Miniscule - Very small Mitigate - Make less severe or harsh NAV â&#x20AC;&#x201C; Net Asset Value Outweigh - Be heavier than Peculiarities - A distinguishing trait Pervasive - Spreading or spread throughout Prevalent - Most frequent or common Prospering - Very lively and profitable Psyche - Become scared or over stressed Reluctant - Unwillingness to do something contrary to your custom Remittance - A payment of money sent to a person in another place

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Spectrum - A broad range of related objects or values or qualities or ideas or activities Splurging - Indulge oneself Tardy inter-city payment system Wooing – To attract

Bibliography ➢ News Papers ➢ Fact Sheets and Statements ➢

www.mutualfundsindia.com

➢

www.moneycontrol.com

➢

www.amfiindia.com

➢

www.valueresearchonline.com

➢

www.jmfinancial.in

➢

www.jmfinancialmf.com

➢

www.investopedia.com

➢ Newspapers ( Economic Times ,Times of India) ➢ Magazines ( Business World)

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