hdfc mutual fund
TRANSCRIPT
INTRODUCTION
The significant outcome of the government policy of liberalization in industrial and
financial sector has been the development of new financial instruments. These
new instruments are expected to impart greater competitiveness, flexibility and
efficiency to the financial sector. Growth and development of various mutual fund
products in Indian capital market has proved to be one of the most catalytic
instruments in generating momentous investment growth in the capital market.
These is a substantial growth in the mutual fund market due to a high level of
precision in the design and marketing of variety of mutual fund products by banks
and other financial institution providing growth, liquidity and return. In this
context, prioritization, preference building and close monitoring of mutual funds
are essential for fund managers to make this the strongest and most preferred
instrument in Indian capital market for the coming years. With the decline in the
bank interest rates, frequent fluctuations in the secondary market and the
inherent attitude of the Indian small investors to avoid risk, Mutual Funds are
taking their place. Mutual funds combine various elements of liquidity, return and
security in making themselves as the best possible alternative for the small
investors in Indian market. I have attempted to study various need expectations
of small investors from different types of mutual funds available in the Indian
market and identify the risk return perception with the purchase of Mutual Funds.
The Indian financial system in general and the mutual fund industry in particular
continue to take turn around from early 1990s. During this period mutual funds
have pooled huge investments for the corporate sector. The investment habit of
the small investors particularly has undergone a sea change. Increasing number
of players from public as well as private sectors has entered in to the market with
innovative schemes to cater to the requirements of the investors, in India and
abroad. For all investors, particularly the small investors, mutual funds have
provided a better alternative to obtain benefits of expertise- based equity
investments to all types of investors. 1
COMPANY PROFILE
HDFC Asset Management Company Limited (AMC)
Vision
To be a dominant player in the Indian mutual fund space recognized for its high
levels of ethical and professional conduct and a commitment towards enhancing
investor interests.
Sponsors
Housing Development Financial Corporation Limited (HDFC)
HDFC was incorporated in 1977 as the first specialized housing finance
institution in India. HDFC provides financial assistance to individuals, corporate
and developers for the purchase or construction of residential housing. It also
provide property related services (e.g. property identification, sales services and
valuation), training and consultancy. Of course activities, housing finance
remains the dominant activity. HDFC currently has a client base of over 800000
borrowers, 1200000 depositors, 92000 shareholders and 50000 deposit agents.
HDFC raises funds from international agencies such as the World Bank, IFC
(Washington), USAID, CDC, ADB and KFW, domestic term loans from banks
and insurance companies, bonds and deposits. HDFC has received the highest
rating for its bonds and deposits program for the 9 th year in succession. HDFC
Standard Life Insurance Company Limited. Promoted by HDFC was the 1st life
insurance company in the private sector to be granted a Certificate of
Registration(on October 23, 2000) by the Insurance Regulatory and
Development Authority to transact life insurance business in India.
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Standard Life Investment Limited
The Standard Life Assurance Company was established in 1825 and has
considerable experience in global financial markets. In 1998, Standard Life
Investment Limited became the dedicated investment management company of
The Standard Life Group and is owned 100% by the Standard Life Assurance
Company. With the global assets under management of approximately
US$186.45 billion as at March 31, 2005, Standard Life Investment Limited is one
of the world’s major investment companies and is responsible for investing
money on behalf of five million retail and institutional clients worldwide. With its
headquarters in Edinburgh, Standard Life Investment Limited has an extensive
and developing global presence with operations in the United Kingdom, Ireland,
Canada, USA, China, Korea and Hong Kong. In order to meet the different needs
and risk profiles of its clients, Standard Life Investment Limited manages a
diverse portfolio covering all the major markets world-wide, which includes a
range of private and public equities, government and company bonds, property
investments and various derivative instruments.
HDFC Trustee Company Ltd.
A company incorporated under the Companies Act, 1956 is the Trustee to the
Mutual Fund vide the Trust deed dated June 8, 2000, as amended from time to
time. HDFC Trustee Company Limited is a wholly owned subsidiary of HDFC
Limited.
HDFC asset Management Company (AMC)
HDFC AMC was incorporated under the Companies Act, 1956, on December 10,
1999, and was approved to act as an Asset Management Company for the
Mutual Fund by SEBI on July 3, 2000. The registered office of the AMC is
situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay
Reclamation, Churchgate, Mumbai - 400 020.3
In terms of the Investment Management Agreement, the Trustee has appointed
HDFC Asset Management Company Limited to manage the Mutual Fund. The
paid up capital of the AMC is Rs. 75.161 crore.
The present share holding pattern of AMC is as follows:
Particulars% of the paid up share
capital
HDFC 50.10
Standard Life Investment Limited
49.90
Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund,
following a review of its overall strategy, had decided to divest its Asset
Management business in India. The AMC had entered into an agreement with
ZIC to acquire the said business, subject to necessary regulatory approvals.
On obtaining the regulatory approvals, the Schemes of Zurich India Mutual Fund
has now migrated to HDFC Mutual Fund on June 19, 2003. The AMC is
managing 18 open-ended schemes of the Mutual Fund viz. HDFC Growth Fund
(HGF), HDFC Balanced Fund (HBF), HDFC Income Fund (HIF), HDFC Liquid
Fund (HLF), HDFC Tax Plan 2000 (HTP), HDFC Children's Gift Fund (HDFC
CGF), HDFC Gilt Fund (HGILT), HDFC Short Term Plan (HSTP), HDFC Index
Fund, HDFC Floating Rate Income Fund (HFRIF), HDFC Equity Fund (HEF),
HDFC Top 200 Fund, (HT200), HDFC Capital Builder Fund (HCBF), HDFC
TaxSaver (HTS), HDFC Prudence Fund (HPF), HDFC High Interest Fund
(HHIF), HDFC Sovereign Gilt Fund (HSGF) and HDFC Cash Management Fund
(HCMF). The AMC is also managing the respective Plans of HDFC Fixed
Investment Plan, a closed ended Income Scheme. The AMC has obtained
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registration from SEBI vide Registration No. - PM / INP000000506 dated
December 22, 2000 to act as a Portfolio Manager under the SEBI (Portfolio
Managers) Regulations, 1993. The Certificate of Registration is valid from
January 1, 2001 to December 31, 2003. The AMC is also providing portfolio
management / advisory services and such activities are not in conflict with the
activities of the Mutual Fund.
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What exactly is a Mutual Fund?
A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal. The money thus collected is then invested in
capital market instruments such as shares, debentures and other securities. The
income earned through these investments and the capital appreciation realized
are shared by its unit holders in proportion to the number of units owned by them.
Thus a Mutual Fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managed basket of
securities at a relatively low cost. The flow chart below describes broadly the
working of a mutual fund.
The Situation could vary as per age groups, mindsets and risk taking ability, but
the solution, in each case wants money to grow. Most of the investors don’t have
sufficient knowledge about different investment options, financial instrument’s
nature, market information, analytical skills and therefore their funds are lacking
proper management and diversification to get market-linked return with flexibility
as well as liquidity. These kinds of investors should prefer mutual funds to
channelise their funds properly.
A security that gives small investors access to a well-diversified portfolio of
equities, bonds and other securities. Each shareholder participates in the gain
or loss of the fund. Shares are issued and can be redeemed as needed.
Mutual Funds are the unique instrument that offers an individual professional
management, diversification, flexibility, liquidity and a chance to get market
linked returns. Mutual funds are indeed the best tool for wealth creation.
Whatever other instruments can do, mutual funds can do too – and more
efficiently.
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MUTUAL FUND INDUSTRY
Alone UTI with just one scheme in 1964 now competes with as many as 400 odd
products and 34 players in the market. In spite of the stiff competition and losing
market share, UTI still remains a formidable force to reckon with.
Last six years have been the most turbulent as well as exiting ones for the
industry. New players have come in, while others have decided to close shop by
either selling off or merging with others. Product innovation is now passé with the
game shifting to performance delivery in fund management as well as service.
Those directly associated with the fund management industry like distributors,
registrars and transfer agents, and even the regulators have become more
mature and responsible.
The industry is also having a profound impact on financial markets. While UTI
has always been a dominant player on the bourses as well as the debt markets,
the new generations of private funds which have gained substantial mass are
now seen flexing their muscles. Fund managers, by their selection criteria for
stocks have forced corporate governance on the industry. By rewarding honest
and transparent management with higher valuations, a system of risk-reward has
been created where the corporate sector is more transparent then before.
Funds have shifted their focus to the recession free sectors like pharmaceuticals,
FMCG and technology sector. Funds performances are improving. Funds
collection, which averaged at less than Rs100bn per annum over five-year period
spanning 1993-98 doubled to Rs210bn in 1998-99. In the current year
mobilization till now have exceeded Rs300bn. Total collection for the current
financial year ending March 2000 is expected to reach Rs450bn.
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What is particularly noteworthy is that bulk of the mobilization has been by the
private sector mutual funds rather than public sector mutual funds. Indeed private
MFs saw a net inflow of Rs. 7819.34 crore during the first nine months of the
year as against a net inflow of Rs.604.40 crore in the case of public sector funds.
Mutual funds are now also competing with commercial banks in the race for retail
investor’s savings and corporate float money. The power shift towards mutual
funds has become obvious. The coming few years will show that the traditional
saving avenues are losing out in the current scenario. Many investors are
realizing that investments in savings accounts are as good as locking up their
deposits in a closet. The fund mobilization trend by mutual funds in the current
year indicates that money is going to mutual funds in a big way. The collection in
the first half of the financial year 1999-2000 matches the whole of 1998-99.
India is at the first stage of a revolution that has already peaked in the U.S. The
U.S. boasts of an Asset base that is much higher than its bank deposits. In India,
mutual fund assets are not even 10% of the bank deposits, but this trend is
beginning to change. Recent figures indicate that in the first quarter of the current
fiscal year mutual fund assets went up by 115% whereas bank deposits rose by
only 17%. (Source: Thinktank, The Financial Express September 99) This is
forcing a large number of banks to adopt the concept of narrow banking wherein
the deposits are kept in Gilts and some other assets, which improves liquidity
and reduces risk. The basic fact lies that banks cannot be ignored and they will
not close down completely. Their role as intermediaries cannot be ignored. It is
just that Mutual Funds are going to change the way banks do business in the
future.
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HISTORY & BACKGROUND
Four Phases Of Mutual Fund In India
The mutual fund industry can be broadly put into four phases according to the
development of the sector. Each phase is briefly described as under.
First Phase - 1964-87
An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up
by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was de-linked
from the RBI and the Industrial Development Bank of India (IDBI) took over the
regulatory and administrative control in place of RBI. The first scheme launched
by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of
assets under management.
Second Phase - 1987-1993 (Entry of Public Sector Funds)
Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by
Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),
Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda
Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked
Rs.47, 004 as assets under management.
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Third Phase - 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund families.
Also, 1993 was the year in which the first Mutual Fund Regulations came into
being, under which all mutual funds, except UTI were to be registered and
governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton)
was the first private sector mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more
comprehensive and revised Mutual Fund Regulations in 1996. The industry now
functions under the SEBI (Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign mutual
funds setting up funds in India and also the industry has witnessed several
mergers and acquisitions. As at the end of January 2003, there were 33 mutual
funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with
Rs.44,541 crores of assets under management was way ahead of other mutual
funds.
Fourth Phase - since February 2003
This phase had bitter experience for UTI. It was bifurcated into two separate
entities. One is the Specified Undertaking of the Unit Trust of India with AUM of
Rs.29, 835 crores (as on January 2003). The Specified Undertaking of Unit Trust
of India, functioning under an administrator and under the rules framed by
Government of India and does not come under the purview of the Mutual Fund
Regulations.
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The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It
is registered with SEBI and functions under the Mutual Fund Regulations. With
the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,
000 crores of AUM and with the setting up of a UTI Mutual Fund, conforming to
the SEBI Mutual Fund Regulations, and with recent mergers taking place among
different private sector funds, the mutual fund industry has entered its current
phase of consolidation and growth. As at the end of September, 2004, there were
29 funds, which manage assets of Rs.153108 crores under 421 schemes.
GROWTH IN ASSETS UNDER MANAGEMENT
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TYPES OF MUTUAL FUNDS
Mutual fund schemes may be classified on the basis of its structure and its
investments.
By Structure:
Open-ended Funds
An open-end fund is one that is available for subscription all through the year.
These do not have a fixed maturity. Investors can conveniently buy and sell units
at Net Asset Value ("NAV") related prices. The key feature of open-end schemes
is liquidity.
Closed-ended Funds
A closed-end fund has a stipulated maturity period which generally ranging from
3 to 15 years. The fund is open for subscription only during a specified period.
Investors can invest in the scheme at the time of the initial public issue and
thereafter they can buy or sell the units of the scheme on the stock exchanges
where they are listed. In order to provide an exit route to the investors, some
close-ended funds give an option of selling back the units to the Mutual Fund
through periodic repurchase at NAV related prices. SEBI Regulations stipulate
that at least one of the two exit routes is provided to the investor.
Interval Funds
Interval funds combine the features of open-ended and close-ended schemes.
They are open for sale or redemption during pre-determined intervals at NAV
related prices.
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By Investment Objective:-
Income Funds
The aim of income funds is to provide regular and steady income to investors.
Such schemes generally invest in fixed income securities such as bonds,
corporate debentures and government securities. Income Funds are ideal for
capital stability and regular income.
Balanced Funds
The aim of balanced funds is to provide both growth and regular income. Such
schemes periodically distribute a part of their earning and invest both in equities
and fixed income securities in the proportion indicated in their offer documents. In
a rising stock market, the NAV of these schemes may not normally keep pace, or
fall equally when the market falls. These are ideal for investors looking for a
combination of income and moderate growth.
Growth Funds
The aim of growth funds is to provide capital appreciation over the medium to
long-term. Such schemes normally invest a majority of their corpus in equities. It
has been proven that returns from stocks, have outperformed most other kind of
investments held over the long term. Growth schemes are ideal for investors
having a long-term outlook seeking growth over a period of time.
Money Market Funds
The aim of money market funds is to provide easy liquidity, preservation of
capital and moderate income. These schemes generally invest in safer short-
term instruments such as treasury bills, certificates of deposit, commercial paper
and inter-bank call money. Returns on these schemes may fluctuate depending
upon the interest rates prevailing in the market. These are ideal for Corporate
and individual investors as a means to park their surplus funds for short periods.
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Load Funds:
A Load Fund is one that charges a commission for entry or exit. That is, each
time you buy or sell units in the fund, a commission will be payable. Typically
entry and exit loads range from 1% to 2%. It could be worth paying the load, if
the fund has a good performance history.
No-Load Funds:
A no-Load Fund is one that does not charge a commission for entry or exit. That
is, no commission is payable on purchase or sale of units in the fund. The
advantage of a no load fund is that the entire corpus is put to work.
Other Schemes:-
Tax saving Schemes
These schemes offer tax rebates to the investors under specific provisions of the
Indian Income Tax laws as the Government offers tax incentives for investment
in specified avenues. Investments made in Equity Linked Savings Schemes
(ELSS) and pension Schemes are allowed as deduction u/s 88 of the Income
Tax Act, 1961. The Act also provides opportunities to investors to save capital
gains u/s 54EA by investing in Mutual Funds, provided the capital asset has been
sold prior to April 1, 2000 and the amount is invested before September 30,
2000.
Special Schemes:-
Industry Specific Schemes
Industry Specific Schemes invest only in the industries specified in the
offer document. The investment of these funds is limited to specific
industries like InfoTech, FMCG and Pharmaceuticals etc.
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Index Schemes
Index Funds attempt to replicate the performance of a particular index
such as the BSE Sense or the NSE 50
Sectoral Schemes
Sect oral Funds are those, which invest exclusively in a specified industry
or a group of industries or various segments such as 'A' Group shares or
initial public offerings.
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PROCESS OF MUTUAL FUND
In the above graph shows how Mutual Fund works and how investor earns
money by investing in the Mutual Fund. Investors put their saving as an
investment in mutual fund. The fund manager, who is a person who takes the
decisions where the money should be invested in securities according to the
scheme’s objective. Securities include Equities, Debentures, Govt. securities,
Bonds and Commercial Paper etc. These securities generate returns to the fund
manager. The fund manager passes beck return to the investor.
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Mutual Funds – Organization
There are many entities involved and the diagram below illustrates the
organizational set up of a mutual fund:
Organization of a Mutual Fund
Rights of a Mutual Fund Unit holder
A unit holder in a Mutual Fund scheme governed by the SEBI (Mutual Funds)
Regulations is entitled to:
1. Receive unit certificates or statements of accounts confirming the title
within 6 weeks from the date of closure of the subscription or within 6
weeks from the date of request for a unit certificate is received by the
Mutual Fund.
2. Receive information about the investment policies, investment objectives,
financial position and general affairs of the scheme.
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3. Receive dividend within 42 days of their declaration and receive the
redemption or repurchase proceeds within 10 days from the date of
redemption or repurchase.
4. Vote in accordance with the Regulations to:-
a. Approve or disapprove any change in the fundamental investment
policies of the scheme, which are likely to modify the scheme or
affect the interest of the unit holder. The dissenting unit holder has
a right to redeem the investment.
b. Change the Asset Management Company.
c. Wind up the schemes.
5. Inspect the documents of the Mutual Funds specified in the scheme's offer
document.
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Why should one invest in mutual funds……?
• One can avail of the benefits of better returns with added
benefits of anytime liquidity by investing in open-ended debt
funds at lower risk.
• One can minimize his risk by investing in mutual funds as the
mutual fund managers analyze the companies’ financials more
minutely than an individual can do as they have the expertise to
do so. They can manage the maturity of their portfolio by
investing in instruments of varied maturity profile.
• Moreover, mutual funds are better placed to absorb the
fluctuations in the prices of the securities as a result of interest
rate variation and one can benefits from any such price
movement.
• Liquid funds offer liquidity as well as better return than banks and
so attract investors. Many funds provide anytime withdrawal
enabling a big investor to take maximum benefits.
• Apart from liquidity, the funds provide very good post-tax returns
on year-to-year basis. Even some of the debt funds have
generated superior returns at relatively low level of risk. On an
average debt funds have posted returns over 10 percent over
one year horizon. In nutshell we can say that these funds have
delivered more than what one expects of debt avenues such as
post office schemes or bank fixed deposits.
• Mutual funds specialize in identification of stocks through
dedicated experts in the field and this enables them to pick
stocks at the right movement. Sector funds provide an edge and
generate good returns if the particular sector is doing well.
• The benefits listed so far are essentially for the small retail
investor but the industry can attract investments from institutional
and big investors as well.
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Moving up in the risk spectrum, there are many people who
would like to take some risk and invest in equity funds/capital
market. However, since their appetite for risk is also limited, they
would rather have some exposure to debt as well. For these
investors, balanced funds provide an easy route of investment.
Armed with the expertise of investment techniques, they can
invest in equity as well as in good quality debt thereby reducing
risk and providing the investor with better returns than he could
otherwise manage.
• Next problem is that of our funds or money. A single person can’t
invest in multiple high-priced stocks for the sole reason that his
pockets are not likely to be deep enough. This limits him from
diversifying his portfolio as well as benefiting from multiple
investments.
• Investing through MF route enables an investor to invest in many
good stocks and reap benefits even through a small investment.
This not only diversifies the portfolio and helps in generating
returns from a number of sectors but reduces the risk as well.
Through identification of the right fund might not be an easy task,
a good investment consultants and counselors will can investors
take informed decision.
• Investing in just one Mutual Fund scheme may not meet all
investment needs. One might consider investing in a
combination of schemes to achieve your specific goals. Here is
the risk, return grid that shows how and where an investor can
invest according to his risk, returns appetite. An investor can see
different kinds of funds where in he can get maximum benefit
with utmost care.
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Common investment mistakes that people can make
Knowing about some investment mistakes people can make.
1. Investing without a clear plan of action: Many people neglect to take
the time to think about their needs and long-term financial goals before
investing. Unfortunately, this often results in falling short of their
expectations. You should decide whether you are interested in rice
stability, growth, or a combination of these. Determine your investment
goals. Then, depending on your age and your tolerance for risk, select
mutual fund with objective similar to yours.
2. Meddling with your account too often: You should have clear
understanding of your investments so that you are comfortable with their
behavior. If you keep transferring investments in response to downturns in
prices, you may miss the upturns as well. Even in the investment field, the
“tortoise” that is more patient, may win over the “hare”. While past
performance does not necessarily guarantee future performance, your
understanding of the behavior of various investments over a time can help
prevent you from becoming shortsighted about your long-term goals.
3. Losing sight of inflation: While may be aware of the fact that the cost of
goods and services are rising, people tend to forget the impact of inflation
will have on investment in long-term. The value of Rs.100 in 1980 was
down to Rs. 26 in 1995. This means that the buying power of rupee has
decreased, you can not buy as much for Rs.100 now that you could back
in 1980. (Consumer price index for urban non-manual employees has
grown by 9.35% per annum between 1980-81 and 1994-95. Source: RBI
report on Currency and Finance).You have to keep in mind that will eat
into your savings faster than you can imagine.
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4. Investing too little too late: People do not “pay themselves first”. Most
people these days have too many bills to pay every month, and planning
for your future often takes a backseat. Regardless of age or income, if you
do not place long-term investing among your top priorities, you may not be
able to meet your financial goals. The sooner you start, the less you have
to save every month to reach your financial goals.
5. Do not put all your eggs into one basket, diversify: When it comes to
investing, most of us do not appreciate the importance of diversification.
While we know that we should not “put all our eggs in one basket”, we
often relate this concept to stocks and bonds. Take the time to discuss the
importance of diversifying investments among different assets categories
and industries. When you spread your holdings around, you do not have
to rely on the success of just one investment.
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BENEFITS OF MUTUAL FUND
Benefits of Mutual Funds
Mutual funds serve as a link between the saving public and the capital markets.
They mobilize savings from the investors and bring them to borrowers in the
capital markets. Today mutual funds are fast emerging as the favorite investment
vehical because of the many advantages they have over other forms and
avenues of investing. The major advantages offered by mutual funds to all
investors are:
Professional Management
Mutual Funds provide the services of experienced and skilled professionals,
backed by a dedicated investment research team that analyses the performance
and prospects of companies and selects suitable investments to achieve the
objectives of the scheme.
Diversification
Mutual Funds invest in a number of companies across a broad cross-section of
industries and sectors. This diversification reduces the risk because seldom do
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all stocks decline at the same time and in the same proportion. You achieve this
diversification through a Mutual Fund with far less money than you can do on
your own.
Variety
Mutual funds offer a tremendous variety of schemes. This variety is beneficial in
two ways: first, it offers different types of schemes to investors with different
needs and risk appetites; secondly it offers an opportunity to investors to
invest sums across a variety of schemes, both debt and equity. For example, an
investor can invest his money in a Growth Fund ( equity scheme) and Income
Fund (Debt scheme) depending on his risk appetite and thus creates balanced
portfolio easily or simply just buy a Balanced scheme.
Convenient Administration
Investing in a Mutual Fund reduces paperwork and helps you avoid many
problems such as bad deliveries, delayed payments and follow up with brokers
and companies. Mutual Funds save your time and make investing easy and
convenient.
Return Potential
Over a medium to long-term, Mutual Funds have the potential to provide a higher
return as they invest in a diversified basket of selected securities.
Low Cost
Mutual Finds are a relatively less expensive way to invest compared to directly
investing in the capital markets because the benefits of scale in brokerage,
custodial and other fees translate into lower costs for investors.
Liquidity
In open-end schemes, the investor gets the money back promptly at net asset
value related prices from the Mutual Fund. In closed-end schemes, the units can 24
be sold on a stock exchange at the prevailing market price or the investor can
avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.
Transparency
You get regular information on the value of your investment in addition to
disclosure on the specific investments made by your scheme, the proportion
invested in each class of assets and the fund manager's investment strategy and
outlook.
Flexibility
Through features such as regular investment plans, regular withdrawal plans and
dividend reinvestment plans, you can systematically invest or withdraw funds
according to your needs and convenience.
Affordability
Investors individually may lack sufficient funds to invest in high-grade stock. A
mutual fund because of its large corpus allows even a small investor to take the
benefit of its investment strategy.
Choice of schemes
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.
Regulations
All Mutual Funds are registered with SEBI and they function within the provision
of strict regulations designed to protect the interests of investors. The operations
of Mutual Funds are regularly monitored by SEBI.
Tax BenefitsAny income distributed after March 31, 2002 will be subject to tax in assessment
of all unit holders. However, as a measure of concession to unit holders of open-
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ended equity-oriented funds, income distributions for the year ending March
31,2003,will be taxed at a concessional rate of 10.5%.
In case of Individuals and Hindu Undivided Families a deduction up to Rs 9000
from the Total income will be admissible in respect of income from investments
specified in Section 80L, including income from units of the Mutual Fund. Units of
the schemes are not subject to Wealth-Tax and Gift-Tax.
DRAWBACKS OF INVESTING IN MUTUAL FUNDS
Potential loss
Unlike a bank deposit, the investment in a mutual fund could fall in value, as the
fund is nothing bur a portfolio of different securities. Apart from a few assured
returns schemes, the fund does not guarantee any minimum percentage of
return.
The Diversification Penalty
While diversification reduces the risk of loss from holding a single security, it also
limits the larger gains if a single security increases dramatically in value. Also,
diversification does not protect the unit holders totally from an overall decline in
the market.
No tailor made portfolio
Mutual fund portfolios are created and marked by AMCs, in to which investors
invest. They can not made tailor made portfolio.
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MUTUAL FUND REGULATION
There was no uniform regulation of the mutual funds industry till a few years ago.
The UTI was regulated by a special Act of Parliament while funds promoted by
public sector banks were subject to RBI Guidelines of July 1989. The Securities
& Exchange Board of India (SEBI) was formed in 1993 as a capital market
regulator. One of its responsibilities was to regulate the mutual fund industry and
it came up with comprehensive regulations for the industry in 1993. The rules for
the formation, administration and management of mutual funds in India were
clearly laid down. Regulations also prescribed disclosure requirements.
The regulations were thoroughly reviewed and re-notified in December 1996. The
revised guidelines tighten the accounting and disclosure requirements in line with
recommendations of The Expert Committee on Accounting Policies, Net Asset
Values and Pricing of Mutual Funds. The SEBI (Mutual Funds) Regulations, 1996
have been further amended in 1997, 1998 and 1999. Today, all mutual funds are
regulated by SEBI. Efforts have been made to bring UTI schemes under SEBI's
ambit with the result that all schemes, with the exception of Unit 64, are now
regulated by the capital market regulator.
Some facts for the growth of mutual funds in India
100% growth in the last 6 years.
Number of foreign AMC's are in the queue to enter the Indian markets like
Fidelity Investments, US based, with over US$1trillion assets under
management worldwide.
Our saving rate is over 23%, highest in the world. Only channelizing these
savings in mutual funds sector is required.
27
We have approximately 29 mutual funds which is much less than US
having more than 800. There is a big scope for expansion.
'B' and 'C' class cities are growing rapidly. Today most of the mutual funds
are concentrating on the 'A' class cities. Soon they will find scope in the
growing cities.
Mutual fund can penetrate rural like the Indian insurance industry with
simple and limited products.
SEBI allowing the MF's to launch commodity mutual funds.
Emphasis on better corporate governance.
Trying to curb the late trading practices.
Legal and Regulatory Framework
Mutual funds are regulated by the SEBI (Mutual Fund) regulations, 1996. SEBI is
the regulator of all funds, except offshore funds. Bank sponsored mutual finds
are jointly regulated by SEBI and RBI permission. If there is a bank sponsored
find, it cannot provide a guarantee without RBI permission. RBI regulates money
and govt. securities in which mutual fund invest. Listed mutual funds are subject
to the listing regulations of stock exchanges. Since the AMC and trustee co, are
Co.s they are regulated by the department of co affairs, they have to send
periodic report to the roc and the co law board is the appellate authority.
28
Investors cannot sue the trust, as they are the same as the trust and cant sure
themselves. UTI is governed by the UTI act, 1963 and is voluntarily under SEBI
regulations. UTI can borrow as well as lend and also engage in other financial
services activities. SROs are the second tier in the regulatory structure; SROs
cannot do any legislation on their own. All stock exchanges are SROs. AMFI is
an industry association of mutual funds. AMFI is not yet a SEBI registered SRO.
AMFI has created code for mutual funds. AMFI aims at increasing investor
awareness about mutual finds, encouraging best practices and bringing about
high standards of professional behavior in the industry.
29
Association of Mutual Funds in India (AMFI)
With the increase in mutual fund players in India, a need for mutual fund
association in India was generated to function as a non-profit organisation.
Association of Mutual Funds in India (AMFI) was incorporated on 22nd August,
1995.
AMFI is an apex body of all Asset Management Companies (AMC) which has
been registered with SEBI. Till date all the AMCs are that have launched mutual
fund schemes are its members. It functions under the supervision and guidelines
of its Board of Directors.
Association of Mutual Funds India has brought down the Indian Mutual Fund
Industry to a professional and healthy market with ethical lines enhancing and
maintaining standards. It follows the principle of both protecting and promoting
the interests of mutual funds as well as their unit holders.
The objectives of Association of Mutual Funds in India
The Association of Mutual Funds of India works with 30 registered AMCs of the
country. It has certain defined objectives which juxtaposes the guidelines of its
Board of Directors. The objectives are as follows:
This mutual fund association of India maintains a high professional and ethical
standards in all areas of operation of the industry.
It also recommends and promotes the top class business practices and code of
conduct which is followed by members and related people engaged in the
activities of mutual fund and asset management. The agencies who are by any
means connected or involved in the field of capital markets and financial services
also involved in this code of conduct of the association.
30
AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual
fund industry.
Association of Mutual Fund of India do represent the Government of India, the
Reserve Bank of India and other related bodies on matters relating to the Mutual
Fund Industry.
It develops a team of well-qualified and trained Agent distributors. It implements
a programme of training and certification for all intermediaries and other engaged
in the mutual fund industry.
AMFI undertakes all India awareness programme for investors in order to
promote proper understanding of the concept and working of mutual funds.
At last but not the least association of mutual fund of India also disseminate
information’s on Mutual Fund Industry and undertakes studies and research
either directly or in association with other bodies.
31
FUTURE SCENARIO
The asset base will continue to grow at an annual rate of about 30 to 35 % over
the next few years as investor’s shift their assets from banks and other traditional
avenues. Some of the older public and private sector players will either close
shop or be taken over.
Out of ten public sector players five will sell out, close down or merge with
stronger players in three to four years. In the private sector this trend has already
started with two mergers and one takeover. Here too some of them will down
their shutters in the near future to come.
But this does not mean there is no room for other players. The market will
witness a flurry of new players entering the arena. There will be a large number
of offers from various asset management companies in the time to come. Some
big names like Fidelity, Principal, Old Mutual etc. are looking at Indian market
seriously. One important reason for it is that most major players already have
presence here and hence these big names would hardly like to get left behind.
In the U.S. most mutual funds concentrate only on financial funds like equity and
debt. Some like real estate funds and commodity funds also take an exposure to
physical assets. The latter type of funds are preferred by corporate’s who want to
hedge their exposure to the commodities they deal with.
For instance, a cable manufacturer who needs 100 tons of Copper in the month
of January could buy an equivalent amount of copper by investing in a copper
fund. For Example, Permanent Portfolio Fund, a conservative U.S. based fund
invests a fixed percentage of it’s corpus in Gold, Silver, Swiss francs, specific
stocks on various bourses around the world, short –term and long-term U.S.
treasuries etc.
32
In U.S.A. apart from bullion funds there are copper funds, precious metal funds
and real estate funds (investing in real estate and other related assets as well.).In
India, the Canada based Dundee mutual fund is planning to launch a gold and a
real estate fund before the year-end.
In developed countries like the U.S.A there are funds to satisfy everybody’s
requirement, but in India only the tip of the iceberg has been explored. In the
near future India too will concentrate on financial as well as physical funds.
The mutual fund industry is awaiting the introduction of DERIVATIVES in the
country as this would enable it to hedge its risk and this in turn would be reflected
in it’s Net Asset Value (NAV).
SEBI is working out the norms for enabling the existing mutual fund schemes to
trade in Derivatives. Importantly, many market players have called on the
Regulator to initiate the process immediately, so that the mutual funds can
implement the changes that are required to trade in Derivatives.
33
DIFFERENT TERMS
Sale Price
Sale price is the price you pay when you invest in a scheme. Also called Offer
Price. It may include a sales load.
Repurchase Price
Repurchase price is the price at which a close-ended scheme repurchases its
units and it may include a back-end load. This is also called Bid Price.
Redemption Price
Redemption price is the price at which open-ended schemes repurchase their
units and close-ended schemes redeem their units on maturity. Such prices are
NAV related.
Sales Load
Sales load is a charge collected by a scheme when it sells the units. Also called,
‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’
schemes.
NET ASSETS VALUE (NAV)
The performance of a particular scheme of mutual fund is denoted by Net Assets
Value (NAV).Mutual fund invest the money collected from the investors in
securities markets. In simple word, Net Asset Value is the market value of the
securities held by the scheme. Since market value of securities changes every
day, NAV of a scheme also varies on day to day basis. The NAV per unit is the
34
market vale of securities of a scheme divided buy the total no of units of the
scheme of any particular date. For example if the market value if securities of a
mutual fund scheme is Rs. 200 lakhs and mutual fund has issue 10 lakhs units of
Rs.10 each to the investors, then the NAV per unit of the fund is Rs. 20 . NAV is
required to be disclosed by the mutual funds on a regular basis –daily of weekly-
depending on the type of scheme.
The net assets value (NAV) is the actual value of one unit of a given scheme in
any given business day. The NAV reflect the liquidation value of the funds
investments on that particular day after accounting for all expenses. It is
calculated by deducting all liabilities except unit capital of the fund from the
realizable value of all assets and dividing it by number of units outstanding.
So NAV is equals to-
Market / fair value of schemes
(+) Receivables
(+) Accrued income
(+) Other assets
(-) Accrued expenses
(-) Payables
(-) Other liability
(/) Number of unit outstanding.
Here, "other assets" includes any income due to the fund but not received as on
the valuation date (for example, dividend announced by a company but yet to be
received). Similarly, "other liabilities" includes expenses payable by the fund, for
example management fees payable to the AMC. Thus, SEBI requires that all
expenses and incomes are accrued up to the valuation date and considered for
NAV computation.
35
Net Asset Value - NAV
1. In the context of mutual funds, the total value of the fund's portfolio less
liabilities. The NAV is usually calculated on a daily basis.
2. In terms of corporate valuations, the book value of assets less liabilities.
Notes:
The NAV is usually below the market price because the current value of the
fund’s assets is higher than the historical financial Net Asset Value Per Share
- NAVPS
1. The value of a mutual fund share. Calculated by dividing the total net asset
value of the fund by its number of outstanding shares.
2. A fundamental analysis indicator that gives an estimate of the value of a
fund's shares after all assets are sold and all liabilities are paid off.
Notes:
1. In other words, NAVPS is the value of a single unit of a mutual fund. This
figure is affected by both its underlying value and market forces. It is
important to consider both these factors when buying a mutual fund
because the price that the fund investors pay is based on them.
2. The NAVPS is usually below the market price per share because the
current value of the fund's assets is higher than the value appearing on the
historical financial statements used in the NAVPS calculation. Financial
statements used in the NAV.
36
Unit
Unit means the interest of the holders in a scheme. Each unit represents one
undivided share in the assets of a scheme. The value of each changes
depending on the performance of the fund.
Asset Management Company (AMC)
Making decisions regarding investment of the money of the unit holders is a
tricky affair. People at the helm of affairs need to have knowledge about
investment alternatives and should also have up- to- date information. This is
where the role of an Asset Management Company comes into play. The AMC
has to act as the investment manager of the Trust under the Board supervision
and direction of the Trustees. The AMC should also be approved and registered
with the SEBI as an AMC. Directors of the AMC should have adequate
professional experience in financial services and should be individuals of high
moral standing.
One of the other objectives of forming an AMC is that of bringing about
transparency in the working of a mutual fund. The AMC and its directors are
answerable to the Trustees and must submit quarterly reports to them on AMC
activities. They also have to make required disclosures to the investors in areas
such as calculation of NAV and repurchase price.
Lock in period:
Lock-in-period is the minimum period for which investment made in new units of
a scheme cannot be redeemed. Normally, this is specified for tax saving
schemes.
37
Systematic transfer plan:
This is a plan offered by some funds under which an investor may choose to
transfer a specified amount from their investments in one scheme of the fund to
another scheme of the same fund at periodic intervals (usually monthly or
quarterly).
Systematic investments plan:
Under these plans, the investor gives a mandate to the mutual fund to allot fresh
units at specified intervals (monthly, quarterly, etc.) against which the investor
provides post-dated cheques. On the specified dates, the cheques are realized
by the mutual fund and, additional units at the prevailing NAV are allotted to the
investor.
This is highly convenient for a person who has a regular source of income and
wishes to allocate a portion of the same towards savings.
The investor does not need to spend time and effort in evaluating investments in
each time interval and probably ensures that the surplus funds do not remain
idle.
It carries an additional advantage of Rupee Cost Averaging. By investing a fixed
amount at regular intervals, one ends up buying more units when the price is low,
and fewer units when the price is high. As a result, over a period of time, the
average unit costs will always be less than average market price per unit,
irrespective of whether the market is rising, falling or fluctuating.
38
SURVEY FINDINGS
39
Background &Need for the study:
It is widely believed that MF is a retail product designed to target small investors,
salaried people and others who are intimidated by the stock market but
nevertheless, like to reap the benefits of stock market investing. At the retail
level, investors are unique and are a highly heterogeneous group. Hence,
designing a general product and expecting a good response will be futile, through
UTI could do this nearly for three decades (1964-1987) due to its monopoly in the
industry. In the second phase of oligopolistic competition (1987-1992), the public
sector banks and financial institutions entered the field, but with the then existing
boom condition, it was a smooth sailing for the industry. Further, the globalization
and liberalization measures announced by the government led to a paradigm
shift in the mindset of investors and the capital market environment become
more unfriendly to retail investors. They had no other choice but to turn to MFs to
reap the benefits of stock market investing. Hence, the need to be innovative in
designing the product was not felt and investors had to choose from the limited
schemes offered. During the third phase (1992 hence) the industry was thrown
open to the private sector and the stage got set for competition.
Currently there are more than 477 schemes with varied objectives and AMCs
compete against one another by launching new products or repositioning old
ones. Now MF industry is facing competition not only from within the industry but
also from other financial products that may provide many of the same economic
functions, as MFs but are not strictly MFs. For example, in US, one saving
institution has patented a product that promises to deliver consumers a pay off
indexed to college tuition costs, thus attempting to meet a common consumer
requirement. This product is structured as a certificate of deposit, but it could
have been set up as a Mutual Fund. Such products will shortly appear in the
Indian market also. Other examples could be ULIP plans which are giving a good
competition to MFs. All this, in aggregate, heightens the consumer confusion in
his selection of the product. He is confused as to how to shift the grain from the
40
chaff? Unless the MF schemes are tailored to his changing needs, and unless
the AMCs understand the fund selection/switching behavior of the investors,
survival of the funds will be difficult in future. With this background an attempt
is made in this project to study the factors influencing the fund/scheme
selection behaviors of retail investors.
Objectives of the Study:
In order to examine the issues raised above, this survey has the following
objectives before it:
1) To understand the savings avenue preference among MF investors
2) To identify the features the investors look for in Mutual Fund products.
3) To identify the schemes preference of investors.
4) To identify the factors that influencing the investor’s fund/scheme selection.
5) To identify the information sources influencing the scheme selection decision.
6) To identify the preferred communication mode.
Sample Plan:
Sampling Unit: Any individual above the age of 20 years and who is earning.
Sample size: 100 people from Ahmedabad. Sample Area: Maninagar, Vejalpur, Navarangpura, Sarangpur
Sampling Method: Random Sampling
41
Research Instrument:
The research instrument used for primary data collection is questionnaire. The
questionnaire has close ended questions. (Questionnaire is attached as
Annexure) The questionnaire is supposed to be given to an individual to fill up on
his own.
Importance and Benefits:
Though many MF are giving nearly 100% returns in a year, only 2% of total
population has invested in MF. The research would help to understand the
reasons why people invest less in MF. This research would help AMCs to
understand what steps can be taken to increase the investment in MF.
Limitation of the study:
1. Sample size is limited to 150 educated investors in Ahmedabad only. The
sample size may not adequately represent the National market.
2. This study has not be conducted over an extended period of the time
having both market ups and downs. The market state has significance
influence on the buying patterns and preferences of investors. For
example, the July 2001 fall has sent violent shock waves across the MF
investor community and is bound to influence the scheme preference/
selection of the investors. The study has not captured such situations.
3. We have to depend on a small sample size of investors to find out the
results of the study which may become biased and this sample might be
small to gather an in depth knowledge of MF.
4. Investor’s behavior is affected by various factors and in a short span of
time it is not possible to study all this factors.
5. It may not be possible to take proportional sample size from each area.
42
6. People might not reveal there true investment behavior in the interview.
Therefore it might lead to error in judgment.
Method of Data Collection
For the purpose of understanding investor’s behavior we have collected data
from both primary as well as secondary data. Survey sample is taken as 100.
Primary data-in order to collect direct information from investors we have
designed a questionnaire. We have approached investors of different age and
income groups.
Secondary data -in secondary data we have collected articles related to
investor’s behavior from different sources like internet, magazines, newspaper
and documents provided by our company.
Framework of Analysis:
To understand the savings avenue preference, scheme preference, and objective
for investment in MFs, and also to identify the information sources to influencing
scheme selection, and the preferred mode of communication, the respondents
were asked to rank their preferences on a ranking scale. The ranks were
ascertained by obtaining the weighted mean value of the responses.
OBSERVATIONS:
Characteristics and Attributes of Focused & Disciplined Investor
• Taking investment as serious study, research and monitoring work and not
a casual game with hear-say and hope for the best.
• Understand investment is a matter of timing, not blindly in long term.
43
• Invest in market instrument that have potential to bring the best return, not
using diversification of mix-up good apples with bad fruits.
• Study risk / reward carefully and prepare to exit if faced with high
uncertainty to acquired gain, or preserve capital or cut loss.
• Make research on future scenarios of investment performance with
monitoring to validate the assumptions and not to deal with uncertainty or
unknown.
• Take care of every dollar of investment to ensure its value creation.
Behavior about investing in Mutual Fund is pretty different.
• Most of the people are unaware of MFs or they feel it is very complicated
thing. They don’t understand the philosophy of Mutual Funds.
• Most of the people invest in MFs only for the purpose of tax benefits. They
are not very much concerned about the returns which ELSS schemes are
giving but they are only concerned about getting the tax deductions.
• Those people who want to invest in equity market but don’t have
knowledge and huge amount of money to invest in share market and don’t
even have ability to take high risk, mutual funds comes out to be the best
option for them. These kinds of people invest heavily in mutual funds.
Majority of their go in to the mutual funds.
• Investors who are well aware of the knowledge of stock market, who can
manage their portfolio, they don’t want invest in mutual funds because
they get huge profits in stock market. They generally divide their
investments into two parts i.e. Fixed income instruments like FDs, Bond,
Debentures, PPF, NSC, etc and Stock Market. MFs is a kind of midway
between these two. Even if they know about the mutual funds they are not
interested. These kinds of investors are very aggressive and high risk
taking.
44
• Mutual Funds are attractive to only those people who don’t have
knowledge about share market, don’t have sufficient Funds and time to
track the market and don’t want to take high risks.
• Some investors are very risk averse. They don’t want to invest in MFs just
because it is an indirect investment in stock market.
People who don’t want to invest in mutual funds:
• Those who have never invested.
• Those who are unaware of mutual funds.
• Those who are very risk averse.
• Those who enjoy investing in stock market, they find MF as a boaring.
45
Bird’s Eye view of the Sample Taken
No. of respondents
Male80%
Female20%
Male
Female
• The sample size of the survey is 100 people out of which 20 were males
and 80 females. The survey was done without gender bias. The purpose
of conducting the survey was to find out investment behavior of people
who are preferably earning and have some money to invest.
46
Age Group
32%
44%
24%20-35
35-50
above 50
• Out of these 100 people, 32 lie in the age group of 20-35 years, 44 in the
age group of 35-50 years and 24 above 50 years of age. The age groups
were selected in this manner because a considerable change in the
knowledge and investment pattern was seen in these break-ups.
47
Occupation
71%3%
24%2%
Service
Student
Business
Retired
• The service class people capture the maximum share of 71%. The second
largest share is of the businessman with 24%. Student (3%) and retired
(2%)people were also included in the sample size but it was realized that
they could not contribute much.
48
Qualification
3%
40%
23%
34% 12th
Graduate
PG
Prof. Cource
• Around 40% people are graduates and 34% people have completed their
professional courses. Here we can relate Qualification with Age group and
Occupation. We find from our survey that under graduate (3%) people are
not more aware about MF product. In our survey we found that the people
who have done PG (23%) and Prof. Course are in service class. So it can
be one of the reasons that they prefer safety in Investment so they invest
in MF rather than stock market.
49
Preferred Scheme
84.57%
15.43%
Open Ended
Close Ended
Interpretation: Based on the duration of operation of schemes, the 1st
preference is for open- ended schemes (84.57%) and only 15.43% of the
respondents favor close-ended schemes. The main reason for more investment
in Open-ended scheme is no entry and exit barriers. Generally, those people who
want to invest for a long period of time prefer Close-ended schemes.
50
Que. 1 Are you aware about Mutual Funds?
Awareness of people
70%
30%
aware
unaware
Interpretation: The above graph shows that from the total 100 respondents,
70% of people are aware about Mutual Fund while 30% of people are not
aware about Mutual Fund. From our survey of 100 respondents awareness of
MF product is more in service class people. A large group of business class
people is aware about Mutual Fund as to take risk is the nature of business
class people they invest in stock market for high returns.
51
Que.2 How will you describe your investment knowledge of Mutual Funds?
Investment Knowledge
5% 8%
47%
40%Excellent
Good
Average
Poor
Interpretation: Out of surveyed 100 people 70 % people are aware about
Mutual fund. Out of this 70 %, 5% people have excellent knowledge, 8%
people have Good knowledge, 47% people have Average knowledge about
mutual fund and remaining 40% people have poor knowledge about this
financial product. Having average knowledge people are mostly aware about
MF concept and they also invest in Mutual Fund for a long or short period of
time. Here, the service class people have average to good knowledge, they
want to know more about MF but because of time constraints they are unable
to do so. As we also found in our survey that having poor knowledge people
just know only about MF as an Investment tool and invest in it without
knowing it.
52
Que.3 What is the purposes of your investments?
Purpose Of Investment
57%28%
9% 6%
High Returns Tax Benefits Short-term Planning Others
Interpretation: From the above graph we can analyze that 57% people want
high returns in return of their investment while 28% people invest for the purpose
of tax benefits. People having the age group of 20-35 and 35-50 want high
returns from their investment. And the people having age above 50 years invest
for the purpose short term planning (9%). The reason for investing for short
period as they do not follow any long term planning investment with relation to
their age and any time need of money.
53
Que.4 For what time period do you normally invest?
Time Period
45%
32%
13%7% 3%
6 months 6 months to 1 year 1 year to 3 years
3 to 5 years > 5 years
Interpretation: The above graph shows that more and more people i.e. 45%
invest for 6 months while 32% invest for 6 months to1 year and only 3%
prefer to invest for more than 5 years. From our survey we mostly find that
service class people and age ranges between 20-35 invest mostly for the time
period of 6 months to 1 year. We have also found that under graduate people
who invest in MF are don’t want to for more than 6 months. Having
professional degrees like CA, Doctors, MBA, CS etc. are like to invest for the
time period of 1 year to 3 years, which are 13%. Businessperson is investing
more for the period of 3 to 5 years, which are 7%.
54
Que.5 Rank the investment options according to your preferences (i.e. Most Preferable-1, Least preferable-8) (Tick any one)
Investment Options
30
22.5
13.5
654.5 3
15.5
Fixed Deposits PPFPost Office Mutual fundStock Market Govt. & RBI bondsPublic Issues/ IPO's LIC
Interpretation: People are habitual to invest and they have many investment
options. But from our survey we find that because of safety reasons people
mostly invest in Fixed Deposits and another reason we can say that from the
surveyed 20% female they only go for savings for that’s why FDs (30%) have
maximum 30%. Service related people are also investing in PPF(22.5%) as
they found it the safer one. Post office and Mutual Fund are also popular as
an investment tool as share of both 15.5% and 13.5%. While LIC is 3%, Govt.
&RBI bonds is 5% and Public Issues/IPO’S is 4.5% in the total survey.
55
Que. 6 If you invest in Mutual Funds, what is the share of mutual fund in your
total investments?
Share of investment
35
40
18
7
0 20 40 60
0-25%
25-50%
50-75%
75-100%
Series1
Interpretation: Out 70 people 35% people said that their share of mutual
funds in total investment ranges between 0-25percent. Only 40% people were
having share of 25-50% as mutual fund in their total investment. While 18%
people have the share of 75-100%. Now a days people are more aware
about Mutual Fund and other investment tool. The proportion of savings in
total income has also been increased. Another reason for more investment is
that they are becoming more future conscious and so they invest more out of
their total savings so that they can use their money whenever it will be
needed.
56
Que.7 What are the types of Mutual Fund schemes where you normally invest
in?
Investment Plans
5%
40%
25%
30%
Monthly Income Funds Equity Funds
Balanced Funds Debt Funds
Interpretation: The above graph shows that out of 70 people 40% invest in
Equity funds. Out of remaining 60%, 30% invest in Debt funds while 25% and 5%
people invest in Balanced funds and Monthly Income Fund respectively. This
shows that the people who give the 1st preference to Risk & Return factor, they
invest in Equity Funds. Generally, Business class people invest more in Equity
Funds because of high risk and high return. People also give more importance to
NAV because the people who have average to poor knowledge give more
importance to NAV and the NAV of the Equity Funds are always more than any
other funds. People who don’t want to take more risk on their investment they
mostly invest in Debt Funds.
57
Que.9 Which are the companies in which you invest the most?
Investment in company
30
2119
15
9 6
Reliance MF Franklin T empletonFidelity HDFC MFPru.ICICI SBI
Interpretation: Reliance Mutual Fund is having the 1st position among the 6
mutual fund companies. Franklin Templeton and Fidelity are on 2nd and 3rd
position respectively while HDFC MF is on the 4 th position with 15%. Pru. ICICI &
SBI HAVE 9% and 6% share respectively. As Reliance has a good image in the
mind of people who have faith in Reliance. So when Reliance entered in Mutual
Fund people invest more and it results in 1st rank among the all MF Companies.
Where HDFC MF is known for the its professionalism and for this reason CRISIL
has given the 1st rank to HDFC MF. HDFC is assumed to be a bit conservative
for short-term investments. That’s why prefer Reliance over HDFC because of its
aggressiveness.
58
Que.10 What types of investing procedure do you normally follow?
Investment Procedure
15%
85%
Lumpsum
SIP
Interpretation: From our survey we find that people are investing in both Lump
sum and SIP equally. But the people who are investing on large basis they prefer
to invest in Lump sum. While service class has a tendency to invest in SIP as it is
benefited on certain ways like monthly installments. Another reason for the
service class people is that they don’t have more money to pay at a time. The
investor does not need to spend time and effort in evaluating investments in each
time interval and probably ensures that the surplus funds do not remain idle.
Reason in investing in SIP is also more units allocation.
59
Que.11 In what type of plan do you normally invest in?
Investment Options
65
15
17
3
0 20 40 60 80
Growth Fund
Dividend Payout
Dividend Reinvest
Indifferent among the plan
Series1
Interpretation: The people who have good knowledge about Mutual Fund invest
in Growth Fund (65%) because they get interest on capital. It means their money
is compounded annually. In long run dividend reinvestment (17%) and growth
fund becomes the same. In the matter of NAV growth funds are more beneficial
than dividend related funds because it has very short portion of Equity.
60
Que.12 At what time do you normally invest in mutual funds?
Time Of Investment
18%
16%
24%
42%
NFO Any time Year Ending Whenever sufficint saving
Interpretation: From the above graph we can interpret that 42% people invest
whenever they have sufficient savings on their hand. Mostly service class people
are investing whenever they have sufficient saving on their hand. The reason for
more percentage in Year Ending (24%) investment is the limit of Rs.1 lakh given
to service class people, which is beneficial in Tax deduction. The people who
have excellent to good knowledge about MF, they invest at the time of NFO
i.e.18%.
61
Que.13 What is your annual income (Approx)
Annual Income
21%
57%
15%7%
< Rs.1 lakh Rs.1 to 2 lakh
Rs. 2 to 3 lakh > Rs. 3 lakh
Interpretation: Here the highest group of people (57%) is earning annual income
of Rs. 1 to 2 lakh. It includes the Graduates and Post Graduates. While the
people having annual income of Rs. 2 to 3 lakh (15%) the people are mostly
professionals and businesspersons. We found that the annual incomes of more
than Rs. 3 lakh are of business class and there are many professionals in this
category. Income of less than Rs. 1 lakh (21%) mostly includes under graduates
and people having age of more than 50.
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Que.14 What is your annual Savings (Approx)
Annual Saving
41%
45%
11% 3%
< Rs.50000 Rs.50000-Rs.1lakh
Rs.1 lakh-Rs.1.5 lakh > Rs.1.5 lakh
Interpretation: Here 45% people are having the annual saving of Rs. 50000 to 1
lakh and 41% includes the people having annual saving of less than Rs. 50000.
The people having small family size can save more than large family size. The
saving of retired person are not more because their income is also not more. We
find that professionals and business class have annual saving of more than Rs. 1
lakh to 1.5 lakh i.e.11%.
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Que.15 How do you normally get information about Mutual Fund?
Sources of Information
6%18%
8%
24%
44%
Friends/Associates NewspaperAdvertisement InternetAgents
Interpretation: The main source of information for people is the Agents with 44%
because they directly approach to the customers. Now a day the Internet users
are increasing day by day and therefore 24% people are getting information
through Internet. The respondents prefer to get the routine special information
like daily NAV, dividend, bonus, change in asset mix etc., through Internet. While
18% people get knowledge from Newspaper and 6% from Friends.
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ANALYSIS & INTERPRETATION
The survey reveals that among the 100 respondents only 70 people were aware
about the name of mutual funds. But out of 70 people 40% people did not know
about the concept of mutual funds. Remaining 48 % people had average to poor
knowledge about MFs. Only 7-8 % people had good knowledge of mutual funds.
But the actual investors in MF were even more less. It could be hardly 5% of
investor invests in MF.
Average time period for investing in MF ranges between 1 to 3 years. Maximum
investors invest for 1 year. It was also revealed that the most preferred
investment vehicle is Fixed Deposits, with MFs ranking 4th in the order among 8
choices given. Growth schemes are ranked first, followed by Income schemes
and Balanced schemes. Based on the duration of operation of schemes, the 1st
preference is for open-ended schemes (84.57%) and only 15.43% of the
respondents favor close-ended schemes. The investors look for good returns,
Tax Benefits, liquidity and capital appreciation in MF products.
The survey further reveals that the scheme selection decision is made by
respondents on their own and the other sources influencing their selection
decision are Brokers and Agents Direct Mail, News papers and Magazines,
Television , Friends suggestions in that order. Further 24% of the respondents
reported that they use Internet facility to know more about MFs while 76%
reported that they do not have access to Internet. Further, 37.43% of the
respondents prefer to get the routine special information like daily NAV, dividend,
bonus, change in asset mix etc., through automated response system while
53.71% prefer personal communication and 8.86% have no preference.
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Out of 100 people only 35% people said that their share of mutual funds in total
investment ranges between 0-25%. Only 40% people were having share of 25-
50% as mutual funds in their total investment. Most of the investors prefer 10-
15% minimum expected returns. Most preferred companies in Mutual fund
comes out to be Reliance Mutual Fund, SBI, Franklin Templeton, Fidelity, HDFC
mutual fund, Pru ICICI. HDFC rank 4th among all the given choices. Out of every
10 people who invest in mutual funds at least 5 have invested in HDFC. HDFC is
assumed to be a bit conservative for short-term investments. That’s why prefer
Reliance over HDFC because of its aggressiveness.
The survey indicates that the awareness of financial products in India is poor.
Mutual Funds: assured returns. While only 12 % believe that the government
provides a guarantee to investors in mutual funds and just 13 % believe that the
value of one’s investment in a mutual fund can not fall below Rs.10, the survey
shows that investors are stuck in an “assured returns” time warp- four out of five
prefer funds that guarantee returns. These are schemes heading towards
extinction. It is no surprise, then, that only, 7% said they were ‘very confident’ of
choosing a fund, with two out of five investors feeling ‘not confident’.
Insurance: high confidence. Here we see that the fruits of familiarity-barring
banks, insurance has the highest number of people (38%) saying they were ‘very
confident’ of choosing life insurance, with just 7% ‘not confident’. Much of the
credit for this confidence must go to LIC. However, it is disheartening to note that
just 29% people buy insurance for securities against death, with savings
following at 23%.
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Banks: blind faith. With almost half the people ‘very confident’ about choosing a
banking product and just 3% of them ‘not confident’, this sector truly has the trust
of investors, this confidence is misplaced. Almost three out of five people believe
that the unfortunately government guarantee full deposits in nationalized banks.
This is untrue: only Rs.1 lakh worth of deposits per bank are guaranteed;
anything beyond that is not. This faith extends to financial institutions too-61%
people believe the bonds of dithering institutions like IFCI and IDBI are “always
safer than mutual funds”.
Retirement: worrying. India’s approach to financing its retirement is a cause for
worry. While 65% of the people feel that they will retire between 55 and 65, only
44% believe they will have enough savings to ensure their current standards of
living post retirement. Sociological trends are too: a third of all people surveyed
expect their children will take care of them post retirement, while an equal
number expect they will not.
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RECOMMONDATION:
Suggestions
The survey reveals that the investors are basically influenced by the intrinsic
qualities of the product followed by efficient fund management and general image
of the fund / scheme in their selection of fund schemes. Hence it is suggested
that AMCs should design products consciously to meet the investors’ needs and
should be alert to capture the changing market moods and be innovative.
Continuous product development and introduction of innovative products, is a
must to attract and retain this market segment. Some suggestions are:
• The investors are influenced by the extent and quality of disclosure of
information subsequent to their investment regarding disclosure of NAV,
portfolio of investment and disclosure of deviation of investment from
the stated objectives and the attached fringe to the scheme in their
selection of the scheme. Hence AMCs should take steps to be as
transparent as possible and follow the disclosure norms spelt out by
SEBI and AMFI in this connection. UTI’s unique place in the industry
that allowed it to be non- transparent has led to the July 2001 UTI scam.
The investors were kept in dark when its income schemes portfolio of
debt to equity as 70:30 got slowly tilted to 20:80. We have to wait and
see the impact of such non-disclosures on future fund mobilization by
UTI.
• The falling interest rates and a reasonably good performance of many
growth schemes might have been the reason for the high performance
of Growth schemes during the period under study. Now the scale is in
favor of income schemes. So it is suggested that AMCs should react in
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time to the changing market moods by launching new products or
repositioning old ones. Deviation from the stated investment objectives
without authority should be dealt seriously by the regulatory bodies.
Safety of capital subject to market risk, should be assured to the MF
investor.
• Since the survey reveals priority to self decision in scheme selection.
Information dissemination through all possible routes which will reach
the investors should be tapped in a cost effective manner by AMCs.
Diagnostically looking, the fact that the investors prefer to make their
own scheme selection decision, inspite of their lack of knowledge about
the sophisticated market environment, reflects their reluctance to
believe the available quality of service provided by the agents, financial
consultants and investment advisors. These agencies and persons
engaged in giving investment advice should gear up now to win the
confidence of the investors. In long run it will help both the investors and
the investment advisors, thus strengthening the link between the
individual investors and the Mutual Funds.
• As we have seen that there is 100% growth in last 6 years, so it is one
of the opportunities for HDFC Mutual Fund. And so they should have to
take some steps in this direction.
• Number of foreign AMC's are in the queue to enter the Indian markets
like Fidelity Investments, US based, with over US$1trillion assets under
management worldwide. It is one of the challenge for HDFC Mutual
Fund and they should have to try to come 1st among all Indian MFs.
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Conclusion:
Running a successful MF requires complete understanding of the peculiarities of
the Indian stock market and also the psyche of the small invesor. This study has
made an attempt to understand the financial behavior of MF investors in
connection with the scheme preference and selection. The post survey
developments are likely to have an influence on the findings. Behavioral trends
usually take time to stabilize and they get disturbed even by a slight change in
any of the influencing variables. Hence, surveys similar to the present one need
to be conducted at intervals to develop useful models. Nevertheless, it is hoped
that the survey findings will have some useful managerial implication for the
AMCs in their product designing and marketing.
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JOB PROFILE DETAIL:
We have done our summer training in two parts. First we were given in house
training by HDFC Mutual Fund for one week during which we learned about basic
of Mutual Fund, its importance and the main focus was how to sell a mutual fund
in a bank and how to interact with the customer regarding mutual fund as a part
of investment.
Second part was real job experience. We had been sent HBL Global Pvt. Ltd.,
(Popular House) Ashram Road, Ahmedabad as an ambassador of HDFC MF.
HBL is on the pay roll of HDFC. During this period we were interacting with
customer through individual calls. We have also trained the selling Agents of HBL
as well as help them in operations.
Following are the important points, which we used while discussing with
customer regarding mutual fund:
Briefing about the mutual fund and its importance in detail.
We use to compare mutual fund with other types of financial product such
as Fixed deposits, shares so that customer can understand benefits of
mutual fund over the other financial product.
Basically our job was to train the employees of HBL Global Pvt. Ltd. And
also to help them to sell the mutual fund.
When we go on calls with the sales person of HBL Global Pvt.Ltd we were
also comparing the mutual fund of various companies and suggesting the
customer which one he should buy.
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Area Assigned
We were assigned HBL Global Pvt. Ltd. Ashram Road, Ahmedabad to work with
their selling agents as well as customers. Where we have to deal with HBL’s
employees and customers, after completion of our 45 Days training we have
done a Market Research to know the investing habits of people.
Target Assigned
We have been given monthly target to sell HDFC Mutual Fund. We have to
report to HDFC AMC Assistant Manager Of Sales Ms.Ekta Hariyani regarding
daily sales of HDFC mutual fund.
Day to Day job experience
During our summer training we experienced following things:
We learned about the mutual fund, its benefits and its importance
as a major investment part.
We also come to know customer preferences.
We also come to know how to interact with customers.
We also come to know about market situation in the field of mutual
fund.
We also come to know how AMC work.
We had also a good experience to train the employees/sales
person.
Difficulty Faced:
We faced difficulty while selling a mutual fund as
Many of the customers do not have knowledge of mutual fund and its
importance.
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Some customer don’t want to take risk as there is no guaranteed return in
a mutual fund, they only want to invest in fixed deposits and government
bond as there is guarantee of return, because mutual fund depends upon
market.
The customers, who want to take a risk, prefer to invest their money in
stock market, because it will give high return than mutual fund.
Many of the customers do not want to block money for long period.
Major Limitation:
Following are the major limitation we faced:
There is a big volatility in the market and so customer is afraid of investing
mutual fund as they feel if market falls by more points they will have to
face heavy losses.
They don’t have faith in the private AMC, rather they believe on the
government’s schemes like UTI.
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BIBLIOGRAPHY
Internet:
www.hdfcfund.com
www.amfiindia.com
www.mutualfundindia.com
www.nseindia.com
www.bankersindia.com
www.investindia.com
www.altavista.com
www.indiaonline.com
www.google.com
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ANNEXURE
A study on the investment behavior of people…
Questionnaire for investors
1. Are you aware about Mutual Funds?
□ Yes □ No
2. How will you describe your Investment Knowledge of mutual funds?
□ Excellent □ Good
□ Average □ Poor3. What are the purposes of your investments? □ High Return □ Short Term Planning
□ Tax Benefits □ If Others ________
4. For what time period do you normally invest?
□ Less than 6 months □ 6 months to 1 year □ 1 year to 3 years □ 3 years to 5 years
□ More than 5 years □ If Others ________
5. Rank the investment options according to your preferences (i.e. Most Preferable-1, Least preferable-8)(Tick any one)
a. Post Offices □b. Fixed Deposits □c. LIC □d. Govt. & RBI bonds □e. PPF □f. Public issues/ IPO’s □g. Mutual Funds □h. Stock market □
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6. If you invest in Mutual Funds, what is the share of mutual funds in your total
Investments?
□ 0% -25% □ 25% -50%
□ 50% -75% □ 75% -100%
7. What are the types of mutual fund scheme where you normally invest in? □ Monthly Income Funds □ Equity Funds
□ Balanced Funds □ Debt Funds
8. The minimum return that you normally expect in a year is _______%
9. Which are the companies in which you invest the most (Rank according to Preferences). □ HDFC MF _______
□ Franklin Templeton _______
□ SBI MF _______
□ Reliance MF _______
□ Pru ICICI _______
□ Fidelity _______
□ If, Others _______
10. What types of investing procedure do you normally follow? (Tick) □ Payment in Lumpsum (One Time)
□ Payment in Systematic Investment Plan
11. In what type of plan do you normally invest in? □ Growth Fund □ Dividend Payout
□ Dividend Reinvest □ Indifferent among the plans
12. At what time do you normally invest in mutual funds? □ At the time of NFO □ At year ending (31st March)
□ Any time of the year □ Whenever sufficient savings have
13. What is your annual income (Approx) □ Less than Rs. 1 lakh □ Rs. 1lakh to Rs. 2 lakh
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□ Rs. 2 lakh to Rs.3lakh □ More than Rs. 3 lakh
14. What is your annual Savings (Approx) □ Less than Rs. 50000 □ Rs.50000 to Rs. 1 lakh
□ Rs.1 lakh-Rs.1.5 lakh □ More than Rs.1.5 lakh
15. How do you normally get information about Mutual Fund? □ Friend / Associates □ Newspapers □ Advertisements
□ Internet which sites please specify _______________________
□ Agents
16. Do you invest in HDFC Mutual Fund? □ Yes □ No
……. To be filled if the response of Question16 is Yes
17. In which Fund of HDFC mutual fund have you invested? ______________________________________________________.
18. Can you suggest any other facilities HDFC mutual fund can provide you / facilities you want HDFC mutual fund to provide you. _______________________________________________________ _______________________________________________________ _________________________.
19. Remarks: _______________________________________________________ _______________________________________________________ _______________________________________________________ _________________________.
Name: ____________________ Age:____ Gender:_______
Family Size:____________Marital status:_______________
Occupation:________________Education:______________
Phone:_____________ Address:______________________
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