A REPORT ON
“ROLE AND PERFORMANCE OF MUTUAL FUNDS AND THE PREFERENCE OF INVESTORS WHILE INVESTING IN VARIOUS SCHEMES OF MUTUAL FUNDS SUBMITTED TO
SUBMITTED BY
MS RITU SINGH
MOHAN CHOUDHARY
R D ENGINEERING COLLEGE, DUHAI, GHAZIABAD
A REPORT ON
The role and performance of mutual funds in booming stock market and the preference of investors while investing in various types of mutual funds scheme BY MOHAN CHOUDHARY
RELIGARE SECURITIES LIMITED DEHRADUN
CERTIFICATE FROM INTERNAL GUIDE This is to certify that aforementioned candidate of MBA of the “R.D. Engineering College” have satisfactorily completed the project on the topic “ROLE AND PERFORMANCE OF MUTUAL FUNDS AND THE PREFERENCE OF INVESTORS WHILE INVESTING IN VARIOUS SCHEMES OF MUTUAL FUNDS ” as per the rule of U.P. Technical University, Lucknow in the academic session 2008-2009 The performance was satisfactory during the development of the project.
ACKNOWLEDGEMENT This report incorporates the contribution of many people and without their support this work would not have come in completion. So I would like to extend my immense indebt ness to all of them who have guided and motivated me throughout my research project. I sincerely thank to all of them for their valuable contribution without which this project report would have not reached its goals. I am indeed grateful to respected Ms. Ritu Singh (Faculty Guide, R.D.E.C., Duhai, Ghaizbaad ), for her valuable support & guidance throughout the research project. I would like to thank my parents who really inspired me to take many necessary actions independently & encouraging my belief towards life. Last, but not the least, I would like to express my faith in the Almighty who has given me strength at every phase of life to stand and excel.
PREFACE This project includes the review of work done in the field of Indian Financial Markets in order to analyze investor’s preference towards different routes to enter the equity market, to find out their investment pattern and to identify the factors affecting the investor’s choice. Toady the field of investment is even more dynamic than it was only a decade ago. World event rapidly-events that alter the values of specific assets the individual has so many assets to choose from, and the amount of information available to the investors is staggering and continually growing. Furthermore, inflation has served to increased awareness of the importance of financial planning and wise investing. In this project I will study the preference of investors towards different routes to enter the equity market, investment pattern of the individuals and the factors affecting the investor’s choice to understand investments behavior Customers are the King of the market and so it s very important to keep the customers loyal with the company. Investor’s behavior is changing and they are now leaving behind the sacred investment options like the fixed deposits, company deposits, gold etc. Investors are now looking towards equity linked investment options. So it is very important to identify the motivating factors that guide the individual’s investment decisions. This study will help the company to know their customers well and help to improve their database management and expand the clientele by bridging the gap between investor’s expectations and what the company provides. The ultimate aim of the study is to fulfill all the relevant expectations of the customers by analyzing the preference of investors for different routes to enter the equity market,
studying the investment pattern of the individuals and by identify the factors affecting the preference of investors towards different routes for entering the equity market. The result of the analysis done can be discussed with the official concerned in the organization to make him aware of the customer’s preferences and suggest him the improvements thereof. This study will also be helpful for the company’s future strategy’s point of view. Company can quickly take required steps to rectify the existing problems and enhance its performance. This in turn shall be instrumental in my career when I join an organization as it would upgrade my skills and add value to my learning curve
CONTENTS . EXECUTIVE SUMMARY INTRODUCTION •
OVERVIEW OF RELIGARE
•
RELIGARE CORPORATE STRUCTURE
•
PRODUCTS OFFERED BY RELIGARE
•
PHILOSOPHY OF RELIGARE
•
MILESTONES
MUTUAL FUNDS •
CONCEPT
•
ADVANTAGES & DISADVANTAGES
•
HISTORY OF MUTUAL FUNDS
•
TYPES OF MUTUAL FUNDS
•
RISKS EMBEDDED IN MUTUAL FUNDS
•
REGULATORY ASPECTS OF MUTUAL FUNDS
•
INDIAN MUTUAL FUND INDUSTRY – ITS RECENT TIMES
OBJECTIVE OF THE STUDY REVIEW OF LITERATURE RESEARCH METHODOLOGY • RESEARCH DESIGN • RESEARCH TOOLS & STATISTICAL TOOLS • DATA COLLECTION TECHNIQUES DATA ANALYSIS AND INTERPRETATION FINDINGS LIMITATION OF THE STUDY FURTHER EXTRAPOLATION OF THE TOPIC RECOMMENDATIONS CONCLUSION BIBLIOGRAPHY REFERENCES
EXECUTIVE SUMMARY
EXECUTIVE SUMMARY This report provides survey results from 250 respondents regarding the factors that they consider while buying mutual funds. Specifically, this research identifies the performance of mutual fund and the preferences of investors regarding selection of mutual funds. The results indicates that respondents place greater importance on the performance with respect to other mutual funds, reputation of the asset management company, returns given during the past years and independent rankings, and much less importance on fund advertising and popular press publications. It was also found that investors does not place much of an importance to the factors like liquidity that is associated with mutual fund, suggestion by friends, fund age, risk involved in purchasing the mutual fund and others. The results also give us the idea about how the age of a person affects the decision to buy the various types of mutual funds. That is equity fund or the ones which give higher returns and involves more risk are preferred by people of less age where as gilt funds or safe funds are more preferred by aged people. There is also a tendency for the women to invest in funds which are safe. Interval funds are becoming popular nowadays where as from the sample it was found that open-end funds are much more preferred. It was also found that there is no significant association between the income and the selection of the mutual funds on the basis of objectives or on the basis of flexibility.
INTRODUTION
INTRODUCTION OVERVIEW OF RELIGARE Religare, a Ranbaxy promoter group company, is one of India’s leading integrated financial services institutions. The company offers a large and diverse bouquet of services ranging from equities commodities, insurance broking, to wealth advisory, portfolio management services, personal financial services, investment banking and institutional broking services. The services are broadly clubbed across three key business verticals-retail, wealth management and the institutional spectrum. Religare enterprises limited are the holding company for all its businesses, structured and being operated through various subsidiaries. Religare’s retail network spread across the length and breadth of the country with its presence through more than 900 locations more than 300 cities and towns. Having spread itself fairly well across the country and with promise of resting on its laurels, it has aggressively started eyeing global geographies. Recently, Religare has also partnered with AEGON, one of the largest insurance and pension companies globally, to offer life insurance and mutual fund in India. The venture shall combine the international expertise of AEGON with the distribution of Religare. RSL is a member of the National Stock Exchange of India, Bombay Stock Exchange of India, Depository Participant with National Securities Depository Limited and Central Depository Services (I) Limited, and SEBI approved Portfolio Manager •
Religare has been constantly innovating in terms of product and services and to offer such incisive services to specific user segments it has also started the NRI, FII, HNI and Corporate Servicing groups. These groups take all the portfolio investment decisions depending upon a client’s risk / return parameter.
•
Religare has a very credible Research and Analysis division, which not only caters to the need of our Institutional clientele, but also gives their valuable inputs to investment dealers.
Religare is also providing in-house Depository services to its clientele and is one of the leading depository service providers in the country.
CORPORATE STRUCTURE OF RELIGARE
PRODUCTS OFFERED BY RELIGARE
Depository Services
On-line facilities related to depository services (NSDL & CDSL) including Demat Account opening, Dematerializations of physical shares, DIS execution, holding / transaction statement, Pledge, remat etc are available at a very attractive tariff.
Stock Broking
Trading in Equities with Religare truly empowers you for your investment needs. A highly process driven, diligent approach backed by powerful Research & Analytics and one of the “best in class” dealing rooms ensures that you have a superlative experience. Further, Religare also has one of the largest retail networks, with its presence in more than 900 locations across more than 320 towns & cities. This means, you can walk into any of these branches and connect to our highly skilled and dedicated relationship managers to get the best services. You could also choose to enjoy the freedom to execute your own trade through our online mechanism. You can avail online trading facility (on our terminals) for all segments, be it NSECASH, NSE- Derivatives (F&O), BSE and Retail Debt Market (RDM), at all our branches. We offer services that are beyond just a medium for buying and selling stocks and shares. Instead we provide services, which are multidimensional and multi- focused
in their scope. There, are several advantages in utilizing our Stock Broking services, which are the reasons why we are one of the best & the largest in the country. We also offer Web-trading.
Commodities Broking
We are offering, through MCX & NCDEX, spectacular growth Opportunitiesand advantages to large cross-section of market
participants including Producers /
Processors, Traders, Corporate, Regional Trading Centers,Importers, Exporters, Cooperatives, Investors, Industry Associations to trade in various commodities, be it Bullion, Food-grains, Oils, otheragricultural products, etc.
Religare Commodities Limited (RCL) was initiated to spearhead Exchange based Commodity Trading. As a member of NCDEX, MCX and NMCE, RCL is a trade facilitator providing the platform to trade in commodities. Grounded in the Religare philosophy, highly skilled and dedicated professionals strive to offer the clients "best-fit" investment solutions in the country. LOANS
Religare as part of its NBFC business being operated through Religare Finvest Ltd. offers Personal Credit to cater to the growing wave of consumerism in India. Through our Loan against Shares (LAS) and Personal Lending Services (PLS) offerings, we have entered into consumer lending business activities. Our PLS service offering is
marketed as “Personal Credit” services and developed by leveraging our branch network to generate opportunities from existing equity customers. Our PLS business consists of unsecured consumer loans to our retail customers. Our LAS business consists of loans secured by shares held by our retail customers and helps them leverage their equity market positions to take increased exposure.
PERSONAL FINANCIAL ADVISORY SERVICES
Religare has recently entered into personal financial advisory services. It caters to the financial needs of individuals by advising them on various financial plans. Religare’s Personal financial advisors, also called financial planners or financial consultants, use their knowledge of investments, tax laws, and insurance to recommend financial options to individuals in accordance with the individual’s short-term and long-term goals. Some of the issues that planners address are general investments, retirement and tax planning. Product offerings •
Mutual Funds
•
Insurance - Life & Non - Life
•
Bonds
•
Deposits
•
IPO’s
•
Small Savings Instruments
WEALTH ADVISORY
Wealth…Grow
It,
Protect
It,
Spend
It,
Share
It…..
"At Religare, we are always at It, partnering with you relentlessly….. We would want you to sleep in peace , but never would we want your wealth to sleep or go into a slumber…Ethical, dynamic and diligent processes is what we are truly about…” Wealth Management @ Religare •
To provide investment advisory and execution services
•
To work hand in hand with clients to identify and analyze their long-term goals,
risk tolerance and existing asset base •
To Utilize our full-suite platform with an open architecture along with a fully
focused client centric approach to offer customized solutions for clients •
Supported by dedicated team of highly skilled and qualified wealth managers and
research professionals. Our Value Proposition •
Young, professional, innovative and fully client centric human capital
•
Full suite platter of services from the Religare umbrella
•
National and International Foot print
•
An open architecture and client centric philosophy “Not just lip service”
Product Recommendations
•
Equities (Including International)
•
Debts
•
Commodities
•
Structured Products
•
Emerging Investment Classes.
Critical Steps in our Client Centric Operating Process •
Risk Profiling
•
Research & Asset Allocation
•
Product Recommendations
•
Review & Rebalancing
International Advisory Fund Management Services (AFMS) - A new horizon for international investments We provide our wealth clients an opportunity to invest in international financial instruments (currently limited to the US). Equities, Mutual Funds and Debts are some the key instruments available and the clients have the option to choose from various asset allocation modules.
PHILOSOPHY OF RELIGARE
Define…Refine….Achieve
At Religare we believe “Our clients are people, not accounts” hence successful investment management relationship begins with a clear understanding of each clients specific needs, concerns and long term objectives. Our investment philosophy applies a disciplined approach to building a customized strategy designed to meet your individual financial goals and tolerance for risk.
PROCESS
FIGURE 2
The Religare Edge •
Pan India foot print
•
Dedicated team of trained and skilled advisors
•
Strong pedigree driven by diligent processes and ethical business practices
•
Wide & varied platter of products & services to choose from
•
Backed by strong & Credible research
Priority Client Group Services (PCG) At Religare we strongly believe in not just providing you with incisive investment advice but we are equally focused to ensure timely execution of your important trades. With this as our driving philosophy we have created a unique client centric business model that revolves around optimum service delivery. Further, our investment advisory is underpinned by comprehensive fundamental and technical research – helping you to time your investment decisions perfectly. Milestones • Advisor to the issue of Allied Digital Services Ltd. – July 2007 •
Syndicate Member in the IPO of Abhishek Mills Ltd. – Feb 2007
•
Syndicate Member in the IPO of AMD Metplast Ltd. – Feb 2007
•
Underwriting in IPO of Cambridge Technology Enterprises Ltd. – Dec 2006
•
Syndicate Member in the IPO of Shree Ashtavinayak Cine Vision Ltd. – Dec 2006
•
Preferential Allotment of Equity Shares of Rainbow Papers Ltd. – Dec 2006
•
Underwriting in FPO of Gulshan Sugars Ltd. – Nov 2006
•
Secondary Placement of Equity Shares of Gitanjali Gems Ltd. – Oct 2006
•
Pre IPO Placement of Pyramid Saimira Theatres Ltd. – July 2006
•
Pre IPO Placement of Niraj Cement Structurals Ltd. – March
MUTUAL FUNDS
MUTUAL FUNDS – A CONCEPT A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. Each unit of any scheme represents the proportion of pool owned
by the unit holder (investor). The value of each unit of mutual fund is termed as Net Asset Value. Appreciation or reduction in value of investments is reflected in net asset value (NAV) of the concerned scheme, which is declared by the fund from time to time. Mutual Funds schemes are managed by respective Asset Management Companies sponsored by financial institutions, banks, private companies or international firms. An investor can invest his money in one or more schemes of Mutual Fund according to his choice and becomes the unit holder of the scheme. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Mutual Fund offers an investor the opportunity to invest even a small amount of money. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities. Each Mutual Fund scheme is managed by qualified professionals, who use this money to create a portfolio that includes stock and shares, bonds, gilt, money-market instruments or combination of all. Thus, Mutual Fund will diversify one’s portfolio over a variety of investment vehicles thereby reducing the risk. Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in (one doesn't have to figure out which stocks or bonds to buy). By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification. Mutual Funds offer several benefits to an investor such as potential return, liquidity, transparency, income growth, good post tax return and reasonable safety. But before investing in a Mutual Fund an investor must identify his needs and preferences. He must also take in to consideration the risks associated with such investments.
MUTUAL FUND FRAMEWORK:
FIGURE 3
MUTUAL FUND CONSTITUENTS The FIGURE below illustrates the organizational set up of a mutual fund:
Indian mutual funds are governed by two different structures. The Unit Trust of India follows one defined by the UTI Act, 1963, and its subsequent amendments. All other mutual funds follow the Securities and Exchange Board of India's (Mutual Funds)
Regulations, 1996, which are more rigorous from the viewpoint of disclosure and accountability. Despite the differences, all mutual funds comprise four constituents -sponsors, trustees, asset management companies (AMC’s) and custodians. THE MUTUAL FUND A mutual fund in India is constituted in the form of a Public Trust created under the Indian Trusts Act, 1882. The Fund Sponsor acts as the Settler of the Trust, contributing to its initial capital and appoints a Trustee to hold the assets of the Trust for the benefit of the unit-holders, who are the beneficiaries of the Trust. The fund then invites investors to contribute their money in the common pool, by subscribing to “units” issued by various schemes established by the trust, units being the evidence of their beneficial interest in the fund. SPONSOR The sponsor initiates the idea to set up a mutual fund. It could be a registered company, scheduled bank or financial institution. For Example: For Birla Mutual Fund, the sponsor is Birla Growth Funds. In a joint venture like Sun F&C Mutual Fund, Foreign & Colonial Emerging Markets is the sponsor and SUN Securities (India) Ltd, the co-sponsor A sponsor has to satisfy certain conditions, such as on capital, track record (at least five years' operation in financial services), default-free dealings and a general reputation of fairness. The sponsor appoints the trustees, AMC and custodian. Once the AMC is formed, the sponsor is just a stakeholder. However, sponsors do play a key role in bailing out an AMC during a crisis (Canara Bank's rescue of Canbank Mutual Fund). TRUST / BOARD OF TRUSTEES
Trustees hold a fiduciary responsibility towards unit holders by protecting their interests. Sometimes, as with Canara Bank, the trustee and the sponsor are the same. For others, like SBI Funds Management, State Bank of India is the sponsor and SBI Capital Markets the trustee. Trustees float and market fund schemes, and secure necessary approvals. They check if the AMC's investments are within defined limits, whether the fund's assets are protected, and also ensure that unit holders get their due returns. Trustees also review any due diligence done by the AMC. For major decisions concerning the fund, they have to take unit holders' consent. They submit reports every six months to SEBI; investors get an annual report. Trustees are paid annually out of the fund's assets -- 0.05 per cent of the weekly average net asset value. FUND MANAGERS / AMC’S They are the ones who manage funds money. An AMC takes investment decisions, compensates investors through dividends, maintains proper accounting and information for pricing of units, calculates the NAV, and provides information on listed schemes and secondary market unit transactions. It also exercises due diligence on investments, and submits quarterly reports to the trustees. A fund's AMC can neither act for any other fund nor undertake any business other than asset management. Its net worth should not fall below Rs. 10 crore. And, its fee should not exceed 1.25 per cent if collections are below Rs.100 crore and 1 per cent if collections are above Rs.100 crore. Sebi can pull up an AMC if it deviates from its prescribed role.
TRANSFER AGENTS Transfer agents are responsible for issuing and redeeming units of the mutual fund and provide other related services such as preparation of transfer documents and updating investor records. A fund may choose to carry out this activity in-house and charge the scheme for the service at a competitive market rate. Where an outside Transfer Agent is used, the fund investor will find the agent to be an important interface to deal with, since all of the investor services that a fund provides (besides the investment management) are going to be dependent on the transfer agent. In India, besides brokers, independent, individuals are appointed as ‘agents” for the purpose of selling the fund schemes to investors. These agents are not brokers in a formal sense and do not belong to any stock exchange or organized self-regulatory body of brokers. While individuals constitute the largest segment in the category of mutual fund “distributors”, other distributors include Banks, Non Banking Finance Companies and Distribution Companies. CUSTODIAN Often an independent organization, it takes custody of securities and other assets of a mutual fund. Among public sector mutual funds, the sponsor or trustee generally also acts as the custodian. A custodian's responsibilities include receipt and delivery of securities, collecting income, distributing dividends, safekeeping of units and segregating assets and settlements between schemes. Their charges range between 0.15-0.2 percent of the net value of the holding. Custodians can service more than one fund.
SEBI's regulations specify each constituent's role clearly. How well they act in concert determines the quality of the investor's experience with the mutual fund. NET ASSET VALUE (NAV) A mutual fund is a common investment vehicle where the assets of the fund belong directly to the investors. Investors’ subscriptions are accounted for by the fund not as liabilities or deposits but as Unit Capital. On the other hand, the investments made on behalf of the investors are reflected on the assets side and are the main constituent of the balance sheet. There are, however, liabilities of a strictly short-term nature that may be part of the balance sheet. The fund’s Net Assets are therefore defined as the assets minus the liabilities. As there are many investors in a fund, it is common practice for mutual funds to compute the share of each investor on the basis of the value of Net Assets Per Share/Unit, commonly known as the Net Asset Value (NAV). The following are the regulatory requirements and accounting definitions laid down by SEBI. NAV = Net Assets of the scheme/Number of Units outstanding i.e. Market value of investments + Receivables + Other Accrued Income + other assets. Accrued Expenses – Other payables – Other liabilities No. Of units outstanding as at the NAV date For the purpose of the NAV calculation, the day on which NAV is calculated by a fund is known as the valuation date. •
A fund’s NAV is affected by four sets of factors:
•
Purchase and sale of investment securities
•
Valuation of all investment securities held
•
Other assets and liabilities, and
•
Units sold or redeemed
ADVANTAGES OF MUTUAL FUNDS Professional expertise: Fund managers are responsible for implementing a consistent investment strategy that reflects the goals of the fund. Fund managers monitor market and economic trends and analyze securities in order to make informed investment decisions. Diversification: In order to reduce this risk, one needs to invest in different types of securities such that they do not move in a similar fashion. Typically, when equity markets perform, debt markets do not yield good returns. Note the scenario of low yields on debt securities over the last three years while equities yielded handsome returns Low cost of asset management: Since mutual funds collect money from millions of investors, they achieve economies of scale. The cost of running a mutual fund is divided between larger pools of money and hence mutual funds are able to offer you a lower cost alternative of managing your funds. Equity funds in India typically charge you around 2.25% of your initial money and around 1.5% to 2% of your money invested every year as charges. Investing in debt funds costs even less. If you had to invest smaller sums of money on your own, you would have to invest significantly more for the professional benefits and diversification. Liquidity: Mutual funds are typically very liquid investments. Unless they have a prespecified lock-in, your money will be available to you anytime you want. Typically funds take a couple of days for returning your money to you. Since they are very well
integrated with the banking system, most funds can send money directly to your banking account. Well regulated: India mutual funds are regulated by the Securities and Exchange Board of India, which helps provide comfort to the investors. SEBI forces transparency on the mutual funds, which helps the investor make an informed choice. SEBI requires the mutual funds to disclose their portfolios at least six monthly, which helps one keep track whether the fund is investing in line with its objectives or not.
DRAWBACKS OF MUTUAL FUNDS No Guarantees-There is no guarantee that the mutual fund will always do well and provide good returns to its unit holders, as no investment is risk free. However, risk is minimized to some extent by investing in mutual funds. Fees and Commissions- All funds charge administrative fees to cover their operational expenses. Some funds also charge sales commissions or “loads” to compensate financial consultants or planners, brokers etc. Taxes- Most actively managed funds sell anywhere from 20% to 70% of the securities in their portfolio during a typical year. If the fund makes a profit on its sales, the investor has to pay tax on the income he receives even if he reinvests the money he made. Management risk- the risk that an investor is taking here is that someone else is managing his money. He depends on the fund manager to make the right decision regarding the portfolio. If the manager does not perform as one had hoped then the investor may not make as much money as he had expected.
HISTORY OF MUTUAL FUNDS MUTUAL FUNDS IN INDIA (1964 - 2005) PHASE ONE (1964-1987): The first stage of Mutual funds in India started with the setup of giant public sector mutual fund UTI in 1964. This stage continued till 1987. In this stage UTI was the only player in the mutual fund market. At the beginning of 1988 the total assets under management of UTI were 6700 crores. PHASE TWO (1987-1993): In 1987 govt. allowed six PSU banks, LIC and GIC to set up mutual funds. This increased the number of players in the mutual fund to nine. At the end of 1994 there were 107 Mutual fund schemes with 61028 Crores worth of assets under management. PHASE THREE (1994 ONWARDS): This stage saw the real boom of mutual fund industry. The GOI allowed private mutual fund to operate. Kothari Pioneer is the first private sector Mutual Fund of India. As on 31st March 2000 there were 32 mutual funds with 1,13,005 crores worth of assets under management out of which 70,547 crores were in UTI alone. And on august 2000 there were a total of 33 mutual fund schemes with 391 schemes and asset base of 1,02,844 crores. Today, we have 34 mutual funds with numerous schemes for the investor’s to invest in.
PHASE FOUR 1996 (SEBI REGULATION FOR MUTUAL FUNDS):
Deregulation and liberalization of the Indian economy introduced competition and provided impetus to the growth of the industry. Finally, most investors – small or large – started shifting towards mutual funds as opposed to banks or direct market investments. More investor friendly regulatory measures were taken both by SEBI to protect the investor, and by the Government to enhance investors’ return through tax benefits. A comprehensive set of regulations for all mutual funds operating in India was introduced with SEBI (Mutual Fund) Regulations, 1996. 1999 marked the beginning of a new phase in the history of the mutual fund industry in India, a phase of significant growth in terms of both amounts mobilized from investors and assets under management. Consider the growth in assets as seen in the figures below: The size of the industry grew rapidly, as seen in the figure of assets under management which shot up from over Rs. 68000 crores to Rs. 113005 crores, a growth of nearly 60% in just one year. Within the growing industry, by March 2000, the relative market shares of different players in terms of amount mobilized and assets under management underwent a change. 1999—YEAR OF THE FUNDS Mutual funds had been around for a long period of time to be precise for 36 yrs but the year 1999 saw immense future potential and developments in this sector. This year signaled the year of resurgence of mutual funds and the regaining of investor confidence in these MF’s. This time around all the participants were involved in the revival of the funds - the AMC’s, the unit holders, the other related parties. However, the sole factor
that gave lift to the revival of the funds was the Union Budget. The budget brought about a large number of changes in one stroke. It provided centre stage to the mutual funds, made them more attractive and provided acceptability among the investors. The Union Budget exempted mutual fund dividend given out by equity-oriented schemes from tax, both at the hands of the investor as well as the mutual fund. No longer were the mutual funds interested in selling the concept of mutual funds they wanted to talk business which would mean to increase asset base, and to get asset base and investor base they had to be fully armed with a whole lot of schemes for every investor .So new schemes for new IPO’s were inevitable. The quest to attract investors extended beyond just new schemes. The funds started to regulate themselves and were all out on winning the trust and confidence of the investors under the aegis of the Association of Mutual Funds of India (AMFI) One can say that today, the industry has moved from infancy to adolescence, it is now maturing and the investors and funds are frankly and openly discussing difficulties, opportunities and compulsions. THE UTI FIASCO US –64 – The first mutual fund scheme floated in India. it is the flagship scheme from Unit Trust of India, an AMC which has the largest investor base of over 2 crore and a corpus of above Rs. 20000 crore. The word US implies Unit Scheme and the figure 64 denotes 1964, the year in which it was launched. UTI had many schemes in its stable, but US 64 occupied the pride of the plae. For the investors institutional or individuals, US64 represented a level of safety and liquidity
uncommon in any normal mutual fund scheme. US 64 seemed to be so special that even through the vagaries of the market, it enjoyed uninterrupted investor confidence. This was so because first the scheme was launched at a time when mutual funds were not known in India. Infact, many investor thought that it was a Government Scheme with a sort of Sovereign guarantee. Even subsequently, when the mutual fund industry opened up, no one- not even the discerning corporate investors, even doubted the abiling of UTI to give them steady and safe returns through US 64. This kind of public confidence ensured that the fund always received more money than what was being redeemed. The scheme therefore, never had to bother about redemption pressures a had the unique opportunity to look at investment t options beyond the capital market instruments. It may be interesting to know that US 64 actually went beyond its mutual l fund Identity an lent money to companies a loans and even invested in real estate and other nontradeable securities. This was possible as US
6 4and its parent UTI enjoyed a special
status under an Act of Parliament and are not fully subject to the Mutual fund regulations framed by SEBI, which actually came in to being decades after US 64 was launched. The scheme, originally promoted as an open-ended income fund with substantial debt investments, slowly changed its complexion is to an equity scheme with more than 65% of corpus invested in stock market instruments. The shift in the investment strategy was brought about by the fund managers who saw good opportunities in equalities to maintain its growing rate of dividend. But returns from equity funds fluctuate depending on the vagaries of the stock market. Despite of that, for a period of 2-3years, the UTI distributed more dividends to the Unit holders of US 64 than the return earned from the investments in the scheme. This was
possible as UTI had a development reserve fund created out of the surpluses it generated over a period of time from its large investment portfolio. This reserve fund acted as a shock absorber whenever US 64 failed to generate the desired levels of returns. UTI made up the shortfall by dipping into the fund’s reserve. Distributing more dividends those returns from investments reduced the value of residual investments in the scheme. This problem was further compounded by the persistent fall in the prices of shown, especially, the shares of companies in basic commodity industries like cement, steel, manmade fibers etc and status of public sector units in which US 64 had invested . Throughout this period, when the NAV of US 64 was going down, UTI kept increasing the sale and repurchase prices of US 64 units. The stock market collapse after the Pokharan II
nuclear tests was
the last straw when stock market was seized in a
prolonged bear hug), which resulted in the erosion of the schemes book reserves and a wide difference between the actual NAV and the sale/repurchase price. UTI was caught on the wrong foot when it suddenly discovered that its reserves were not sufficient to maintain the repurchase prices of US64. When UTI made this revelation public, markets went into a tipsy as investor’s confidence in the scheme, which was rock solid till them, was shaken to the roots for the first time. As fears were afloat that there was deeper malaise within the system, investors began a beeline for redemption at some of the UTI offices. Before the trickle resulted in an uncontrollable run on the fund, government quickly stepped in, assured its commitment to the US 64 and constituted the Deepak Parekh Committee to revamp the fund to make it more contemporary and market friendly.
THE MORGAN STANLEY DEBACLE Morgan Stanley raised large corpus (more than Rs.10bn) in around early 1994. The entire exercise in fund raising was centered on the hype of the fund being the first fund promoted by an internationally acclaimed Asset Management Company. It was marketed like any other public issue and fund investors rushed to invest in the scheme hoping to get superior returns. No one bothered to explain to them that Morgan Stanley AMC was a service provider - providing them the service of investment advice and management. No one explained to them that they were not investing in a share of a company – in fact the artificial gray market premium served to perpetrate this feeling. The IPO was a great success. It ensured that the name "Morgan Stanley" was now a part of the dreams of more than 1 million Indians. The fund raising exercise, unfortunately, coincided with the peak of stock market boom. Indian stock markets lack depth and are quite illiquid. The fund managers were compelled to invest in equities in a big hurry as a number of Foreign Institutional Investors were investing huge sums of money in the country resulting in a mad rush for equity stocks. The fund’s managers invested a considerable amount of money in smaller companies with low floating stock and low market capitalization, either through the secondary market or through private placements. These companies had experienced the highest appreciation in prices in the immediate past. The market position started changing from late 1994. The boom in the market made it possible for many companies to raise equity capital and literally hundreds of public/rights issues opened for subscriptions every week, many of them at high issue prices. There were also massive private placements of equity shares and GDR issues at huge premiums.
There were very few companies, which did not wash their hands in this great gravy train. This deluge of paper soaked up money and reduced the amount available for fresh investment both from resident Indians, domestic mutual funds and from foreign institutional investors. At this time, the RBI commenced on its tight money policy in a bid to control inflation from raising its head. Money supply tightened and bond yields started increasing dramatically. High industrial growth and tight money created a shortage for credit and rates started going sky high. Many corporates and banks started redeeming their holdings in the Unit Trust of India and other mutual funds. This put major pressure on the market, which was already showing signs of weakness. What followed was the great crash. And in this crash, the biggest losers were the smaller capitalization stocks. Many of these stocks lost more than 90% of their peak prices. Morgan Stanley AMC restructured the funds portfolio at big losses. As the NAV went below par, investors’ confidence was shattered. Being a closed-ended equity scheme the Morgan Stanley’s mutual fund unit was also listed on the stock markets. Crisis of confidence led to its price on the stock exchange crashing and it started quoting at a steep discount to its NAV. The fund started buying back units in order to reduce the discount and also to boost the NAV (buying back units at prices below the NAV results in a profit, which will reduce the NAV). Given its large corpus size no amount of buy back or otherwise support could help boost the investor confidence. Since then the equity markets have gone nowhere with the index still below the level at which the fund was invested. Most of the stocks in the Sensex have performed poorly with markets punishing commodity companies and companies with non-transparent
Indian managements. To top it, many erstwhile blue chips have reported disastrous financial performances. Consequently, the NAV of MSGF (Morgan Stanley Growth Fund) Mirrors this gory saga of the Indian markets. In fact, the fund invested considerable amount of money in FMCG, pharmaceutical and software companies at the right time, which improved the NAV from 1998 onwards.
TYPES OF MUTUAL FUNDS A Mutual Fund may float several schemes, which may be classified on the basis of its structure, its investment objectives and constitution.
INVESTMENT OBJECTIVE Schemes can be classified by way of their stated investment objective such as Growth Fund, Balanced Fund, and Income Fund etc EQUITY ORIENTED SCHEMES These schemes, also commonly called Growth Schemes, seek to invest a majority of their funds in equities and a small portion in money market instruments. Such schemes have the potential to deliver superior returns over the long term because the market boom and depression phases get evened out over a longer time span. However, because they invest in equities, these schemes are exposed to fluctuations in value especially in the shortterm.Equity schemes are hence not suitable for investors seeking regular income or needing to use their investments in the short-term. They are ideal for investors who have a long-term investment horizon. The NAV prices of equity fund fluctuates with market value of the underlying stock which are influenced by external factors such as social, political as well as economic. HDFC Growth Fund, HDFC Tax Plan 2000 and HDFC Index Fund are examples of equity schemes.
SECTOR SPECIFIC These schemes restrict their investing to one or more pre-defined sectors, e.g. technology sector, pharmaceutical, information technology etc. Since they depend upon the performance of select sectors only, these schemes are inherently more risky than generalpurpose schemes. They are suited for informed investors who wish to take a view and risk on the concerned sector. SPECIAL SCHEMES: INDEX SCHEMES The primary purpose of an Index is to serve as a measure of the performance of the market as a whole, or a specific sector of the market. An Index also serves as a relevant benchmark to evaluate the performance of mutual funds. Some investors are interested in investing in the market in general rather than investing in any specific fund. Such investors are happy to receive the returns posted by the markets. As it is not practical to invest in each and every stock in the market in proportion to its size, these investors are comfortable investing in a fund that they believe is a good representative of the entire market. Index Funds are launched and managed for such investors. An example to such a fund is the HDFC Index Fund.
TAX SAVING SCHEMES Investors (individuals and Hindu Undivided Families (“HUF’s”)) are being encouraged to invest in equity markets through Equity Linked Savings Scheme (“ELSS”) by offering them a tax rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched – out until completion of 3 years from the date of allotment of the respective Units. The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations, 1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs), Government of India regarding ELSS. Subject to such conditions and limitations, as prescribed under Section 88 of the Incometax Act, 1961, subscriptions to the Units not exceeding Rs.10, 000 would be eligible to a deduction, from income tax, of an amount equal to 20% of the amount subscribed. HDFC Tax Plan 2000 is such a fund. REAL ESTATE FUNDS Specialized real estate funds would invest in real estates directly, or may fund real estate developers or lend to them directly or buy shares of housing finance companies or may even buy their securitized assets. DEBT BASED SCHEMES
These schemes, also commonly called Income Schemes, invest in debt securities such as corporate bonds, debentures and government securities. The prices of these schemes tend to be more stable compared with equity schemes and most of the returns to the investors are generated through dividends or steady capital appreciation. These schemes are ideal for conservative investors or those not in a position to take higher equity risks, such as retired individuals. However, as compared to the money market schemes they do have a higher price fluctuation risk and compared to a Gilt fund they have a higher credit risk. INCOME SCHEMES These schemes invest in money markets, bonds and debentures of corporate with medium and long-term maturities. These schemes primarily target current income instead of capital appreciation. They therefore distribute a substantial part of their distributable surplus to the investor by way of dividend distribution. Such schemes usually declare quarterly dividends and are suitable for conservative investors who have medium to longterm investment horizon and are looking for regular income through dividend or steady capital appreciation. HDFC Income Fund, HDFC Short Term Plan and HDFC Fixed Investment Plans are examples of bond schemes. LIQUID INCOMES SCHEMES Similar to the Income scheme but with a shorter maturity than Income schemes. An example of this scheme is the HDFC Liquid Fund
MONEY MARKET SCHEMES These schemes invest in short-term instruments such as commercial paper (“CP”), certificates of deposit (“CD”), treasury bills (“T-Bill”) and overnight money (“Call”). The schemes are the least volatile of all the types of schemes because of their investments in money market instrument with short-term maturities. These schemes have become popular with institutional investors and high net worth individuals having short-term surplus investible funds. GILT FUNDS This scheme primarily invests in Government Debt. Hence, the investor usually does not have to worry about credit risk since Government Debt is generally credit risk free. HDFC Gilt Fund is an example of such a scheme. HYBRID SCHEMES These schemes are commonly known as balanced schemes. These schemes invest in both equities as well as debt. By investing in a mix of this nature, balanced schemes seek to attain the objective of income and moderate capital appreciation and are ideal for investors with a conservative, long-term orientation. HDFC Balanced Fund and HDFC Children’s Gift Fund are examples of hybrid schemes. CONSTITUTION Schemes can be classified as Closed-ended or Open-ended depending upon whether they give the investor the option to redeem at any time (open-ended) or whether the investor has to wait till maturity of the scheme.
OPEN-ENDED SCHEMES The units offered by these schemes are available for sale and repurchase on any business day at NAV based prices. Hence, the unit capital of the schemes keeps changing each day. Such schemes thus offer very high liquidity to investors and are becoming increasingly popular in India. It is important to remember 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.
CLOSE-ENDED SCHEMES The unit capital of a close-ended product is fixed as it makes a one-time sale of fixed number of units. These schemes are launched with an initial public offer (IPO) with a stated maturity period after which the units are fully redeemed at NAV linked prices. In the interim, investors can buy or sell units on the stock exchanges where they are listed. Unlike open-ended schemes, the unit capital in closed-ended schemes usually remains unchanged. After an initial closed period, the scheme may offer direct repurchase facility to the investors. Closed-ended schemes are usually more illiquid as compared to openended schemes and hence trade at a discount to the NAV. This discount tends towards the NAV closer to the maturity date of the scheme.
INTERVAL SCHEMES These schemes combine the features of open-ended and closed-ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during predetermined intervals at NAV based prices.
Such a complex classification is bound to boggle an amateur investor’s mind. Therefore, mutual funds can also be categorized and classified more elaborately, so that one can figure out what each one implies. The kind of fund an investor would like to invest in depends on the premise that what he wants his money to do for him. Mutual funds can also be classified in to the following broader categories: •
By Asset Class
•
By Investment Sector
•
By Liquidity
•
By Trading Strategy
•
By Investment Strategy
•
By Security Selection
•
By Objective
•
By Load Charged / Cost
•
By Place of origin
BY ASSET CLASS This criterion classifies funds according to the asset class they invest in: EQUITY FUNDS invest in equity shares of companies. DEBT FUNDS invest in debt market instruments such as bonds, debentures etc.
MONEY MARKET FUNDS invest in money market instruments. BALANCED FUNDS invest in a mix of equity, debt and money market instruments. GILT FUNDS invest in Government Securities. BY INVESTMENT SECTOR This method essentially attempts to segregate funds on the basis of the sub-sector or the special focus area on which the fund's investments are concentrated. Therefore, funds can be: General Funds do not specify any particular sector for investment purposes. Rated AAA Funds invest in AAA and above rated paper. Rated AA Funds invest in AA and above rated paper. Aggressive Funds Equity is mixed funds, which have an equity exposure of between 60 to 80 %, with the rest in debt. Balanced Funds have 40 to 60 % of the assets in equity and the rest in debt. Passive Equity has an equity exposure of between 10 to 20 % in equity and the rest in debt. Sector FMCG Funds limit their investments to companies engaged in the business of Fast Moving Consumer Goods and other similar businesses. Sector MNC Funds invest in multinationals and other similar companies.
Sector IT Funds invest in companies engaged in the business of Information Technology and other similar businesses. Sector New Technologies Funds invest in companies engaged in new and emerging technologies and other similar businesses. Sector Services Funds invest in companies engaged in the services sector Sector PSU’s invested in Public Sector Undertakings and other similar companies. Sector Infrastructure Funds invest in infrastructure and other similar companies. Sector Pharmaceuticals and Healthcare Funds invest in companies engaged in the pharmaceuticals and healthcare business and other similar businesses. Sector E-Commerce Funds invest in Internet, dotcom and e-commerce companies. Index-NSE 50 Funds are index funds that invest in NSE 50 companies. Index - BSE 30 Funds are index funds that invest in BSE 30 companies. Sector Petroleum Funds invest in petroleum companies. Sector Brand Funds, funds that invest in companies possessing strong brands. Sector Contra Funds invest in sectors that are out of favour in the market. Sector Consumer invest in companies that thrive on the Indian consuming masses and FMCG, Pharmaceuticals, Media and so on would fall under this category etc.
BY LIQUIDITY As the name suggests, this uses the parameter of time - how long will the funds be invested,
how
soon
can
you
redeem
them
and
so
on.
OPEN-ENDED FUNDS Such funds enable the investor to invest and redeem his money any time. Units are continuously offered for sale, and continuously bought back by the AMC’s. Moreover, the schemes under which they're sold are perpetual and do not have a fixed duration. Thus, if one wants his money to be readily accessible, this is the kind of mutual fund he should go for. CLOSE-ENDED FUNDS These are exactly opposite to open-ended funds. These schemes come with a fixed life. Unlike open-ended schemes, once the initial offer closes, there is no fresh sale of units. Normally, they do not offer repurchase and sale of repurchased units (though there are a few exceptions). However, as units of such funds are normally listed on one or more of the stock exchanges, one can always choose to liquidate his holdings from the exchange itself.
INTERVAL FUNDS These are a cross breed between open and close-ended schemes. Such funds offer resale and repurchase of units at fixed intervals. There's only one constraint - no sale or purchase of units takes place at any time other than the time fixed for this purpose. BY TRADING STRATEGY This category depends on the pace at which the funds trade their securities:
ACTIVE FUNDS These are funds that are constantly active in the market - buying and selling the securities in their portfolio very frequently. Such funds intend to take advantage of the cycles in the market, and the opportunities in individual securities. Technically, these funds are said to have a 'high portfolio turnover'. PASSIVE FUNDS These are the funds with low portfolio trading. They normally follow a buy and hold strategy and do not trade their holdings very frequently.
BALANCED FUNDS Balanced Funds are those that follow the middle path between the active and passive fund approaches. A better option for a conservative investor than the other two. BY INVESTMENT STRATEGY This category is based on the various processes by which funds examine, analyze and then invest the securities in their portfolios. Thus: GROWTH FUNDS Growth funds typically invest in well-established companies with strong earnings potential. Normally, such stocks have high price to earning ratios (P/E). VALUE FUNDS Value funds, on the other hand, invest in companies that have recently fallen out of favor but are expected to bounce back or simply put they pick stocks that are out of favor in the market believing that their prevailing market prices do not fully reflect their intrinsic worth.
VALUE CUM GROWTH follows a mix of the growth and value approaches. ASSET ALLOCATION FUNDS use asset allocation as a tool to maximize returns. Here, the fund manager attempts to earn returns by shifting between asset classes. In doing so, he can increase exposure to debt when equity markets are down and vice versa. Investments in this case are generally made in index heavy stocks. TRADING FUNDS are identified with high portfolio trading. Here, the fund specifically adopts an active trading strategy to generate returns. Since mutual funds do not have to pay any short -term capital gains tax, it makes sense for them to operate trading funds.
GROWTH CUM ASSET ALLOCATION goes in for a growth portfolio but re-allocate assets to align them with stated objectives. Here, unlike pure Asset Allocation Funds, the fund manager tends to lean towards growth stocks. INCOME FUNDS invest in instruments that yield high income. BY SECURITY SELECTION The type of security that the fund invests in is what determines this particular group: TOP DOWN FUNDS are those that select stocks using the top down approach, where the fund manager first identifies the sector in which he'd like to invest and then the potential scrips /stock within the sector. BOTTOMS UP FUNDS use the bottom up approach to investing, where the fund manager focuses on the scrips, irrespective of what sector they come under.
SMALL CAP FUNDS focus on small cap stocks for their investment portfolio. MID-CAP FUNDS invest in mid cap scrips. LARGE CAP FUNDS are those that invest in large cap scrips. AAA RATED FUNDS are those funds that invest only in triple A rated or higher rated securities. G SEC / GILT FUNDS invest in gilts or government securities (g-secs) COMBINATION FUNDS are those that use a mix of each of the above security selection strategies. GENERAL FUNDS are those funds that do not follow any specified security selection criteria
BY OBJECTIVE This is one of the easiest to follow. Here the funds are classified based on the objective that the investor has in mind while investing his money. Thus: GENERAL FUNDS do not have any specific objectives and are ideal for investors with no particular purpose in mind, apart from a good investment of course. CHILDREN’S FUNDS enable parents or relatives to invest with the specific purpose of generating money to meet anticipated expenses on their children in the future. Normally, such funds are meant to fund a child's education or marriage. In view of the medium to long-term nature of investments in such funds and the need for regular distributions to the investor, such funds follow an investment pattern that is different from that of an ordinary open-ended fund. Many such funds also carry a lock-in.
DEMATERIALIZED SHARES FUNDS invest in dematerialized shares only. TAX SAVING (ELSS) FUNDS operates in conformity with the guidelines issued for Equity Linked Savings Schemes. Such schemes offer investors a tax rebate under Section 80(C) of the Income Tax Act up to a maximum of Rs.100,000. However, ELSS funds also prescribe a three-year lock-in period during which the funds aren't accessible. These funds are also required to invest a minimum of 80 % of their corpus in equity and related securities. TAX SAVING (PENSION) enables unit holders to invest for their pension needs. Investments in such funds normally carry a tax benefit under Section 88. Normally, these funds also carry a lock-in period, which is determined according to the age of the investor.
TAX SAVING (Insurance Linked) offers a tax-saving option along with insurance benefits. ASSURED RETURN assures unit holders of a minimum return in a prescribed period. Normally, debt funds assure returns, however, there have been instances in India of assured return equity schemes as well. SHORT-TERM FUNDS invest with a short-term perspective. The Investment timeframe influences the security selection strategy of the fund. MEDIUM-TERM FUNDS invest with a medium term perspective. Here too, investment timeframe influences security selection. LONG-TERM FUNDS invest purely with a long-term perspective. BY LOAD CHARGED/COST These are based on whether a fee is charged or not for a particular transaction: LOAD FUNDS impose a charge on a transaction carried out by the investor. For example, when the fund sells units, it might charge an amount over and above the value of the units. Similarly, at the time of redemption, the fund may return a slightly smaller amount than the total value of the units. This charge imposed by the fund is called a "load". Thus, load funds are those that impose a charge either on entry into the fund or on exit from the fund, or in some cases both on entry and exit, within the limits as laid down by the regulatory authorities. NO-LOAD FUNDS do not charge any fee on the transactions carried out by an investor with the fund.
BY PLACE OF ORIGIN OFFSHORE
FUNDS
raise
money
abroad
to
be
invested
in
India.
DOMESTIC FUNDS raise and invest money in India. RISKS EMBEDDED IN MUTUAL FUNDS THE RISK RETURN TRADE-OFF The most important relationship to understand is the risk-return trade-off. Higher the risk greater the returns/loss and lower the risk lesser the returns/loss. Hence, it is up to the investor to decide how much risk he is willing to take. In order to do this one must first be aware of the different types of risks involved with his investment decision.
MARKET RISK Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting the market in general lead to this situation. This is true, may it be big corporations or smaller mid-sized companies. This is known as Market Risk. A Systematic Investment Plan (“SIP”) that works like a recurring deposit account might help mitigate this risk. CREDIT RISK The debt servicing ability (may it be interest payments or repayment of principal) of a company through its cash flows determines the Credit Risk faced by the investors. This credit risk is measured by independent rating agencies like CRISIL, ICRA who rate companies and their paper. An ‘AAA’ rating is considered the safest whereas a ‘D’ rating is considered poor credit quality. A well-diversified portfolio might help mitigate this risk.
INFLATION RISK Things one can often hear people talking about: “Rs.100 today is worth more than Rs.100 tomorrow.” “Remember the time when a bus ride used to cost 50 paise?” The root cause, Inflation. Inflation is the loss of purchasing power over time. A lot of times people make conservative investment decisions to protect their capital but end up with a sum of money that can buy less than what the principal could at the time of the investment. This happens when inflation grows faster than the return on one’s investment. A well-diversified portfolio with some investment in equities might help mitigate this risk. POLITICAL/GOVERNMENT POLICY RISK Changes in government policy and political decision especially with regard to the tax benefits may impact the business prospects of the companies leading to an impact on the investments made by the fund. They can create a favorable environment for investment or vice-versa. Therefore, stable monetary and fiscal policies are crucial to sustain a propitious investment environment.
LIQUIDITY RISK Liquidity risk arises when it becomes difficult to sell the securities that one has purchased. Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as internal risk controls that lean towards purchase of liquid securities.
DIVERSIFICATION The nuclear weapon in an investor’s arsenal to fight against Risk! Diversification is the idea of spreading out one’s money across many different types of investments. When one investment is down another might be up. It simply means that one must spread his investment across different securities (stocks, bonds, money market instruments, real estate, fixed deposits etc.) and different sectors (auto, textile, information technology etc.). Choosing to diversify investment holdings not only reduces the risk tremendously but also adds to the stability of returns. The most basic level of diversification is to buy multiple stocks rather than just one stock. Mutual funds are set up to buy many stocks (even hundreds or thousands). Mutual funds automatically diversify in a predetermined category of investments (i.e. - growth companies, low-grade corporate bonds, international small companies). For Example: during a given period of time equities might under perform but bonds and money market instruments might do well enough to offset the effect of a slump in the equity markets. Similarly, the information technology sector might be faring poorly but the auto and textile sectors might do well and may protect the principal investment as well as helps in achieving one’s return objectives.
REGULATORY ASPECTS OF MUTUAL FUNDS SEBI MUTUAL FUNDS REGULATIONS, 1996 The regulatory framework for Mutual Fund Schemes as given by the SEBI Regulations is as follows: PROCEDURE FOR LAUNCHING OF SCHEMES The asset management company shall launch no scheme unless the trustees approve such scheme and a copy of the offer document has been filed with the Board. Every mutual fund shall along with the offer document of each scheme pay filing fees. The offer document shall contain disclosures which are adequate in order to enable the investors to make informed investment decision including the disclosure on maximum investments proposed to be made by the scheme in the listed securities of the group companies of the sponsor. No one shall issue any form of application for units of a mutual fund unless the form is accompanied by the memorandum containing such information, as may be specified by the Board. DISCLOSURES IN THE OFFER DOCUMENT The offer document shall contain disclosures, which are adequate in order to enable the investors to make informed investment decision (including the disclosure on maximum investments proposed to be made by the scheme in the listed securities of the group companies of the sponsor). The Board may in the interest of investors require the asset management company to carry out such modifications in the offer document as it deems fit.
In case no modifications are suggested by the Board in the offer document within 21 [working] days from the date of filing, the asset management company may issue the offer document. No one shall issue any form of application for units of a mutual fund unless the form is accompanied by the memorandum containing such information as may be specified by the Board.
INVESTMENT OBJECTIVES AND VALUATION POLICIES The moneys collected under any scheme of a mutual fund shall be invested only in transferable securities in the money market or in the capital market or in privately placed debentures or securitized debts. Provided that moneys collected under any money market scheme of a mutual fund shall be invested only in money market instruments in accordance with directions issued by the Reserve Bank of India. The mutual fund shall not borrow except to meet temporary liquidity needs of the mutual funds for the purpose of repurchase, redemption of units or payment of interest or dividend to the unit holders. The mutual fund shall not advance any loans for any purpose. Every mutual fund shall compute and carry out valuation of its investments in its portfolio and publish the same in accordance with the valuation norms specified in Eighth Schedule
Every mutual fund shall compute the Net Asset Value of each scheme by dividing the net assets of the scheme by the number of units outstanding on the valuation date. The Net Asset Value of the scheme shall be calculated and published at least in two daily newspapers at intervals of not exceeding one week: The price at which the units may be subscribed or sold and
the price at which such units
may at any time be repurchased by the mutual fund shall be made available to the investors. 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. Transfers of investments from one scheme to another scheme in the same mutual fund shall be allowed only if, 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 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 or engage in badla finance. 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. Pending deployment of funds of a scheme in securities in terms of investment objectives of the scheme a mutual fund can invest the funds of the scheme in short term deposits of scheduled commercial banks. 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
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) No mutual fund scheme shall invest more than 10% 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 open-ended scheme and 10% of its NAV in case of close-ended scheme. PRICING OF UNITS Although NAV per unit defines the value of the investor’s holding in the fund, the fund may not repurchase the investor’s units at the same price as NAV. However, SEBI requires that the fund must ensure that repurchase price is not lower than 93% of NAV (95% in the case of a closed-end fund). On the other side, a fund may sell new units at a price that is different from the NAV, but the sale price cannot be higher than 107% of NAV. Also, the difference between the repurchase price and the sale price of the unit is not permitted to exceed 7% of the sale price. ADVERTISEMENT MATERIAL The advertisement for each scheme shall disclose investment objective for each scheme. An advertisement shall be truthful, fair and clear and shall not contain a statement, promise or forecast which is untrue or misleading. Advertisements shall not be so framed as to exploit the lack of experience or knowledge of the investors.
All advertisements issued by a mutual fund or its sponsor or Asset Management Company shall state, "all investments in mutual funds and securities are subject to market risks and the NAV of the schemes may go up or down depending upon the factors and forces affecting the securities market". The advertisement shall not compare one fund with another, implicitly or explicitly, unless the comparison is fair and all information relevant to the comparison is included in the advertisement.
MISLEADING STATEMENTS The offer document and advertisement materials shall not be misleading or contain any statement or opinion, which are incorrect or false. LISTING OF CLOSE-ENDED SCHEMES Every close-ended scheme shall be listed in a recognized stock exchange within six months from the closure of the subscription. Provided that listing of close-ended scheme shall not be mandatory – if the said scheme provides for periodic repurchase facility to all the unit holders with restriction, if any, on the extent of such repurchase; or if the said scheme provides for monthly income or caters to special classes of persons like senior citizens, women, children, widows or physically handicapped or any special class of persons providing for repurchase of units at regular intervals; or if the details of such repurchase facility are clearly disclosed in the offer document; or if the said scheme opens for repurchase within a period of six months from the closure of subscription. REPURCHASE OF CLOSE-ENDED SCHEMES The asset management company may at its option repurchase or reissue the repurchased units of a close-ended scheme.
The units of close-ended schemes referred to in the provision to regulation 32 may be open for sale or redemption at fixed pre-determined intervals if the maximum and minimum amount of sale or redemption of the units and the periodicity of such sale or redemption have been disclosed in the offer document. The units of close-ended scheme may be converted into open- ended schemeif the offer document of such scheme discloses the option and the period of such conversion; or the unit-holders are provided with an option to redeem their units in full. A close-ended scheme shall be fully redeemed at the end of the maturity period. (Provided that a close-ended scheme may be allowed to be rolled over if the purpose, period and other terms of the roll over and all other material details of the scheme including the likely composition of assets immediately before the roll over, the net assets and net asset value of the scheme, are disclosed to the unit holders and a copy of the same has been filed with the Board. Provided further.) OFFERING PERIOD Regulation34 No scheme of a mutual fund other than the (initial) offering period of any equity linked savings schemes shall be open for subscription for more than 45 days. ALLOTMENT OF UNITS AND REFUNDS OF MONEYS Regulation35 (1) The asset management company shall specify in the offer document: the minimum subscription amount it seeks to raise under the scheme; and in case of over subscription the extent of subscription it may retain. Provided that where the asset management company retains the over subscription referred to in clause (b), all the applicants applying up to five thousand units shall be given full allotment subject to the over subscription mentioned in clause (b). (2) The mutual fund and asset management company shall be liable to refund the application money to the applicants: -
If the mutual fund fails to receive the minimum subscription amount referred to in clause (a) of sub-regulation (1); if the moneys received from the applicants for units are in excess of subscription as referred to in clause (b) of sub-regulation (1). (3) Any amount refundable under sub-regulation (2) shall be refunded within a period of six weeks from the date of closure of subscription list, by Registered A.D and by cheque or demand draft marked "A/C Payee" to the applicants. In the event of failure to refund the amounts within the period specified in sub-regulation (3), the asset management company shall be liable to pay interest to the applicants at a rate of fifteen percent per annum on the expiry of six weeks from the date of closure of the subscription list. UNIT CERTIFICATES OR STATEMENT OF ACCOUNTS The asset management company shall issue to the applicant whose application has been accepted, unit certificates or a statement of accounts specifying the number of units allotted to the applicant as soon as possible but not later than six weeks from the date of closure of the initial subscription list and or from the date of receipt of the request from the unit holders in any open-ended scheme. TRANSFER OF UNITS A unit certificate unless otherwise restricted or prohibited under the scheme, shall be freely transferable by act of parties or by operation of law. The asset management company shall, on production of instrument of transfer together with relevant unit certificates, register the transfer and return the unit certificate to the transferee within thirty days from the date of such production. GUARANTEED RETURNS Regulation38 No guaranteed return shall be provided in a schemeunless such returns are fully guaranteed by the sponsor or the asset management company; unless a statement indicating the name of the person who will guarantee the return, is made in the offer document;
the manner in which the guarantee to be met has been stated in the offer document. WINDING UP Regulation39 (1) A close-ended scheme shall be wound up on the expiry of duration fixed in the scheme on the redemption of the units unless it is rolled-over for a further period under sub-regulation (4) of regulation 33. (2) A scheme of a mutual fund may be wound up, after repaying the amount due to the unitholders on the happening of any event which, in the opinion of the trustees, requires the scheme to be wound up; or if seventy five per cent of the unit holders of a scheme pass a resolution that the scheme be wound up; or if the Board so directs in the interest of the unit-holders. (3) Where a scheme is to be wound up under sub-regulation (2), the trustees shall give notice disclosing the circumstances leading to the winding up of the scheme: (a) to the Board; and (b) in two daily newspapers having circulation all over India, a vernacular newspaper circulating at the place where the mutual fund is formed. EFFECT OF WINDING UP Regulation40 On and from the date of the publication of notice under clause (b) of sub-regulation (3) of regulation 39, the trustee or the asset management company as the case may be, shallcease to carry on any business activities in respect of the scheme so wound up; cease to create or cancel units in the scheme; cease to issue or redeem units in the scheme. PROCEDURE AND MANNER OF WINDING UP Regulation41 (1) The trustee shall call a meeting of the unit holders to approve by simple majority of the unit holders present and voting at the meeting, resolution for authorizing the trustees or any other person to take steps for winding up of the scheme.
Provided that a meeting of the unit holders shall not be necessary if the scheme is wound up at the end of maturity period of the scheme. (2) (a) The trustee or the person authorized under sub-regulation (1) shall dispose of the assets of the scheme concerned in the best interest of the unit holders of that scheme. (b) The proceeds of sale realized under clause (a), shall be first utilized towards discharge of such liabilities as are due and payable under the scheme and after making appropriate provision for meeting the expenses connected with such winding up, the balance shall be paid to the unit holders in proportion to their respective interest in the assets of the scheme as on the date when the decision for winding up was taken. (3) On the completion of the winding up, the trustee shall forward to the Board and the unit holders a report on the winding up containing particulars such as circumstances leading to the winding up, the steps taken for disposal of assets of the fund before winding up, expenses of the fund for winding up, net assets available for distribution to the unit holders and a certificate from the auditors of the fund. WINDING UP OF THE SCHEME Regulation42 After the receipt of the report under sub-regulation (3) of Regulation 41, if the Board is satisfied that all measures for winding up of the scheme have been complied with, the scheme shall cease to exist.
INDIAN MUTUAL FUND INDUSTRY – RECENT TIMES The Indian Mutual fund industry has witnessed a sea change in the way it operates, in the regulatory and investor attitude towards Mutual fund products. From a single player the number of players has increased to 30 and the number of schemes has swelled to 640. The total assets under management have risen to Rs 326,329 crores from Rs 231,045 Crores in March 2006. Reliance claimed to be the leader with the largest AUM of Rs 46307 Crores as of March 2007. Following was ICICI Prudential and UTI Mutual Fund with AUM of Rs.37870 Crores and Rs.35488 Crores respectively. Standard Chartered Mutual Fund had asset under management of Rs 11549 Crores. (Sources: AMFI) Fixed maturity plans (FMP s) have been a popular in the past six months, may be due to the rising interest rate scenario. While it boosts an AMC’s assets, it is not very profitable proposition as these products earn management fees in the range of 0.04-0.07% per annum. The percentage of FMP of the total industry corpus has also increased as compared to previous years. According to a study AUM as a percentage of GDP in the developed nations ranges from 30%-60% of GDP, whereas it is only 8% of GDP in India. However, the emergence of India as a major investment destination is good for the mutual fund industry as it is witnessing entry of big names like JP Morgan, UBS, Aegon and AIG augurs well for the industry as not only these global investment management firms bring with them the expertise gained internationally but also bring the best international practices in terms of performances and investor services which will benefit the industry in catching up with the developed countries.
OBJECTIVE OF THE STUDY
OBJECTIVE OF THE STUDY This project has been taken for Religare stock broking limited. The objective of the study is to know the role and performance of mutual funds & also help in determining the preference of investors while investing in various types of mutual fund schemes. The company has established a strong investor’s base in Dehradun so the key findings of the project will help the company to understand their investors better, their needs, and expectations of the investors from a broker and the potential of mutual funds scheme in Dehradun. Many individuals find investments to be fascinating because they can participate in the decision making process and see the results of their choices. Not all investments will be profitable, as investor wills not always make the correct investment decisions over the period of years; however, one should earn a positive return on a diversified portfolio. In addition, there is a delight from the major success. Investing is not a game but a serious subject that can have a major impact on investor's future well being. Virtually everyone makes investments. Even if the individual does not select specific assets such as stock, mutual funds, investments are still made through participation in pension plan, and employee saving programmed or through purchase of life insurance or a home. Each of this investment has common characteristics such as potential return and the risk you must bear. The future is uncertain, and one must determine how much risk you are willing to bear since higher return is associated with accepting more risk. The individual should start by specifying investment goals and would like to have true value of his wealth. Once these goals are established, the individual should be aware of the mechanics of investing and the environment in which investment decisions are made. These include the process by which securities are issued and subsequently bought and sold, the regulations and tax laws that have been enacted by various levels of government, and the sources of information concerning investment that are available to the individual. This study is sighted in order to understand and analyze the preference of investors while investing in various types of mutual funds scheme and to study the investment pattern of
the individuals by implementing information sharing from the prospective clients and the employees of the organization. A Closer look at different investment instruments sharply reminds that investment needs may vary from time to time. And there is a chance that one can fulfill all his needs by investing in a single instrument only. This study aims at analyzing the preference of while investing in various types of mutual funds scheme as to show the relative strength of the investors willing to invest in 100% Equity funds, balanced funds, debt funds and Unit linked Insurance Plans {ULIPS}. The need of investment might be derived out of increasing household expense, true value of wealth, increasing cost of living, and financial needs according to life stages and due to regular income. Most of the investors invest in mutual funds for specifically financial reasons such as risk adjusted returns, tax planning aspects, higher rate of returns, to achieve their financial goals, and to have potential benefits of diversification. Therefore this study identifies the needs and analyzes their nature in order to determine the factors affecting the preference of investors towards different routes to enter the equity market. Customer responses in this regard shall prove fruitful in suggesting some vital points to the organization.
REVIEW OF LITERATURE
REVIEW OF LITERATURE “The Art and Science of Mutual Fund Selection." Journal of Financial Planning 17, 1 (January 2007) and many other studies have been found. From those studies we can conclude that the performance and the absolute performance of the mutual funds play an important role in choosing mutual fund where as the factors which is considered important by the financial advisors and they recommend important are not considered that much. “Performance of Mutual Funds in India: An Empirical Study” The Icfai Journal of Applied Finance, Vol 13 No.9, Pp. 5-16, September 2007. While the global mutual fund industry continues to grow by leaps and bounds, the research on mutual funds has been confined to only a few developed markets, with USA always getting a special attention. Although emerging markets such as India have attracted the attention of investors all over the world, they have remained devoid of much systematic research, especially in the area of mutual funds. In an effort to plug this gap, the present study sought to check the performance of mutual funds operation in India. In this regard, quarterly returns performance of all the equity-diversified mutual funds during the period from January 2002 to December 2006 was tested. Analysis was carried out with the help of Capital Asset Pricing Model (CAPM) and Fama-French Model. Amidst contrasting findings from the application of the two models, the study calls for further research and insights into the interplay between the performance determinant factor portfolios and their effect on mutual fund returns. “MUTUAL FUND: A RESOURCE MOBILIZER IN FINANCIAL MARKET By: P. Hanumantha Rao*, Vijay Kr. Mishra**”
The success story of any economy can only be scripted on the basis of sound financial system of the country. Economic reform process of 1991 had a great impact on the financial system of the country leading to the overall development of the Indian economy. Today, India’s financial system is considered to be sound and stable as compared to many other Asian countries where the financial market is facing many
crises. During last one decade or so, role of Indian mutual funds industry as a significant financial service in financial market has really been noteworthy. In fact, Mutual funds have emerged as an important segment of financial market of India, especially as a result of the initiatives taken by the Govt. of India for resolving problems relating to UTI’s US64 and to liberalize tax liabilities on the incomes earned by the mutual funds. They now play a very significant role in channelizing the saving of millions of individuals into the investment in equity and debt instruments. This paper aims at making a critical study of the role performed by mutual funds as a financial service in Indian financial market. “Global Business and Economics Review 2006 - Vol. 8, No.3/4 pp. 280 - 289” The Indian mutual fund industry is one of the fastest growing sectors in the Indian capital and financial markets. The mutual fund industry in India has seen dramatic improvements in quantity as well as quality of product and service offerings in recent years. Mutual funds assets under management grew by 96% between the end of 1997 and June 2003 and as a result it rose from 8% of GDP to 15%. The industry has grown in size and manages total assets of more than $30351 million. Of the various sectors, the private sector accounts for nearly 91% of the resources mobilised showing their overwhelming dominance in the market. Individuals constitute 98.04% of the total number of investors and contribute US $12062 million, which is 55.16% of the net assets under management. “Mutual Fund In India: A Financial Service In Capital Market by NALINI PRAVA TRIPATHY” The Indian capital market has been increasing tremendously during last few years. With the reforms of economy, reforms of industrial policy, reforms of public sector and reforms of financial sector, the economy has been opened up and many developments have been taking place in the Indian money market and capital market. In order to help the small investors, mutual fund industry has come to occupy an important place. The main objective of this paper is to examine the importance and growth of mutual funds and evaluate the operations of mutual funds and suggest some measures to make it a successful scheme in India.
“Investors' Preference for Investment in Mutual Funds: An Empirical Evidence”, The ICFAI Journal of Behavioral Finance, Vol. 3, No. 1, pp. 7-17, March 2006 by jaspal rana and shubhash chander,
Since interest rates on investments like PPF, NSC, bank deposits, etc., are falling, the question to be answered is: What investment alternative should a small investor adopt? Direct investment in capital market is an expensive proposal, and keeping money in saving schemes is not advisable. One of the alternatives is to invest in capital markets through mutual funds. This helps the investor avoid the risks involved in direct investment. Considering the state of mind of the general investor, this article figures out: (i) the preference attached to different investment avenues by the investors; (ii) the preference of Mutual Funds schemes over others for investment; (iii) the source from which the investor gets information about Mutual Funds; and (iv) the experience with regard to returns from mutual funds. The results show that the investors consider gold to be the most preferred form of investment, followed by NSC and Post Office schemes. Hence, the basic psyche of an Indian investor, who still prefers to keep his savings in the form of yellow metal, is indicated. Investors belonging to the salaried category, and in the age group of 20-35, years showed inclination towards close-ended growth (equityoriented) schemes over the other scheme types. A majority of the investors based their investment decision on the advice of brokers, professionals and financial advisors. The findings also reveals the varied experiences of respondents regarding the returns received from investments made in mutual funds. “Bargain Hunting or Star Gazing? Investors' Preferences for Stock Mutual Funds” Journal of Business, 2003, vol. 76, issue 4, pages 645-664
Investors who wish to purchase shares in mutual funds balance many types of information, from a variety of sources, when making their fund selection. This research examines how investors choose a mutual fund within a given class of funds. Among the major findings are that investors pay a great deal of attention to past performance and vastly overweight loads relative to expense ratios when evaluating a fund's overall fee structure.
RESEARCH METHODOLOGY
RESEARCH METHODOLOGY A very semantic methodology is proposed for the project which shall cover the aspects of primary and secondary data analysis. The research work being done here is exploratory in nature hence more of a field work is demanded. The key features of the methodology are:Primary Data Sources: One-to one interaction with at least 250 people is sought to get their purview on the various question being asked to them.
Secondary Data Sources: To keep pace with the existing manta I seek to consult various existing data also in the related areas so that a comparative study is formulated. The sources to be used include books, journals, researches, internet and even academicians in the related areas. After the data has been collected in a time span of 30 days another 15 days shall be utilized in thoroughly analyzing and categorizing the data. For this purpose the use of SPSS software is recommended which shall provide me a design tool or statistic as desired for my study.
DATA ANALYSIS AND FINDINGS
DATA ANALYSIS AND FINDINGS Questionwise analysis: How many times have you invested in the mutual funds?
investor's profile
17%
1-5 times
10% 12%
5-10 times 61%
>10 times on regular basis
From the survey, we can say more people invest for 1-5 times than investment on the regular basis. How do you choose your mutual funds?
way of choosing
9%
18%
12%
SuggestionFundM anager Self Chosen Suggestion by a friend others
61%
From the survey, we come to the conclusion than people choose than their funds themselves. Q4. Where do you invest in mutual funds?
on the basis of objective equidity/growth funds sector funds 9%
11%
3%
23%
debt/income funds gilt funds
14%
11% 15%
6% 8%
diversified funds index funds liquid/money market funds hedge funds
More number of respondents of the survey preferred equity fundsothers than any other.
(b) On the basis of Flexibility
ON THE BASIS OF LIQUIDITY
50 45 40 35 30 25 20 15 10 5 0 open-ended funds
close-ended funds
interval funds
On the basis of liquidity, we see that the open-ended funds are more popular. The above figure shows that open-ended funds are having almost 40% share of the market. Also interval funds are gaining popularity in the present world. Q5. What is the expected return from your investment?
expectation of the investors
46% 5-10% 11-15% 16-20% 19%
32%
>20%
3%
From the survey, we can say that more respondents expects 16% to 20% returns
The distribution of respondents on the basis of age
expectation of the investors
46% 5-10% 11-15% 16-20% 19%
32%
>20%
3%
The survey reveals that the younger people invest more in mutual funds and so we can conclude that the market of mutual funds is growing at a growing pace.
On the basis of gender, the distribution of the respondents
Gender distribution
Female 37% Male 63%
More number of male respondents are being taken. We can also conclude that male invest more in mutual funds.
Distribution of respondents on the basis of Occupation
OCCUPATION WISE DISTRIBUTION
56% Business Salaried others 33% 11%
More number of salaried people was there in the survey.
Distribution of the respondents on the basis of income
INCOME DISTRIBUTION
35%
< 10,000 10000-20000 20000-30000
35%
12% 18%
>30000
35% of the respondents come in the income level of Rs 20000 to Rs 30000
LIMITATION OF THE STUDY
LIMITATIONS OF THE STUDY The main limitations of the study are: •
The numbers of respondents are limited.
•
As the sample size is less so the responses can be biased.
•
Results may vary from person to person as perception of each individual is different from one another.
•
Sometimes information provided by respondents may be unavailable due to personal problems.
•
Information provided by respondents may be inaccurate.
•
The research had to be completed within a small span of time. This has limited the researcher from choosing a satisfactory number of samples.
RECOMMENDATIONS
RECOMMENDATIONS Mutual funds are gaining popularity in investment options. But there are too many options available and the investors often get confused with the requirement and the type of mutual funds that they buy. Also there are mutual funds for almost every kind of investors. From this survey it is found that people place more importance on the performance. So the companies must take into account this factor and try and communicate well the performance that is achieved. The performance is the main criteria for the investors apart from all other factors that exist for the evaluation of mutual funds so the companies should consider the performance as the main criteria to attract people to invest more and this can be done by increasing promotional methods and providing awareness among the people.
CONCLUSION
CONCLUSION
It is to conclude that my objective of the study of project is to know the role and performance of mutual funds and to know the preference of investors investing in different schemes of mutual funds. From the study it is concluded that there are different kinds of investors i.e. the young age investors prefer the aggressive funds which has high risk and high returns but the old age investors usually prefer safe investment so they invests in debt schemes in which there is low risk and low return, so I can say that the preferences of investors differs according to their age. From this study I also came to know the now most of the people are aware about the mutual funds and they show their interest in investing through mutual funds with the option of SIP. At last according to the analysis it is concluded that people invest in mutual funds by seeing its performance as they consider performance as the main criteria.
BIBLIOGRAPHY
BIBLIOGRAPHY
1. “Growth, performance and prospects of mutual funds in India” Jaspal Singh; Finance India, Delhi: Dec 2004, vol 18. 2. “Investors perception of Mutual Funds”,
N.A Gilkar,
The Business
Review, Vol 9, No. 1, Sep 2002. 3. “Mutual Fund Purchase Practices” An Analysis of Survey Results Prepared by Barbara Roper and Stephen Brobeck 4. Opiela, Nancy. 2004. "The Art and Science of Mutual Fund Selection." Journal of Financial Planning 17, 1 (January 2004). 5. "Financial Advisors and Mutual Fund Selection”by Michael A. Jones; Vance P. Lesseig; and Thomas I. Smythe, Ph.D. (www.fpanet.org). 6. “Performance of Mutual Funds in India: An Empirical Study” The Icfai Journal of Applied Finance, Vol 13 No.9, Pp. 5-16, September 2007. 7. “MUTUAL FUND: A RESOURCE MOBILIZER IN FINANCIAL MARKET By: P. Hanumantha Rao, Vijay Kr. Mishra”
8. “Investors' Preference for Investment in Mutual Funds: An Empirical Evidence”, The ICFAI Journal of Behavioral Finance, Vol. 3, No. 1, pp. 7-17, March 2006 by jaspal rana and shubhash chander,
9. “Bargain Hunting or Star Gazing? Investors' Preferences for Stock Mutual Funds” Journal of Business, 2003, vol. 76, issue 4, pages 645-664
10. “Global Business and Economics Review 2006 - Vol. 8, No.3/4 pp. 280 - 289”
REFERENCES
REFERENCES
www.google.co.in www.mutualfundsindia.com www.investopedia.com www.myiris.com www.religare.in
QUESTIONAIRE
QUESTIONAIRE The role and performance of mutual funds and the preference of investors while investing in various types of mutual funds scheme Dear Respondents, This questionnaire has been designed to know about the “Choice criteria of mutual funds”. There is no other reason for the preparation of the same, assuring you that this information will be used only for academic (project) purpose. General Information: Q1. Have you ever invested in mutual funds? (a) Yes.
(b) No.
Q2. How many times have you invested in the mutual funds? 1-5 times
5-10 times
More than 10 times
on regular basis
Q3. How do you choose your mutual funds? Suggestion given by the fund manager Self chosen Suggestion by a friend Any other, please specify_______________________ Q4. Where do you invest in mutual funds? a)
On
the
basis
of
Objective
Equity Funds/Growth Funds
Diversified funds
Sector funds
Index funds
Debt / Income Funds
Liquid Funds/Money Market Funds
Gilt Funds
Hedge Funds
Others, please specify_____________________________________
(b) On the basis of Flexibility Open-ended Funds
Close-ended Funds
Interval funds. Q5. What is the expected return from your investment? ( in percemtages) 0-5
6-15
16-20
20 and more
Q6. Rate the factor, according to their importance, that you consider while investing in mutual funds? (5-very important, 1- not at all important) Tax efficiency …………………………………………… Risk involved……………………………………………….. Liquidity……………………………………………………….. Reputation of the fund manager…………………………….. Safety………………………….……………………………. Rating given by the different agencies …………………….. Behavior of the representative……………………………… Fund Age…………………………………………………… Number of funds in the fund family………………………… Service provided by the fund company…………………….. Performance relative to other mutual funds ………………. Reputation of the Asset management Company…………… Where the money is being invested………………………… Collateral Security………………………………………….. Flexibility in investment……………………………………. Effective Advertisement……………………………………. Returns given ………………………………………………. Fund Objective……………………………………………… Suggestion given by the fund manager …………………….. Higher returns compared to banks ………………………….
Influence by other investors ………………………………... Suggestion given by friends ………………………………... No hassle of keeping market updates ..…………………….. Personal Information : Name
–
Age
–
Gender
–
Occupation
8 - 25yrs.
25 – 35yrs.
35- 45yrs.
45 – above
Male –
Female Business
Salaried
Government
Other (specify)_______
Income: Less than 10,000
10,000-20,000.
20,000-30,000
more than 30,000.