awareness & perception about sbi mutual fund.docx

7/26/2019 Awareness & Perception about SBI Mutual Fund.docx

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A Project Report

on

Awareness & Perception about SBI Mutual Fund

SBI

UNDER TE !UIDAN"E #FMr$ !ajendra !upta

% Facult !uide'

Sub(itted B)

RA*+AP##R +US,AA

Roll No$ -./01-/-/2/

IN PARTIA3 FU3FI33MENT F#R TE A,ARD #F DE!REE

#4

BACHELOR OF BUSINESS ADMINISTRATION

In

FINANCE

% 5/-675/-1'

SUR8A "#33E!E #F BUSINESS MANA!EMENT!aura9 Mo:anlal !anj9 Raibarell Road9 3uc;now9 Uttar Prades: 5502/6


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DE"3ARATI#N

I m Raj;apoor +Us:wa:a9 Roll no$ -./01-/-/2/9 a student o4 BBA From Surya College of

Business Management, Lucknow hereby declares that I have successfully completed project

report on Awareness & Perception about SBI Mutual Fund < SBI9 I herey declare that all

the information provided in this project report are true to the fullest of my knowledge and it ear

no resemlance to any other written material whatsoever! In the event of any information

provided in this report eing found incorrect or misleading, I shall e liale to any outcome at

any at any given day!

Place) 3U"+N#,

Date) RA*+AP##R +US,AA

Roll No -./01-/-/2/


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A"+N#,3ED!EMENT

"roject #eport is the most vital part of an BB$ course, I therefore, consider myselffortunate to receive this #esearch report yet the opportunity could not have een

utili%ed without the guidance and support of many individuals who although held

varied positions, ut were e&ually instrumental for successful completion of my

research report!

I would like to e'press gratitude to the respected MR$ !A*ENDRA !UPTA

Facult !uideSCBM for their valuale inputs and direction that rendered success

to the project!

I owe a deep intellectual det to all of them who through their rich (varied

contriution have greatly improved my understanding of various concepts of my

report!

#$)*$"++# *S-.$-$


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PREFA"E

/he Indian capital market has een increasing tremendously during last few

years! .ith the reforms of economy, reforms of industrial policy, reforms of

pulic sector and reforms of financial sector, the economy has een opened up

and many developments have een taking place in the Indian money (ar;etand

capital(ar;et! /he Sense' first crossed 0,111 on 2eruary 33, 4111, fuelled y

the I/ oom, ut closed elow that mark! +n 5ovemer 46, 4117, it closed

aove 0,111 for the first time! In order to help the small investors, SBI Mutual

Fund industry has come to occupy an important place! /he spread of theanking system has een a major factor in promoting financial intermediation in

the economy and in the growth of financial savings! .ith progressive

lierali%ation of economic policies, there has een a rapid growth of capital

(ar;et, money (ar;et and financial services industry including merchant

anking, leasing and venture capital! Consistent with this evolution of the

financial sector, the SBI Mutual Fund industry has also come to occupy an

important place!

In the 284110 capital market has een riding on a roller coaster! In the month of

$pril this year the ullish run in the stock market has pushed the Sense' up

aove the 34111 mark! +n the 31thday of ne't month the Sense' touched it9s

est ever closing level of 34034! -owever, the slide started soon after it and the

Sense' fall from peak to trough in May with 4437 points!

/his project, titled, =Awareness & Perception about SBI Mutual Fund >

e'amines the effect these changes in stock markets are having on the SBI Mutual

2unds, and to evaluate the performance of some SBI Mutual 2und schemes and


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to suggest what should e done to avoid any negative effects the market is

having on the SBI Mutual 2unds and the investors! In this project we will also

e'amine the role of distriutors in influencing investor9s decisions!


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/$BL: +2 C+5/:5/S

3! Introduction ;4! /ransformation )ourney In State Bank +f India thcentury! .hen the

Ban" o' Ca)c#!!a, later renamed theBan" o' Bena), was estalished on +,#ne

-.0/*/he government amalgamated namely theBan" o' BoBBAylei corporate on- A(ri) -.1. and the Bank of Madras +2 ,an -9+- and named the recogni%ed

anking entity theIm(eria) Ban" o' In$ia*

Ti(e line

*une9 5 -?/1 < t:eBan" o' Ca)c#!!aestalished*

TRANSF#RMATI#N *#URNE8 IN STATE BAN+ #F INDIA

/he State Bank of India, the country9s oldest Bank and a premier in terms of

alance sheet si%e, numer of ranches, market capitali%ation and profits is today


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going through a momentous phase of Change and /ransformation D the two

hundred year old "ulic sector ehemoth is today stirring out of its "ulic Sector

legacy and moving with an agility to give the "rivate and 2oreign Banks a run for

their money!

/he ank is entering into many new usinesses with strategic tie ups D "ension

2unds, eneral Insurance, Custodial Services, "rivate :&uity, Moile Banking,

"oint of Sale Merchant $c&uisition, $dvisory Services, structured products etc D

each one of these initiatives having a huge potential for growth!

/he Bank is forging ahead with cutting edge technology and innovative new

anking models, to e'pand its #ural Banking ase, looking at the vast untapped

potential in the hinterland and proposes to cover 311,111 villages in the ne't two

years!

It is also focusing at the top end of the market, on whole sale anking capailities

to provide India9s growing mid E large Corporate with a complete array of products

and services! It is consolidating its gloal treasury operations and entering into

structured products and derivative instruments! /oday, the Bank is the largest

provider of infrastructure det and the largest arranger of e'ternal commercial

orrowings in the country! It is the only Indian ank to feature in the 2ortune =11

list!

/he Bank is changing outdated front and ack end processes to modern customer

friendly processes to help improve the total customer e'perience! .ith aout


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customer! /he Bank is also in the process of providing complete payment solution

to its clientele with its over 43111 $/Ms, and other electronic channels such as

Internet anking, deit cards, moile anking, etc!

.ith four national level $pe' /raining Colleges and =7 learning Centers spread all

over the country the Bank is continuously engaged in skill enhancement of its

employees! Some of the training programs are attended y ankers from anks in

other countries!

/he ank is also looking at opportunities to grow in si%e in India as well as

internationally! It presently has


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/he C55 IB5, 5etwork 3< recogni%ed this momentous transformation journey,

the State Bank of India is undertaking, and has awarded the prestigious Indian of

the 8ear D Business, to its Chairman, Mr! +! "! Bhatt in )anuary 411

/he elephant has indeed started to dance!

E@#3UTI#N #F SBI

/he origin of the S!a!e Ban" o' In$ia goes ack to the first decade of the

nineteenth century with the estalishment of the Bank of Calcutta in Calcutta on

4 )une 3


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Ban; o4 Benal $#$

Establis:(ent o4 SBI

/he estalishment of the Bank of Bengal marked the advent of limited liaility,

jointFstock anking in India! So was the associated innovation in anking, vi%! the

decision to allow the Bank of Bengal to issue notes, which would e accepted for

payment of pulic revenues within a restricted geographical area! /his right of

note issue was very valuale not only for the Bank of Bengal ut also its two

silings, the Banks of BoBB$y and Madras! It meant an accretion to the capital

of the anks, a capital on which the proprietors did not have to pay any interest!

/he concept of deposit anking was also an innovation ecause the practice of

accepting money for safekeeping @and in some cases, even investment on ehalf

of the clients y the indigenous ankers had not spread as a general hait in most

parts of India! But, for a long time, and especially upto the time that the three

presidency anks had a right of note issue, ank notes and government alances

made up the ulk of the investile resources of the anks!

/he three anks were governed y royal charters, which were revised from time

to time! :ach charter provided for a share capital, fourFfifth of which were

privately suscried and the rest owned y the provincial government! /he

memers of the oard of directors, which managed the affairs of each ank, were

mostly proprietary directors representing the large :uropean managing agency


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houses in India! /he rest were government nominees, invarialy civil servants,

one of whom was elected as the president of the oard!

!roup P:otorap: o4 "entral Board %-5-'

Business

/he usiness of the anks was initially confined to discounting of ills of

e'change or other negotiale private securities, keeping cash accounts and

receiving deposits and issuing and circulating cash notes! Loans were restricted to

#s! one lakh and the period of accommodation confined to three months only!

/he security for such loans was pulic securities, commonly called CompanyGs"aper, ullion, treasure, plate, jewels, or goods Gnot of a perishale natureG and no

interest could e charged eyond a rate of twelve per cent! Loans against goods

like opium, indigo, salt woolens, cotton, cotton piece goods, mule twist and silk

goods were also granted ut such finance y way of cash credits gained

momentum only from the third decade of the nineteenth century! $ll

commodities, including tea, sugar and jute, which egan to e financed later,

were either pledged or hypothecated to the ank! ?emand promissory notes were

signed y the orrower in favour of the guarantor, which was in turn endorsed to

the ank! Lending against shares of the anks or on the mortgage of houses, land

or other real property was, however, foridden!


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Indians were the principal orrowers against deposit of CompanyGs paper, while

the usiness of discounts on private as well as salary ills was almost the

e'clusive monopoly of individuals :uropeans and their partnership firms! But the

main function of the three anks, as far as the government was concerned, was to

help the latter raise loans from time to time and also provide a degree of staility

to the prices of government securities!

#ld Ban; o4 Benal

Major c:ane in t:e conditions

$ major change in the conditions of operation of the Banks of Bengal, BoBB$y

and Madras occurred after 3


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ranches @e'cept the sole attempt and that too a shortFlived one y the Bank of

Bengal at Mir%apore in 3 although the charters had given them such

authority! But as soon as the three presidency ands were assured of the free use

of government /reasury alances at places where they would open ranches, they

eBB$rked on ranch e'pansion at a rapid pace! By 3


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/reasuries ut the latter could look upon them more as a favour than as a right!

Ban; o4 Madras

/he decision of the overnment to keep the surplus alances in #eserve

/reasuries outside the normal control of the presidency anks and the connected

decision not to guarantee minimum government alances at new places where

ranches were to e opened effectively checked the growth of new ranches after

3


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engaged in the financing of large modern manufacturing industries, the Bank of

Madras went into the financing of large modern manufacturing industriesH the

Bank of Madras went into the financing of smallFscale industries in a way which

had no parallel elsewhere! But the three anks were rigorously e'cluded from any

usiness involving foreign e'change! 5ot only was such usiness considered

risky for these anks, which held government deposits, it was also feared that

these anks enjoying government patronage would offer unfair competition to the

e'change anks which had y then arrived in India! /his e'clusion continued till

the creation of the #eserve Bank of India in 3>6=!

Ban; o4 BoBBA

Presidenc Ban;s o4 Benal

/he presidency Banks of Bengal, BoBB$y and Madras with their ;1 ranches

were merged in 3>43 to form the Imperial Bank of India! /he triad had een

transformed into a monolith and a giant among Indian commercial anks had

emerged! /he new ank took on the triple role of a commercial ank, a ankerGs

ank and a anker to the government! But this creation was preceded y years of

delierations on the need for a GState Bank of IndiaG! .hat eventually emerged

was a GhalfFway houseG comining the functions of a commercial ank and a

&uasiFcentral ank!


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/he estalishment of the #eserve Bank of India as the central ank of the country

in 3>6= ended the &uasiFcentral anking role of the Imperial Bank! /he latter

ceased to e ankers to the overnment of India and instead ecame agent of the

#eserve Bank for the transaction of government usiness at centers at which the

central ank was not estalished! But it continued to maintain currency chests

and small coin depots and operate the remittance facilities scheme for other anks

and the pulic on terms stipulated y the #eserve Bank! It also acted as a ankersG

ank y holding their surplus cash and granting them advances against authori%ed

securities! /he management of the ank clearing houses also continued with it at

many places where the #eserve Bank did not have offices! /he ank was also theiggest tendered at the /reasury ill auctions conducted y the #eserve Bank on

ehalf of the overnment!

/he estalishment of the #eserve Bank simultaneously saw important

amendments eing made to the constitution of the Imperial Bank converting it

into a purely commercial ank! /he earlier restrictions on its usiness were

removed and the ank was permitted to undertake foreign e'change usiness and

e'ecutor and trustee usiness for the first time!

I(perial Ban;

/he Imperial Bank during the three and a half decades of its e'istence recorded

an impressive growth in terms of offices, reserves, deposits, investments and

advances, the increases in some cases amounting to more than si'Ffold! /he

financial status and security inherited from its forerunners no dout provided a

firm and durale platform! But the lofty traditions of anking which the Imperial

Bank consistently maintained and the high standard of integrity it oserved in its


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operations inspired confidence in its depositors that no other ank in India could

perhaps then e&ual! $ll these enaled the Imperial Bank to ac&uire a preFeminent

position in the Indian anking industry and also secure a vital place in the

countryGs economic life!

Sta(p o4 I(perial Ban; o4 India

.hen India attained freedom, the Imperial Bank had a capital ase @including

reserves of #s!33!7 crores respectively and a network of 3;4 ranches and more than 411

su offices e'tending all over the country!

First FiCe 8ear Plan

In 3>=3, when the 2irst 2ive 8ear "lan was launched, the development of rural

India was given the highest priority! /he commercial anks of the country

including the Imperial Bank of India had till then confined their operations to the

uran sector and were not e&uipped to respond to the emergent needs of

economic regeneration of the rural areas! In order, therefore, to serve the

economy in general and the rural sector in particular, the $ll India #ural Credit


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Survey Committee recommended the creation of a stateFpartnered and stateF

sponsored ank y taking over the Imperial Bank of India, and integrating with it,

the former stateFowned or stateFassociate anks! $n act was accordingly passed in

"arliament in May 3>== and the State Bank of India was constituted on 3 )uly

3>==! More than a &uarter of the resources of the Indian anking system thus

passed under the direct control of the State! Later, the State Bank of India

@Susidiary Banks $ct was passed in 3>=>, enaling the State Bank of India to

take over eight former StateFassociated anks as its susidiaries @later named

$ssociates!

/he State Bank of India was thus orn with a new sense of social purpose aided

y the 7


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it offers an opportunity to invest in a diversified, professionally managed asket

of securities at a relatively low cost!

/he flow chart elow descries roadly the working of a SBI Mutual 2und!

$ SBI Mutual 2und is a ody corporate registered with the Securities and

:'change Board of India @S:BI that pools up the money from

individualEcorporate investors and invests the same on ehalf of the investorsEunit

holders, in :&uity shares, overnment securities, Bonds, Call Money Markets

etc, and distriutes the profits! In the other words, a SBI Mutual 2und allows

investors to indirectly take a position in a asket of assets!

SBI Mutual 2und is a mechanism for pooling the resources y issuing units to the

investors and investing funds in securities in accordance with ojectives as

disclosed in offer document! Investments in securities are spread among a wide

crossFsection of industries and sectors thus the risk is reduced! ?iversification

reduces the risk ecause all stocks may not move in the same direction in the

same proportion at same time! Investors of SBI Mutual 2unds are known as unit

holders!


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/he investors in proportion to their investments share the profits or losses! /he

SBI Mutual 2unds normally come out with a numer of schemes with different

investment ojectives which are launched from time to time! $ SBI Mutual 2und

is re&uired to e registered with Securities :'change Board of India @S:BI

which regulates securities markets efore it can collect funds from the pulic!

In 2eruary 4116, following the repeal of the nit /rust of India $ct 3>06 /I

was ifurcated into two separate entities! +ne is the Specified ndertaking of the

nit /rust of India with assets under management of #s!4>,


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#R!ANIATI#N #F A SBI MUTUA3 FUND)

/here are many entities involved and the diagram elow illustrates the

organi%ational set up of a SBI Mutual 2und

@2or detailed definitions in the aove chart refer to anne'ure 3


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SBI Mutual 2unds diversify their risk y holding a portfolio of instead of only

one asset! /his is ecause y holding all your money in just one asset, the entire

fortunes of your portfolio depend on this one asset! By creating a portfolio of a

variety of assets, this risk is sustantially reduced!

SBI Mutual 2und investments are not totally risk free! In fact, investing in SBI

Mutual 2unds contains the same risk as investing in the markets, the only

difference eing that due to professional management of funds the controllale

risks are sustantially reduced! $ very important risk involved in SBI Mutual

2und investments is the market risk! -owever, the company specific risks are

largely eliminated due to professional fund management!


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IMP#RTANT "ARA"TERISTI"S #F A SBI MUTUA3 FUND

$ SBI Mutual 2und actually elongs to the investors who have pooled their

2unds! /he ownership of the SBI Mutual 2und is in the hands of the

Investors!

$ SBI Mutual 2und is managed y investment professional and other

Service providers, who earns a fee for their services, from the funds!

/he pool of 2unds is invested in a portfolio of marketale investments!

/he value of the portfolio is updated every day!

/he investor9s share in the fund is denominated y JunitsK! /he value

of the units changes with change in the portfolio value, every day! /he

value of one unit of investment is called net asset value @5$!

/he investment portfolio of the SBI Mutual 2und is created according to

/he stated

Investment ojectives of the 2und!

AD@ANTA!ES #F SBI MUTUA3 FUNDS)


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DiCersi4ication)$n investor undertakes risk if he invests all his funds in a

single scrip! SBI Mutual 2unds invest in a numer of companies across

various industries and sectors! /his diversification reduces the risk of the

investment!

Pro4essional Manae(ent)$n investor lacks the knowledge of the capital

market operations and does not have large resources to reap the enefits of

investment! -ence, he re&uires the help of an e'pert! SBI Mutual 2unds are

managed y professional managers who have the re&uisite skills and

e'periences to analyse the performance and prospectus of companies!

Reulator oCersi:t)SBI Mutual 2unds are suject to many government

regulations that protect investors from fraud!

3iuidit)ItGs easy to get your money out of a SBI Mutual 2und! .rite a

check, make a call, and youGve got the cash!

"onCenience)8ou can usually uy SBI Mutual 2und shares y mail, phone,

or over the Internet! It reduces paperwork, saves time and makes investment

easy!

3ow cost)SBI Mutual 2und e'penses are often no more than 3!= percent of

your investment! :'penses for Inde' 2unds are less than that, ecause inde'

funds are not actively managed! Instead, they automatically uy stock in

companies that are listed on a specific inde'

Transparenc SBI Mutual 2unds transparently declare their portfolio every

month! /hus, an investor knows where hisEher money is eing deployed and


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in case they are not happy with the portfolio they can withdraw at a short

notice!

Fleibilit) SBI Mutual 2unds offer a family of schemes, and investors have

the option of transferring their holdings from one scheme to other!

Ta bene4its SBI Mutual 2und investors now enjoy income ta' enefits!

?ividends received from SBI Mutual 2unds9 det schemes are ta' e'empt to

the overall limit of #s >111 allowed under section S+L of the Income /a'

$ct!

DISAD@ANTA!ES #F SBI MUTUA3 FUNDS

idden costs) /he SBI Mutual 2und industry tactfully uries costs under

layers of jargon! /hese costs come despite of negative returns! :'amples of

such costs include sales charges, annual fees, and other e'pensesH and

depending on the timing of their investment, investors may also have to pay

ta'es on any capital gains distriution they receive even if the fund wenton to perform poorly after they ought shares!

3ac; o4 control) Investors typically cannot ascertain the e'act makeFup

of a fundGs portfolio at any given time, nor can they directly influence which

securities the fund manager uys and sells or the timing of those trades!

Dilution) Because funds have small holdings in so many different

companies, high returns from a few investments often donGt make much

difference on the overall return! ?ilution is also the result of a successful

fund getting too ig! .hen money pours into funds that have had strong

success, the manager often has troule finding a good investment for all the

new money!


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Price Uncertaint) .ith an individual stock, one can otain realFtime @or

close to realFtime pricing information with relative ease y checking

financial wesites or through a roker, as can one oserve stock price

changes y the hour or minute! By contrast, with a SBI Mutual 2und, the

price at which one purchases or redeems shares will typically depend on the

fundGs 5$, which the fund might not calculate until many hours after the

order has een placed! In general, SBI Mutual 2unds must calculate their

5$ at least once every usiness day, typically after the major !S!

e'changes close!


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STRU"TURE #F A SBI MUTUA3 FUND


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ASSET MANAGEMENT COMPA

CustodianRegistrar

IN@EST#RS PR#FI3E)

$n investor normally prioriti%es his investment needs efore undertaking an

investment! So different goals will e allocated to different proportions of the

total disposale amount! Investments for specific goals normally find their way

into the det market as risk reduction is of prime importance, this is the area for

the riskFaverse investors and here, SBI Mutual 2unds are generally the est

option! +ne can avail of the enefits of etter returns with added enefits of

anytime li&uidity y investing in openFended det funds at lower risk, this risk of

default y any company that one has chosen to invest in, can e minimi%ed y

investing in SBI Mutual 2unds as the fund managers analy%e the companies

financials more minutely than an individual can do as they have the e'pertise to

do so!

Moving up the risk spectrum, there are people who would like to take some risk

and invest in e&uity fundsEcapital market! -owever, since their appetite for risk is

also limited, they would rather have some e'posure to det as well! 2or these

investors, alanced funds provide an easy route of investment, armed with

e'pertise of investment techni&ues, they can invest in e&uity as well as good

&uality det therey reducing risks and providing the investor with etter returns

than he could otherwise manage! Since they can reshuffle their portfolio as per

market conditions, they are likely to generate moderate returns even in

pessimistic market conditions!


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5e't comes the risk takers, risk takers y their nature, would not e averse to

investing in highFrisk avenues! Capital markets find their fancy more often than

not, ecause they have historically generated etter returns than any other avenue,

provided, the money was judiciously invested! /hough the risk associated is

generally on the higher side of the spectrum, the returnFpotential compensates for

the risk attached!

MUTUA3 EGPE"TATI#NS AND BENEFITS

Everyone e'pects the 5ew year to usher an era of joy and prosperity and certainly

looks forward to a windfall in terms of good things to come! Investor is no

e'ception to this! But efore one rushes to celerate with new investments, it

would e appropriate to take a look at how 84* treated SBI Mutual 2unds @M2s F

the investment vehicle of the small investor!

$ happyFgoFluckyFman turned investor would have nothing to write home aout,

had he invested in the 8ear 4111 and stayed invested throughout the year! "ositive

returns seemed like a state of utopia in 84*! .hat a transformation in an Industry

that had witnessed almost triple digit returns in 3>>> when BS: Sense' had

generated returns of aout 0= percent!

.hat was common to M2s in 84* was the presence of technology, media (

telecom sector scrip9s in portfolios of most funds, especially e&uity growth funds!


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Birla $dvantage 2und with and e'posure of 0;A, $lliance to the tune of ;3A are

just to name a few! .hile the ull phases did not raise any &uestions aout the

portfolio compositions, the ear phases certainly did! 5$s of most of these funds

plummeted raising &uestions on the e'tent of portfolio diversification!

.hen the ull phase came to an end and when most of the funds stood stripped

with the downslide of most of the /M/ stocks, most fund managers moved to

&uality portfolio levels and reduced their I/ e'posure to reasonale levels! Most

e&uity diversified funds, today, maintain I/ e'posure at 41A to 6;A while

simultaneously picking up oth old and new economy stocks! But fund managers

still are willing to et on /M/ stocks despite the tumultuous e'perience they have

had in 84*! .hile accepting the possiility of a downward revision of their

growth rate, they foresee no indications of a significant slowdown from at least

India ased companies! /hey concur that the fundamentals of I/ sector are strong

with future growth, however, eing at a modest pace! /hey are now of the view

that a mi'ture of old and new economy scrips would form an ideal portfolio!

.hile the crash in I/ share prices has resulted in a reFalancing of portfolios,

action on the old economy front would further narrow the gap etween the so

called click and mortar9 and rick and mortar9 companiesFring with it a greater

diversification in M2 portfolios!

M2 Industry in India, like any other Industry, has had its nascent stage and is still

trying to grapple with several inconsistencies! /he Industry is now approaching astage where a cross section of investing community has egun to comprehend that

M2s provide and ideal investment vehicle to meet their varied investment

ojectives in the long run with ade&uate emphasis on portfolio diversification! $ll


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in all, M2s have had their share of lessons in 84* and are waiting for newer

hori%ons in 84*N3 with aated reath!

T8PES #F SBI MUTUA3 FUNDS)

-$ #PEN7ENDED SBI MUTUA3 FUNDS)7

/he holders of the shares in the 2und can resell them to the issuing SBI Mutual

2und Company at the time! /hey receive in turn the net assets value @5$ of the

shares at the time of reFsale! Such SBI Mutual 2und Companies place their funds

in the secondary securities market! /hey do not participate in new issue market as

do pension funds or life insurance companies! /hus they influence market price

of corporate securities! +penFend investment companies can sell an unlimited

numer of Shares and thus keep going larger! /he openFend SBI Mutual 2und

Company Buys or sells their shares! /hese companies sell new shares 5$ plus a

Loading or management fees and redeem shares at 5$! In other words, the

target amount and the period oth are indefinite in such funds

5$ "3#SED7ENDED SBI MUTUA3 FUNDS)7


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$ closedDend 2und is open for sale to investors for a specific period, after which

further sales are closed! $ny further transaction for uying the units or

repurchasing them, -appen in the secondary markets, where closed end 2unds are

listed! /herefore new investors uy from the e'isting investors, and e'isting

investors can li&uidate their units y selling them to other willing uyers! In a

closed end 2unds, thus the pool of 2unds can technically e kept constant! /he

asset management company @$MC however, can uy out the units from the

investors, in the secondary markets, thus reducing the amount of funds held y

outside investors! /he price at which units can e sold or redeemed ?epends on

the market prices, which are fundamentally linked to the 5$! Investors in closed

end 2unds receive either certificates or ?epository receipts, for their holdings in a

closed end SBI Mutual 2und!

#R!ANISATI#N AND MANA!EMENT #F SBI MUTUA3 FUNDS)7

In India SBI Mutual 2und usually formed as trusts, three parties are generally

involved vi%!

Settler of the trust or the sponsoring organi%ation!

/he trust formed under the Indian trust act9 -?5or the trust company

registered under the Indian co(panies act9 -61

2und managers or /he merchantFanking unit

Custodians!

SBI MUTUA3 FUNDS TRUST)7

SBI Mutual 2und trust is created y the sponsors under the Indian trust act9

-?5


35/82

.hich is the main ody in the creation of SBI Mutual 2und /rustO

/he main functions of SBI Mutual 2und trust are as follows

"lanning and formulating SBI Mutual 2unds schemes!

Seeking S:BI9s approval and authori%ation to these schemes!

Marketing the schemes for pulic suscription!

Seeking #BI approval in case 5#I9s suscription to SBI Mutual 2und is

Invited

$ttending to trusteeship function! /his function as per guidelines can e

assigned to separately estalished trust companies too! /rustees are

re&uired to sumit a consolidated report si' monthly to S:BI to ensure that

the guidelines are fully eing complied with trusted are also re&uired to

sumit an annual report to the investors in the fund!

FUND MANA!ERS %#R' TE ASSES MANA!EMENT "#MPAN8

%AM"'

$MC has to discharge mainly three functions as under

I! /aking investment decisions and making investments of the funds through

market dealerErokers in the secondary market securities or directly in the

primary capital market or money market instruments

II! #eali%e fund position y taking account of all receivales and reali%ations,

moving corporate actions involving declaration of dividends,etc to

compensate investors for their investments in unitsH and

III! Maintaining proper accounting and information for pricing the units and

arriving at net asset value @5$, the information aout the listed schemes

and the transactions of units in the secondary market! $MC has to feed


36/82

ack the trustees aout its fund management operations and has to maintain

a perfect information system!

"UST#DIANS #F SBI MUTUA3 FUNDS)7

SBI Mutual 2unds run y the susidiaries of the nationali%ed anks had their

respective sponsor anks as custodians like canara ank, SBI, "5B, etc!

2oreign anks with higher degree of automation in handling the securities

have assumed the role of custodians for SBI Mutual 2unds! .ith the

estalishment of stock -olding Corporation of India the work of custodian

for SBI Mutual 2unds is now eing handled y it for various SBI Mutual

2unds! Besides, industrial investment trust company acts as suFcustodian

for stock -olding Corporation of India for domestic schemes of /I, B+I

M2, LIC M2, etc

Fee structure)7

Custodian charges range etween 1!3=A to 1!41A on the net value of the

customer9s holding for custodian services space is one important factor

which has fi'ed cost element!

RESP#NSIBI3IT8 #F "UST#DIANS)7

#eceipt and delivery of securities

-olding of securities!

Collecting income

-olding and processing cost

Corporate actions etc


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FUN"TI#NS #F "UST#MERS

Safe custody

/rade settlement

Corporate action

/ransfer agents

RATE #F RETURN #N SBI MUTUA3 FUNDS)7

$n investor in SBI Mutual 2und earns return from two sources

Income from dividend paid y the SBI Mutual 2und!

Capital gains arising out of selling the units at a price higher than the

ac&uisition price

For(ation and reulations)

3! SBI Mutual 2unds are to e estalished in the form of trusts under the

Indian trusts actand are to e operated y separate asset management

companies @$MC s

4! $MC9s shall have a minimum Net wort: o4 Rs$ 6 croresH

6! $MC9s and /rustees of SBI Mutual 2unds are to e two separate legal

entities and that an $MC or its affiliate cannot act as a manager in any

other fundH

7! SBI Mutual 2unds dealing e'clusively with money market instruments areto e regulated y the #eserve Bank +f India

=! SBI Mutual 2und dealing primarily in the capital market and also partly

money market instruments are to e regulated y the Securities Ec:ane

Board #4 India %SEBI'


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0! $ll schemes floated y SBI Mutual 2unds are to e registered with S:BI

Sc:e(es)7

3! SBI Mutual 2unds are allowed to start and operate oth closedFend and

openFend schemesH

4! :ach closedFend schemes must have a Mini(u( corpus %poolin up' o4

Rs 5/ croreH

6! :ach openFend scheme must have a Mini(u( corpus o4 Rs 6/ crore

7! In the case of a Closed D:nd scheme if the Mini(u( a(ount o4 Rs 5/

crore or 1/of the target amount, whichever is higher is not raised then

the entire suscription has to e refunded to the investorsH

=! In the case of an +penF:nded schemes, if the Minimum amount of Rs 6/

crore or 1/ percentof the targeted amount, whichever is higher, is no

raised then the entire suscription has to e refunded to the investors!

InCest(ent nor(s)7

3! 5o SBI Mutual 2und, under all its schemes can own more than five percent

of any company9s paid up capital carrying voting rightsH

4! 5o SBI Mutual 2und, under all its schemes taken together can invest more

than 31 percent of its funds in shares or deentures or other instruments of

any single companyH

6! 5o SBI Mutual 2und, under all its schemes taken together can invest more

than 3= percent of its fund in the shares and deentures of any specific

industry, e'cept those schemes which are specifically floated for

investment in one or more specified industries in respect to which a

declaration has een made in the offer letter!


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7! 5o individual scheme of SBI Mutual 2unds can invest more than five

percent of its corpus in any one company9s shareH

=! SBI Mutual 2unds can invest only in transferale securities either in the

money or in the capital market! "rivately placed deentures, securiti%ed

det, and other un&uoted det, and other un&uoted det instruments holding

cannot e'ceed 31 percent in the case of growth funds and 71 percent in the

case of income funds!

Distribution)

SBI Mutual 2unds are re&uired to distriute at least >1 percent of their profits

annually in any given year! Besides these, there are guidelines governing the

operations of SBI Mutual 2unds in dealing with shares and also seeking to ensure

greater investor protection through detailed disclosure and reporting y the SBI

Mutual 2unds! S:BI has also een granted with powers to oversee the

constitution as well as the operations of SBI Mutual 2unds, including a common

advertising code! Besides, S:BI can impose penalties on SBI Mutual 2unds after

due investigation for their failure to comply with the guidelines!

SBI MUTUA3 FUND S"EME T8PES)

Euit DiCersi4ied Sc:e(es

/hese schemes mainly invest in e&uity! /hey seek to achieve longFterm capital

appreciation y responding to the dynamically changing Indian economy y

moving across sectors such as Lifestyle, "harma, Cyclical, /echnology, etc!


40/82

Sector Sc:e(es

/hese schemes focus on particular sector as I/, Banking, etc! /hey seek to

generate longFterm capital appreciation y investing in e&uity and related

securities of companies in that particular sector!

Inde Sc:e(es

/hese schemes aim to provide returns that closely correspond to the return of a

particular stock market inde' such as BS: Sense', 5S: 5ifty, etc! Such schemes

invest in all the stocks comprising the inde' in appro'imately the same weightage

as they are given in that inde'!

Ec:ane Traded Funds %ETFs'

:/2s invest in stocks underlying a particular stock inde' like 5S: 5ifty or BS:

Sense'! /hey are similar to an inde' fund with one crucial difference! :/2s are

listed and traded on a stock e'change! In contrast, an inde' fund is ought and

sold y the fund and its distriutors!

Euit Ta SaCin Sc:e(es

/hese work on similar lines as diversified e&uity funds and seek to achieve longF

term capital appreciation y investing in the entire universe of stocks! /he only

difference etween these funds and e&uityFdiversified funds is that they demand a

lockFin of 6 years to gain ta' enefits!

Dna(ic Funds

/hese schemes alter their e'posure to different asset classes ased on the market

scenario! Such funds typically try to ook profits when the markets are


41/82

overvalued and remain fully invested in e&uities when the markets are

undervalued! /his is suitale for investors who find it difficult to decide when to

&uit from e&uity!

Balanced Sc:e(es

/hese schemes seek to achieve longFterm capital appreciation with staility of

investment and current income from a alanced portfolio of high &uality e&uity

and fi'edFincome securities!

Mediu(7Ter( Debt Sc:e(es

/hese schemes have a portfolio of det and money market instruments where the

average maturity of the underlying portfolio is in the range of five to seven years!

S:ort7Ter( Debt Sc:e(es

/hese schemes have a portfolio of det and money market instruments where the

average maturity of the underlying portfolio is in the range of one to two years!

Mone Mar;et Debt Sc:e(es

/hese schemes invest in det securities of a shortFterm nature, which generally

means securities of less than oneFyear maturity! /he typical shortFterm interestF

earing instruments these funds invest in /reasury Bills, Certificates of ?eposit,

Commercial "aper and InterFBank Call Money Market!


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Mediu(7Ter( !ilt Sc:e(es

/hese schemes invest in government securities! /he average maturity of the

securities in the scheme is over three years!

S:ort7Ter( !ilt Sc:e(es

/hese schemes invest in government securities! /he securities invested in are of

short to medium term maturities!

Floatin Rate Funds

/hey invest in det securities with floating interest rates, which are generally

linked to some enchmark rate like MIB+#! 2loating rate funds have a high

relevance when interest rates are on the rise helping investors to ride the interest

rate rise!

Mont:l Inco(e Plans %MIPS'

/hese are asically det schemes, which make marginal investments in the range

of 31F4=A in e&uity to oost the scheme9s returns! MI" schemes are ideal for

investors who seek slightly higher return that pure longFterm det schemes at

marginally higher risk!

DIFFERENT M#DES #F RE"EI@IN! TE IN"#ME EARNED FR#M

SBI MUTUA3 FUND IN@ESTMENTS


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SBI Mutual 2unds offer three methods of receiving income

!rowt: Plan

In this plan, dividend is neither declared nor paid out to the investor ut is uilt

into the value of the 5$! In other words, the 5$ increases over time due to

such incomes and the investor reali%es only the capital appreciation on

redemption of his investment!

Inco(e Plan

In this plan, dividends are paidFout to the investor! In other words, the 5$ only

reflects the capital appreciation or depreciation in market price of the underlying

portfolio!

DiCidend Re7inCest(ent Plan

In this case, dividend is declared ut not paid out to the investor, instead, it is

reinvested ack into the scheme at the then prevailing 5$! In other words, the

investor is given additional units and not cash as dividend!

SBI MUTUA3 FUND IN@ESTIN! STRATE!IES)

-$ Sste(atic InCest(ent Plans %SIPs'

/hese are est suited for young people who have started their careers and need to

uild their wealth! SI"s entail an investor to invest a fi'ed sum of money at

regular intervals in the SBI Mutual 2und scheme the investor has chosen, an


44/82

investor opting for SI" in 'y% SBI Mutual 2und scheme will need to invest a

certain sum on money every monthE&uarterEhalfFyear in the scheme!

5$ Sste(atic ,it:drawal Plans %S,Ps'

/hese plans are est suited for people nearing retirement! In these plans, an

investor invests in a SBI Mutual 2und scheme and is allowed to withdraw a fi'ed

sum of money at regular intervals to take care of his e'penses

2$ Sste(atic Trans4er Plans %STPs'

/hey allow the investor to transfer on a periodic asis a specified amount from

one scheme to another within the same fund family D meaning two schemes

elonging to the same SBI Mutual 2und! $ transfer will e treated as redemption

of units from the scheme from which the transfer is made! Such redemption or

investment will e at the applicale 5$! /his service allows the investor to

manage his investments actively to achieve his ojectives! Many funds do not

even charge any transaction fees for his service D an added advantage for the

active investor!

AD@ANTA!ES #F IN@ESTIN! TR#UR! SBI MUTUA3 FUNDS

/here are several reasons that can e attriuted to the growing popularity and

suitaility of SBI Mutual 2unds as an investment vehicle especially for retail

investors

ASSET A33#"ATI#N

SBI Mutual 2unds offer the investors a valuale tool D $sset $llocation!

/his is e'plained y an e'ample!


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$n investor investing #s!3 lakh in a SBI Mutual 2und scheme, which has

collected #s!311 crores and invested the money in various investment options,

will have #s!3 lakh spread over a numer of investment options as demonstrated

elow

Investment /ype Percentae o4

Allocation %

o4 total

port4olio'

Total port4olio

o4 t:e SBI

Mutual Fund

sc:e(e %Rs$ In

crores'

InCestors port4olio

allocation %Rs$'

EJUIT8) 60 60 609///State Ban; o4

India

-6 -6 -69///

In4oss

Tec:noloies

-5 -5 -59///

ABB -/ -/ -/9///

Reliance

Industries

9///

MI"# 0 0 09///

Tata Power . . .9///

DEBT) .2 .2 .29///

!oCt$ Securities 5/ 5/ 5/9///

"o(pan

Debentures

-/ -/ -/9///

Institution Bonds 9///

Mone Mar;et . . .9///Total -// -// -9//9///

/hus $sset $llocation9 is allocating your investments in to different investment

options depending on your risk profile and return e'pectations!


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DI@ERSIFI"ATI#N

?iversification is spreading your investment amount over a larger numer of

investments in order to reduce risk! 2or instance, if you have #s!31,111 to

invest in Information /echnology @I/ stocks, this amount will only uy you a

handful of stocks of perhaps one or two companies! $ fall in the market price

of any of these company stocks will significantly erode your investment

amount instead it makes sense to invest in an I/ sector SBI Mutual 2und

scheme so that your #s!31,111 is spread across a larger numer of stocks

therey reducing your risk!

PR#FESSI#NA3S AT ,#R+

2ew investors have the time or e'pertise to manage their personal investments

every day, to efficiently reinvest interest or dividend income, or to investigate

the thousands of securities availale in the financial markets! 2und managers

are professionals and e'perienced in tracking the finance markets, havingaccess to e'tensive research and market information, which enales them to

decide which securities to uy and sell for the fund! 2or an individual investor

like you, this professionalism is uilt in when you invest in the SBI Mutual

2und!

REDU"TI#N #F TRANSA"TI#N "#STS

.hile investing directly in securities, all the costs of investing such as

rokerage, custodial services etc! Borne y you are at the highest rates due to

small transaction si%es! -owever, when going through a fund, you have the


47/82

enefit of economies of scaleH the fund pays lesser costs ecause of larger

volumes, a enefit passed on to its investors like you!

EAS8 A""ESS T# 8#UR M#NE8

/his is one of the most important enefits of a SBI Mutual 2und! +ften you

hold shares or onds that you cannot directly, easily and &uickly sell! In such

situations, it could take several days or even longer efore you are ale to

li&uidate his SBI Mutual 2und investment y selling the units to the fund itself

and receive his money within 6 working days!

TRANSPAREN"8

/he investor gets regular information on the value of his investment in

addition to disclosure on the specific investments made y the fund, the

proportion invested in each class of assets and the fund manager9s investment

strategy and outlook!

SA@IN! TAGES

/a' saving schemes of SBI Mutual 2unds offer investor a ta' reate under

section


48/82

Inde' schemes of SBI Mutual 2unds give you the opportunity of investing in

scrips that make up a particular inde' in the same proportion of weightage that

these scrips have in the inde'! /hus, the return on your investment mirrors the

movement of the inde'!

IN@ESTIN! IN !#@ERNMENT SE"URITIES

ilt and Money Market Schemes of SBI Mutual 2unds also give you the

opportunity to invest in overnment Securities and Money Markets @including

the inter anking call money market

,E337RE!U3ATED INDUSTR8

$ll SBI Mutual 2unds are registered with S:BI and they function within the

provisions of strict regulations designed to protect the interests of investors!

/he operations of SBI Mutual 2unds are regularly monitored y S:BI!

"#N@ENIEN"E AND F3EGIBI3IT8

SBI Mutual 2unds offer their investors a numer of facilities such as interFfund

transfers, online checking of holding status etc, which direct investments don9t

offer!

RIS+S ASS#"IATED ,IT SBI MUTUA3 FUNDS)7

Investing in SBI Mutual 2unds, as with any security, does not come without risk!

+ne of the most asic economic principles is that risk and reward are directly


49/82

correlated! In other words, the greater the potential risk the greater the potential

return! /he types of risk commonly associated with SBI Mutual 2unds are

-' MAR+ET RIS+

Market risk relates to the market value of a security in the future! Market prices

fluctuate and are susceptile to economic and financial trends, supply and

demand, and many other factors that cannot e precisely predicted or controlled!

5' P#3ITI"A3 RIS+

Changes in the ta' laws, trade regulations, administered prices, etc are some of

the many political factors that create market risk! $lthough collectively, as

citi%ens, we have indirect control through the power of our vote individually, as

investors, we have virtually no control!

2' INF3ATI#N RIS+

Interest rate risk relates to future changes in interest rates! 2or instance, if an

investor invests in a longFterm det SBI Mutual 2und scheme and interest rates

increase, the 5$ of the scheme will fall ecause the scheme will e end up

holding det offering lower interest rates!

.' BUSINESS RIS+

Business risk is the uncertainty concerning the future e'istence, staility, and

profitaility of the issuer of the security! Business risk is inherent in all usiness

ventures! /he future financial staility of a company cannot e predicted or

guaranteed, nor can the price of its securities! $dverse changes in usiness

circumstances will reduce the market price of the company9s e&uity resulting in


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proportionate fall in the 5$ of the SBI Mutual 2und scheme, which has

invested in the e&uity of such a company!

6' E"#N#MI" RIS+

:conomic risk involves uncertainty in the economy, which, in turn, can have an

adverse effect on a company9s usiness! 2or instance, if monsoons fail in a year,

e&uity stocks of agricultureFased companies will fall and 5$s of SBI Mutual

2unds, which have invested in such stocks, will fall proportionately!

PERF#RMAN"E MEASURES #F SBI MUTUA3 FUNDS)

SBI Mutual 2und industry today, with aout 61 players and more than si'

hundred schemes, is one of the most preferred investment avenues in India!

-owever, with a plethora of schemes to choose from, the retail investor faces

prolems in selecting funds! 2actors such as investment strategy and management

style are &ualitative, ut the funds record is an important indicator too!

/hough past performance alone cannot e indicative of future performance, it is,

frankly, the only &uantitative way to judge how good a fund is at present!

/herefore, there is a need to correctly assess the past performance of different

SBI Mutual 2unds! .orldwide, good SBI Mutual 2und companies over are

known y their $MC9s and this fame is directly linked to their superior stock

selection skills!

2or SBI Mutual 2unds to grow, $MC9s must e held accountale for their

selection of stocks! In other words, there must e some performance indicator that

will reveal the &uality of stock selection of various $MC9s!


51/82

#eturn alone should not e considered as the asis of measurement of the

performance of a SBI Mutual 2und scheme, it should also include the risk taken

y the fund manager ecause different funds will have different levels of risk

attached to them! #isk associated with a fund, in a general, can e defined as

ariaility or fluctuations in the returns generated y it! /he higher the

fluctuations in the returns of a fund during a given period, higher will e the risk

associated with it! /hese fluctuations in the returns generated y a fund are

resultant of two guiding forces! 2irst, general market fluctuations, which affect all

the securities, present in the market, called Market risk or Systematic risk and

second, fluctuations due to specific securities present in the portfolio of the fund,

called nsystematic risk! /he /otal #isk of a given fund is sum of these two and

is measured in terms of standard deviation of returns of the fund!

Systematic risk, on the other hand, is measured in terms of Beta, which

represents fluctuations in the 5$ of the fund visFPFvis market! /he more

responsive the 5$ of a SBI Mutual 2und is to the changes in the marketH higher

will e its eta! Beta is calculated y relating the returns on a SBI Mutual 2und

with the returns in the market! .hile nsystematic risk can e diversified

through investments in a numer of instruments, systematic risk cannot! By using

the risk return relationship, we try to assess the competitive strength of the SBI

Mutual 2unds one another in a etter way! In order to determine the riskFadjusted

returns of investment portfolios, several eminent authors have worked since

3>01s to develop composite performance indices to evaluate a portfolio y

comparing alternative portfolios within a particular risk class!

T:e (ost i(portant and widel used (easures o4 per4or(ance are)

/he /reynor9Measure


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/he Sharpe Measure

)enson Model

2ama Model

-' T:e Trenor Measure)7

?eveloped y )ack /reynor, this performance measure evaluates funds on the

asis of /reynorGs Inde'!

/his Inde' is a ratio of return generated y the fund over and aove risk free rate

of return @generally taken to e the return on securities acked y the

government, as there is no credit risk associated, during a given period and

systematic risk associated with it @eta! Symolically, it can e represented as

/reynorGs Inde' @/i Q @#i F #fEBi!

.here,

#i represents return on fund,

#f is risk free rate of return, andBi is eta of the fund!

$ll riskFaverse investors would like to ma'imi%e this value! .hile a high and

positive /reynorGs Inde' shows a superior riskFadjusted performance of a fund, a

low and negative /reynorGs Inde' is an indication of unfavorale performance!

5' T:e S:arpe Measure )7


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In this model, performance of a fund is evaluated on the asis of Sharpe #atio,

which is a ratio of returns generated y the fund over and aove risk free rate of

return and the total risk associated with it!

$ccording to Sharpe, it is the total risk of the fund that the investors are

concerned aout! So, the model evaluates funds on the asis of reward per unit of

total risk! Symolically, it can e written as

Sharpe Inde' @Si Q @#i F #fESi

.here,

Si is standard deviation of the fund,

#i represents return on fund, and

#f is risk free rate of return!

.hile a high and positive Sharpe #atio shows a superior riskFadjusted

performance of a fund, a low and negative Sharpe #atio is an indication of

unfavorale performance!

"o(parison o4 S:arpe and Trenor

Sharpe and /reynor measures are similar in a way, since they oth divide the risk

premium y a numerical risk measure! /he total risk is appropriate when we are

evaluating the risk return relationship for wellFdiversified portfolios! +n the other

hand, the systematic risk is the relevant measure of risk when we are evaluating

less than fully diversified portfolios or individual stocks! 2or a wellFdiversified

portfolio the total risk is e&ual to systematic risk! #ankings ased on total risk

@Sharpe measure and systematic risk @/reynor measure should e identical for a

wellFdiversified portfolio, as the total risk is reduced to systematic risk!

/herefore, a poorly diversified fund that ranks higher on /reynor measure,


54/82

compared with another fund that is highly diversified, will rank lower on Sharpe

Measure!

*enson Model)7

)ensonGs model proposes another risk adjusted performance measure! /his

measure was developed y Michael )enson and is sometimes referred to as the

differential #eturn Method! /his measure involves evaluation of the returns that

the fund has generated vs! the returns actually e'pected out of the fund3 given the

level of its systematic risk! /he surplus etween the two returns is called $lpha,

which measures the performance of a fund compared with the actual returns over

the period! #e&uired return of a fund at a given level of risk @Bi can e

calculated as

#i Q #f N Bi @#m F #f

.here,

#i represents return on fund, and

#m is average market return during the given period,

#f is risk free rate of return, and

Bi is Beta deviation of the fund!

$fter calculating it, $lpha can e otained y sutracting re&uired return

from the actual return of the fund!

-igher alpha represents superior performance of the fund and vice versa!

Limitation of this model is that it considers only systematic risk not the entire risk


55/82

associated with the fund and an ordinary investor cannot mitigate unsystematic

risk, as his knowledge of market is primitive!

Fa(a Model)7

/he :ugene 2ama model is an e'tension of )enson model! /his model compares

the performance, measured in terms of returns, of a fund with the re&uired return

commensurate with the total risk associated with it! /he difference etween these

two is taken as a measure of the performance of the fund and is called 5et

Selectivity!

/he 5et Selectivity represents the stock selection skill of the fund manager, as it

is the e'cess returns over and aove the return re&uired to compensate for the

total risk taken y the fund manager! -igher value of which indicates that fund

manager has earned returns well aove the return commensurate with the level of

risk taken y him!

#e&uired return can e calculated as #i Q #f N SiESmR@#m F #f

.here,

#i represents return on fund,

Sm is standard deviation of market returns,

#m is average market return during the given period, and

#f is risk free rate of return!

/he 5et Selectivity is then calculated y sutracting this re&uired return

from the actual return of the fund!


56/82

$mong the aove performance measures, two models namely, /reynor measure

and )enson model use Systematic risk is ased on the premise that the

nsystematic risk is diversifiale! /hese models are suitale for large investors

like institutional investors with high risk taking capacities as they do not face

paucity of funds and can invest in a numer of options to dilute some risks! 2or

them, a portfolio can e spread across a numer of stocks and sectors! -owever,

Sharpe measure and 2ama model that consider the entire risk associated with

fund are suitale for small investors, as the ordinary investor lacks the necessary

skill and resources to diversify! Moreover, the selection of the fund on the asis

of superior stock selection aility of the fund manager will also help in

safeguarding the money invested to a great e'tent! /he investment in funds that

have generated ig returns at higher levels of risks leaves the money all the more

prone to risks of all kinds that may e'ceed the individual investorsG risk appetite!


57/82

IST#R8 #F TE INDIAN SBI MUTUA3 FUND INDUSTR8

/he SBI Mutual 2und industry in India started in 3>06 with the formation of nit

/rust of India, at the initiative of the overnment of India and #eserve Bank of

India! /he history of SBI Mutual 2unds in India can e roadly divided into four

distinct phases

First P:ase < -1.7?0

nit /rust of India @/I was estalished on 3>06 y an $ct of "arliament! It was

set up y the #eserve Bank of India and functioned under the #egulatory and

administrative control of the #eserve Bank of India! In 3>;< /I was deFlinkedfrom the #BI and the Industrial ?evelopment Bank of India @I?BI took over the

regulatory and administrative control in place of #BI! /he first scheme launched

y /I was nit Scheme 3>07! $t the end of 3>


58/82

.ith the entry of private sector funds in 3>>6, a new era started in the Indian SBI

Mutual 2und industry, giving the Indian investors a wider choice of fund families!

$lso, 3>>6 was the year in which the first SBI Mutual 2und #egulations came into

eing, under which all SBI Mutual 2unds, e'cept /I were to e registered and

governed! /he erstwhile *othari "ioneer @now merged with 2ranklin /empleton

was the first private sector SBI Mutual 2und registered in )uly 3>>6!

/he 3>>6 S:BI @SBI Mutual 2und #egulations were sustituted y a more

comprehensive and revised SBI Mutual 2und #egulations in 3>>0! /he industry

now functions under the S:BI @SBI Mutual 2und #egulations 3>>0!

/he numer of SBI Mutual 2und houses went on increasing, with many foreign

SBI Mutual 2unds setting up funds in India and also the industry has witnessed

several mergers and ac&uisitions! $s at the end of )anuary 4116, there were 66 SBI

Mutual 2unds with total assets of #s! 3,43,06 /I

was ifurcated into two separate entities! +ne is the Specified ndertaking of the

nit /rust of India with assets under management of #s!4>,


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/he present study has een undertaken with the oject of e'amining, analy%ing and

inferring the effect of capital market on mutual fund, which addresses the following

issues

/o understand the effect of recent changes in stock market on the mutual funds!

/o understand asic concepts of mutual funds

/o analy%e the 5$s of various mutual funds during the last few months!

/o analy%e the average returns of various mutual funds during the last few months!

/he secondary ojective of this study is to understand the role of distriutors in

influencing investor9s decision!

S"#PE #F TE STUD8)

Suject matter is related to the investor9s approach towards mutual funds and

ulips!

"eople of age etween 41 to 01

"eople of income group etween 31111 to 61111!

$rea limited to Lucknow!

?emographics include names, age, &ualification, occupation, marital status and

annual income!


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3IMITATI#NS #F STUD8

/he edifice of the study entirely stands up on the pillar of information given y

respondent

Limitations applicale to the &uestionnaire method may e applicale to this study, as

iased answers, memory access variation, in cooperative and doutful approach!

/he time for study was very short!

/he secondary data availale for comparative analysis is only for the period of 411

?ue to various factors associated, the information provided y customer has its own ias!


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8P#TESIS TESTIN!

Null :pot:esis %/' KPre4erence o4 inCest(ent o4 people in U3IP is

(ore t:an Mutual 4und

AlternatiCe pot:esis %-' K Pre4erence o4 inCest(ent o4 people in

Mutual 4und is (ore t:an U3IP

RESEAR" MET#D#3#!8

/he study of capital market and its effect on mutual funds and LI" is an arduous task in itself!

/he keyword in handling such kind of prolems is D research* athering information from all

the possile sources, whether y different articles, press releases, company circulars or y direct

interaction with the clients or face to face interviews with the head of the department!

/his project work is mainly ased on "rimary and Secondary data in which primary data was

collected and secondary data was availale to us from the confidential office records of the

department, various maga%ines and newspapers pulished y concerned authorities! /he data was

also collected from secondary sourcesH mainly from various internet sites related to capital

market and mutual funds and *ey Information Memorandum of various fund houses! -owever

the information gathered was mainly from self analysis and from interaction with the senior

employees of the CMS? department as well as with the highly informed and e'perienced clients!

/he interpretation of data and constructions of graphs was done using Microsoft .ord raph

chart!


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RESEAR" DESI!N)

#esearch was initiated y e'amining primary and secondary data to gain insight into the

prolem! By analy%ing primary and secondary data, the study aim is to e'plore the short comings

of the present system and primary data will help to validate the analysis of secondary data

esides on unrevealing the areas which calls for improvement!

SAMP3IN! P3AN)

Since it is not possile to study whole universe, it ecomes necessary to take sample from the

universe to know aout its characteristics!

SAMP3E TE"NIJUE) Convenience Sampling!

SAMP3E SIE 41

RESEAR" INSTRUMENT) Structured uestionnaire!


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RESEAR" #B*E"TI@E

i /o study increasing trend of technology related services in anking industry in Indiaii /o identify and analy%e the various components of the service rendered y SBI

iii /o analy%e the enefit of various deposit schemesoffered y SBI and technology related

services offered y different anks on customers

Project Use4ulness in Future

/his project will help us to give information aout various deposit schemes offered y SBI,their

enefits and also knowledge aout various technology related services offered y the ank! It

helps to compare the past ( present services provided y anks !


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RESEAR" MET#D#3#!8

Researc: Introduction

/he activities of market research include defining marketing opportunities and prolems,

generating and evaluating marketing ideas, monitoring performance, and understanding the

marketing process! /he methodology of the study included selection of sample, studyEsurvey of

lirary references, collation and compilation of the primary and secondary data and information

otained through structured &uestionnaires, open ended interview!

Data "ollection

.e have collected two types of ?ata

a! "rimary ?ata D through uestionnaire and interaction!primary research is done for

studying customer preference towards various schemes offered y SBI! Secondary ?ata D through internet, articles, maga%ines, ank visit,studying project

reports etc! our report contains mainly secondary data

Researc: Met:odolo )

Researc: Desin)

/he techni&ues used for research is :'ploratory #esearch!

Researc: Tool )

uestionnaire and customer interaction@ sample si%e 311

/hrough internet, articles, maga%ines etc!


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DATA ANA38SIS

J-' Education Juali4ication

ndergraduate =

raduate A of the account holders!


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J5' Marital Status

S!5oMarital Status 5o of #espondents

3 Married 0;

4 Single 66

67%

33%

Gender

Married Single

"#MMENT

0;A respondents are married and this shows saving and investment hait increases after

marriage! Single persons are also increasingly saving their earnings in anks!


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J2' #ccupation

S!5o+ccupation 5o of #espondents

3"rofession 3A respondents found it not lucrative ecause of slow technological up

gradation and entry of private anks

J0' Do ou :aCe ta;en an o4 t:ese taes saCin sc:e(e proCided b SBIL

S!5o/a' saving schemes 5o of #espondents

3"ulic provident fund 76 nion ank =7 -?2C 33


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= $llahaad Bank 370 ICICI Bank 44; Indian +verseas ank 6< Central Bank 1> Bank of India 43

31 +thers 3

1!%

9%

5%

11%1!%

22%

3%

21% 1%

accounts in an& other %an)

P( an$ of aroda Union )an$ 4lla#a)ad an$

--- an$ -ndian :verseas )an$ entral an$ an$ of -ndia :t#ers

"#MMENT

SBI holds 41A deposit market in I5?I$! "rivate players like ICICI and -?2C had emerged two

leading anks following it, Bank +f India is also a leading pulic sector ank!

FINDIN!S

3 In recent years increase in disposale income and increased numer of working women lead

to ulk deposits in SBI!

4 /he main purpose of deposits is to enjoy ta' e'emptions and safety of their deposits!

Salaried class constitutes its largest segment!


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6 ICICI, -?2C and Bank of India are the main competitors of SBI and giving it tough

competition!

7 SBI is still largest ank in I5?I$ due to its wide reach aility in all parts of India with its

wide range of products and services!

= Most of the customers found its products lucrative ecause of attractive rates of interest on

their deposits, convenient and economical method of payment and means of transfer of fund

from one place to another

0 Customer prefer SBI ank ecause of its government acking and its working style

; #easons for high use of SBI advance product

iggest ank of India

attractive rate of returns

transparency

simple ( fast processing

&uick processing

"#N"3USI#N

2rom the analysis part it can e conclude that customers have a good respond towards SBI

advance products! SBI is in 3st position having large numer of customers ( providing good

services to them! /he ank has a wide customer ase, so the ank should concentrate on this to

retain these customers!

In present scenario SBI is the largest advance product issuer in India! .ithin a very short period

of time the achievement made y SBI is e'cellent, what a normal ank cannot e'pect,ut it is


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eing done y SBI! It happens due to employee dedication towards the organi%ation, fastest

growing Indian economy, ( rand image!

/o e the largest advance product issuer, SBI should focus onF

Launch Innovative product

Customi%ed advance products

Better customer services

2astest customers prolem solving techni&ues

Customer retention

$part from all the aove, SBI elieve in providing good customer services to their customerswhich is a key factor for success in future

S,#T ANA38SIS

Strent:s)

Brand Name SBI Bank has earned a reputation in the market over the period oftime@Being the oldest ank in India tracing history ack to 3


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Wide Distribution Network :'cellent penetration in the country with more than 31111

core ranches and more than =311 ranches of associate anks @susidiaries!

Diversified Portfolio:SBI Bank has all the products under its elt, which help it to

e'tend the relationship with e'isting customer!SBI Bank has umrella of products to

offer their customers, if once customer has relationship with the ank!

Government Owned overnment owns 01A stake in SBI! /his gives SBI an edge over

private anks in terms of customer security!

Low Transition CostsFSBI offers very low transition costs which attracts small

customers!

,ea;nesses)

/he e'isting hierarchical management structure of the ank, although strength in some

respects, is a arrier to change!

/hough SBI cards are the 4nd largest player in the credit card industry, it has the highest

non performing assets @5"$s in the industry, which stand out to e at 30!4< A @?ec

411;!

Modernisation SBI lags with respect to private players in terms of modernisation of its

processes, infrastructure, centralisation, etc!

#pportunities)

Merger of associate anks with SBI Merger of all the associate anks @like SB-, SBM,

etc into SBI will create a mega ank which streamlines operations and unlocks value!

"lanning to add 4111 ranches and 6111 $/Ms in 411! /his will further increase

its reach!

Increasing trade and usiness relations and a large numer of e'patriate populations

offers a great opportunity to e'pand on foreign soil!

T:reats)


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$dvent of M5C anks Large numers of M5C anks are mushrooming in the Indian

market due to the friendly policies adopted y the government! /his can increase the

level of competition and prove a potential threat for the market share of SBI ank!

Consumer e'pectations have increased many folds in last few years and the ank has not

een responsive enough to meet them on time!

"rivate anks have started venturing into the rural and semiFuran sector, which used to

e the astion of the State Bank and other "S anks

SU!!ESTI#N & RE"#MMENDATI#N

3 Customer awareness programme is re&uired so that more people should attract towards

advance product!

4 Bank should more concern aout physical verification rather than phone verification so it

will avoid fraud or cheating!

6 $dvance product selling agents must not give any type of wrong informationregarding

advance product!

72or the etter service new offers would e re&uire!

= SBI customer care should more concern aout the fastest settlement of customerprolems!


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0 $gents should e trained, well educated ( proper trained to convince the people

; $out different advance product

Special scheme should e implemented to encourage oth customer and agents!

31 SBI should more focus on #etaining e'isting customers

33 Bank must focus on Segmentation ased on customer knowledge "roductoffering ased on

customer demand!

34 customer should concentrate and should very precautionary while using modern technology

such as $/M, moile anking facilty, etc

ANNEGURE

www$sbi$co(

www$sbideposits$co(

www!ri!org!in

www!eFinvesting!in 2inancial Services

www!differenceetween!netE!!!EdifferenceFetweenFrtsFandFneft

en!wikipedia!orgEwikiE"FMSFCached

www!ecs!com!tw

en!wikipedia!orgEwikiEElectronicU4undsUtrans4er
http://www.sbi.com/http://www.sbideposits.com/http://www.google.co.in/url?url=http://www.e-investing.in/financial-services/&rct=j&sa=X&ei=v4mgTfGgO4iHrAe7q-nrAg&ved=0CDQQ6QUoADAC&q=rtgs&usg=AFQjCNFgLmXrhDXWWQHbJyJMchhkezUKnQhttp://www.differencebetween.net/.../difference-between-rtgs-and-nefthttp://www.differencebetween.net/.../difference-between-rtgs-and-nefthttp://www.differencebetween.net/.../difference-between-rtgs-and-nefthttp://webcache.googleusercontent.com/search?q=cache:-k4NK-gKpssJ:en.wikipedia.org/wiki/CFMS+cfms&cd=3&hl=en&ct=clnk&gl=in&source=www.google.co.inhttp://webcache.googleusercontent.com/search?q=cache:-k4NK-gKpssJ:en.wikipedia.org/wiki/CFMS+cfms&cd=3&hl=en&ct=clnk&gl=in&source=www.google.co.inhttp://www.ecs.com.tw/http://www.ecs.com.tw/http://www.ecs.com.tw/http://www.ecs.com.tw/http://www.sbi.com/http://www.sbideposits.com/http://www.google.co.in/url?url=http://www.e-investing.in/financial-services/&rct=j&sa=X&ei=v4mgTfGgO4iHrAe7q-nrAg&ved=0CDQQ6QUoADAC&q=rtgs&usg=AFQjCNFgLmXrhDXWWQHbJyJMchhkezUKnQhttp://www.differencebetween.net/.../difference-between-rtgs-and-nefthttp://webcache.googleusercontent.com/search?q=cache:-k4NK-gKpssJ:en.wikipedia.org/wiki/CFMS+cfms&cd=3&hl=en&ct=clnk&gl=in&source=www.google.co.inhttp://www.ecs.com.tw/

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