strategies of uti and hdfc mutual funds

8/7/2019 Strategies of UTI and HDFC Mutual Funds

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M P Birla Institute of Management 1

RESEARCH PROJECT ON

DETERMINATION AND EVALUATION OF STRATEGIES OF UTI

AND HDFC MUTUAL FUNDS

BYSAPTARSHI BANERJEE

MBA FOURTH SEMESTER

(This research topic has been conceptualized by me under the guidance of Prof.

S.Ramgopal, Senior Professor, MPBIM, Bangalore)

M P BIRLA INSTITUTE OF MANAGEMENT

(Associate Bharatiya Vidya Bhavan)

43, Race Course Road, Bangalore-560001

MARCH 2007


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PRINCIPALS CERTIFICATE

This is to certify that this report titled DETERMINATION AND EVALUATION OF

STRATEGIES OF UTI AND HDFC MUTUAL FUNDS has been prepared by Saptarshi

Banerjee of M. P. Birla Institute of Management in partial fulfillment of the award of thedegree, Master of Business Administration at Bangalore University, under the guidance

and supervision of Prof. S.Ramgopal, MPBIM, Bangalore.

Place: Bangalore

(Dr. Nagesh. S Malavalli)

Date: May 2007 Principal

MPBIM,Bangalore


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GUIDES CERTIFICATE

This is to certify that Saptarshi Banerjee, bearing registration no.05XQCM6079

has undertaken a research project and has prepared a report titled DETERMINATION

AND EVALUATION OF STRATEGIES OF UTI AND HDFC MUTUAL FUNDS

under my guidance. This has not formed a basis for the award of any degree/diploma for any

other university.

Place: Bangalore

Date:

Prof S.Ramgopal

(Professor)


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D E C L A R A T A I O N

I hereby declare that the project report titled DETERMINATION AND EVALUATION OF

MARKETING OF UTI AND HDFC MUTUAL FUNDS is a record of independent work

carried out by me towards the partial fulfillment of the requirements for the Masters Degree

in Business Administration course of Bangalore University, at M.P. Birla Institute of

Management, Associate Bharatiya Vidya Bhavan, Bangalore.

Place: Bangalore

(Saptarshi Banerjee)

Date: 05XQCM6079


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ACKNOWLEDGEMENTS

The immense gratification this project work has given me does not lead to a

sense of fulfillment unless I express my boundless gratitude to all those who

made this work successful. I do recognize that mere thanksgiving does not

redeem me of my indebtedness for all the timely help, support and guidance

I received.

I script on this page my sincere thanks to each one of them:

Dr. Nagesh. S. Malavalli Principal, M. P. Birla Institute of Management

for his constant and dedicated service to brighten our careers.

Prof S. Ramgopal., my professor and internal guide for this project to

whom I am deeply grateful for his constant support and guidance.

My family and friends for always having stood by my convictions and

encouraging me to perform better.

Finally, all the people who helped me complete this project by filling the

questionnaires.

Thank You.

Saptarshi Banerjee


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CONTENTS

1. EXECUTIVE SUMMARY

2. DESIGN OF THE STUDY

Research Gap

Problem Statement

Research Objectives

RESEARCH DESIGN ADOPTED

Type Of Research

Sampling Design

SOURCES OF DATA COLLECTION

Primary Data

Secondary Data

LIMITATIONS

3. INDUSTRY PROFILE

4. COMPANY PROFILE

6. DATA ANALYSIS AND INFERENCES

7. SUMMARY OF FINDINGS

8. RECOMMENDATIONS AND CONCLUSIONS

9. BIBLIOGRAPHY

10. APPENDIX


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EXECUTIVESUMMARY


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The Indian Mutual Fund industry is likely to be one of the largest and most dynamic parts

of the Indian financial service sectors in the past years. Mutual Fund plays important in

the development of the financial market. Mutual fund in India have emerged as strong

financial intermediaries and are playing very important role in bringing stability in

financial system and it also helps the corporate in raising their funds to meet their

financial needs, which ultimately lead to the growth in the Economy.

The research conducted was Descriptive and Analytical in nature. The survey was

conducted todetermine and evaluate the marketing strategies of UTI and ICICI Prudential

mutual funds: the top two mutual funds in India. Questionnaire method was adopted along

with some interview to obtain the desired information. Judgment sampling method was

the mode of conducting the survey. A sample of 200 respondents was taken and this

sample mainly covers owners of mutual funds (mainly UTI and ICICI Prudential mutual

funds).

Awareness level of Mutual fund was very high among the people but their attitude

towards mutual fund is that people consider mutual fund as risky mode so their

investment in mutual fund is very low. Mutual fund industry is waiting for the

introduction of derivatives in India as this would enable it to hedge its risk and this in

turn would be reflected in its Net Asset Value.


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There is competition in every field and investment is no exception. With rising

competition, end customers are being showered with numerous investment options with

varied degree of risk and different investmentavenues are available to investors. Mutual

funds also offer good investment opportunities to the investors. Like all investments ,

Mutual Funds also carry certain risks. Investment pattern and criteria depends on

individuals risk taking limit and return wants. For instance, Stock market can give an

individual a quick and good return with some risk involved and Bank can provide lower

return as compared to Stock market but in safe mode, whereas Mutual Fund can provide a

good return with minimum risk involved. The investors should compare the risks and

expected yields after adjustment of tax on various instruments while taking Mutual Fundinvestment decisions.

Over the last two years, the world of money has changed for Indians. Interest rates have

come down dramatically. Borrowers have become more powerful than ever before, with

plenty of lenders slugging it out for their attention.

Mutual funds provide a form of investment that is both relatively safe and lucrative.

Mutual funds offer investors the advantages of professional management of investedmoney and diversification of that investment. Mutual fund managers assume the

responsibility of investigating and researching financial markets and selecting the

combination of stocks, bonds, and other investment vehicles to be bought and sold. Thus,

consumers purchase shares in a mutual fund and rely on the expertise of the mutual fund

manager, whose job is to provide them with the highest possible return on their

investments.

Investment options such as the 8% Reserve Bank of India (RBI) bond have died. Bank

fixed deposits, the most preferred investment for decades, have lost their sheen. Stock

market has boomed all right, but the risks have increased too .Most mutual funds pay

higher returns than competing banks and offer check-writing services that have grown to

compete in quality and quantity with those provided by banks and thrifts. And also


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Mutual funds offer several advantages over stock investments, including diversification

and professional management.

So, Mutual fund is like a middle way of investing money which is safer than investing in

Stock market and which can give someone good return than bank.

.


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DESIGN OFTHE STUDY


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Problem statement

Comparative study and analysis of the marketing strategies of top 2 mutual funds in Indiai.e. UTI and ICICI prudential mutual funds..

Scope of the study

The scope of the study is restricted to analyze the marketing strategies of top two brands i.e.

UTI and ICICI Prudential mutual funds. The study intends to throw light on the success of

these two brands in the mutual funds market.

Research objectives

Level of Awareness

Perception about Mutual Fund

Target Age Group

Investment pattern of different professional group and different income group

people.

How an individual can invest their money as per his/her requirement (such as

mutual funds which offer Tax Rebate) in different Mutual funds.

Analysis of marketing strategies on UTI and ICICI Prudential mutual funds.

Research design adopted

Research Design:

A research design is the specification of methods and procedures for acquiring the

information needed. It is overall operational pattern or framework of the project that

stipulates what information is to be collected from which source by what procedures.


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Through Questionnaire

Through Schedule

Warranty Cards

Distributor Audits

Pantry Audits

Consumer Panels

Depth Interview

Using Mechanical Devices

Collection of Secondary data can be done with the help of

Various publications of central, state and local government

Various publications of international bodies.

Technical and trade journals.

Books, magazine, newspapers and reports.

The data collected during the research is primary in nature and in that Questionnaire

method has been takenbecause it is cost effective, free from the biasness of the

interviewer and respondents can give sufficient time to give well thought out answers.

SAMPLING

An integral component of a research design is the sampling plan. Specially, it address

three questions: whom to survey (the sample unit), how many to survey (the sample size),

and how to select them (the sampling procedure). Making the census study of the entire

universe will be impossible on the account of limitations of time and money. Hence

sampling becomes inevitable. A sample is only the portion of the population. Properly

done, sampling produces representative data of the entire population.

Method of Sampling:

1. Probability Sampling


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2. Non-Probability Sampling

Probability Sampling is also known as random sampling or chance sampling. Under

this sampling design every items of the universe has an equal chance or probability, of

being chosen for samples. Probability samples may take the form of:

Sample Random Sampling

Systematic Sampling

Stratified Sampling

Cluster and Area Sampling

Sequential Sampling

Multi stage Sampling

Non Probability Sampling is also known as deliberate sampling, purposive and

judgmental sampling. Non-probability samplings are those that do not provide every item

in the universe with a known chance of being included in the sample.

Non-probability samplings are of following type:

Convenience Sampling

Quota Sampling

Judgement Sampling

Panel Sampling

The Sampling method used here is Non-Probability Sampling in which Judgement

Sampling has been used. Judgement Sampling method has been adopted in which the

target group includes Doctors, Engineers and people belonging to financial institutes

because they are the possible investors for the company also they are the highly qualifiedpersons in our society.

LIMITATIONS

1. Judgement Sampling was used as the mode of conducting the research.


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2. Respondents may not have been true in answering various questions and may be

biased to certain other questions. Some respondents however were not willing to

share their views and did not give any information.

3. The Questionnaire mostly contained multiple-choice questions, therefore many

respondents did not give a proper thought before up the questions, and some even

ticked things, which were not applicable. Therefore all this increases the biasness.

4. Respondents were reluctant to answer some questions, as they took them as

personal, therefore increasing the possibility of error.


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Mutual Fund-Concept

A Mutual Fund is a trust that pools the saving 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 appreciations 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 diversified,

professionally managed basket of securities at a relatively low cost. The flow chart below

describes broadly the working of mutual fund:

Mutual Fund Operation Flow Chart

The mutual funds normally come out with a number of schemes with different investment

objectives which are launched from time to time. A mutual fund is required to be

registered with Securities and Exchange Board of India (SEBI) which regulates securitiesmarkets before it can collect funds from the public.


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1993--Private sector and foreign players allowed; Kothari Pioneer first fund

house to start operations; Sebi set up to regulate industry.

1994--Morgan Stanley is the first foreign player

1996--Sebis mutual fund rules and regulations, which form the basis of most

current laws, come into force.

1998--UTI Master Index fund is the countrys first index fund.

1999--The takeover of 20th

Century AMC by Zurich mutual fund is the first

acquisition in the mutual fund industry.

2000--The industry assets under management crosses Rs.1, 00,000 crore.

2002--UTI bifurcated, comes under Sebi purview mutual fund distributors banned

from giving commission to investors; floating rate funds and foreign debt

funds debut.

2003--AMFI certification made compulsory for new agents, fund of funds

launched.

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

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up

by the Reserve Bank of India and functioned under the Regulatory and administrative

control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the

Industrial Development Bank of India (IDBI) took over the regulatory and administrative

control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the

end of 1988 UTI had Rs. 6700 crores of Assets under Management.

Second Phase 1987-93 (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


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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 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

Some facts for the growth of mutual funds in India

100% growth in the last 6 years.

Numbers of foreign AMCs 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.

We have approximately 33 mutual funds which is much less than US having more

than 800. There is a big scope for expansion.


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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.

Introduction of Financial Planners who can provide need based advice.

Types of Mutual Funds

Mutual Fund schemes may be classified on the basis of its Structure and its Investment

objective.

By Structure

1. Open - Ended Schemes

2. Close - Ended Schemes

3. Interval Schemes

By Investment Objective

1. Growth Schemes

2. Income Schemes

3. Balanced Schemes

4. Money Market Schemes

Structure

Open-Ended Funds:

An open-ended 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-ended schemes is liquidity.

Close-Ended Funds:


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The aim of balanced funds is to provide both growth and regular income. Such schemes

periodically distribute a part of their earnings 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 ideas for investors looking for a combination of income and

moderate growth.

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 safe short term instruments such as

treasury bills, certificate of deposits, commercial papers and inter-bank call money.

Returns on these schemes may fluctuate depending upon the interest rate prevailing in the

market. These are ideal for corporate and individual investors as a means to park their

surplus funds for short periods.

The Basic Functions of ISC

Undergoing summer training at the Investor Service Center (ISC), was a great learning

experience for us. During our stay at the ISC in the capacity of summer trainees we tried

to observe the functioning of a Mutual Fund from within and thus gain an inside

perceptive of the same.

For the purpose of explaining the detail of what we learnt during our stint with

HDFC MF, we would first like to explain the basic functions, which are carried out at a

mutual fund office on a day to day basis.


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The work flowchart of a Mutual Fund ISC is of following nature:

The flowchart indicates that the new investors investing in varied mutual fund schemes

route their investment through two channels:

(1) Selling agents and Distribution houses

(2) Direct marketing team at the ISC

Subsequently the applications are forwarded to the operations department at the ISC

which is in direct contact with the registrar, which in case of HDFC MF is cams,

Chennai.

The application are processed at the ISC, either manually or scanned to the

registrar, where records of the same are maintained. The investors are allotted folio

numbers and subsequently allotted the units as per the amount invested by them.

All further subsequent transaction initiated by investor like redemption and

switching using a transaction slip are routed through the ISC to the registrar who finally

execute the same.

Investor

Sales & marketing team of ISC

Head office

Selling & distribution agent

Operation dept at ISC

Registrar(CAMS)


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Apart from the above mentioned functions, an ISC performs the following as well-

1. Tapping the potential investors which are done by the sales team at

the ISC.

2. Mobilizing the investments through the selling agents and

distribution houses like banks and other private distribution

channels.

3. Client service which involves-

Addressing investors valuation enquiries

Issuing account statements to the investor every time a

fresh transaction is initiated by the investor.

Reconciling issues related to dividend payable to investors.

Verifying investors signature before executing a switch or

redemption request.

4. Carrying out non functional transaction like-

Changing of correspondence addresses of investors.

Changing investors Bank mandates.


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Basic Mutual Fund Structure


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Benefits of Mutual Fund

Diversification: The best mutual funds design their portfolios so individualinvestments will react differently to the same economic conditions. For example,

economic conditions like a rise in interest rates may cause certain securities in a

diversified portfolio to decrease in value. Other securities in the portfolio will

respond to the same economic conditions by increasing in value. When a portfolio

is balanced in this way, the value of the overall portfolio should gradually

increase over time, even if some securities lose value.

Professional Management: Most mutual funds pay topflight professional to

manage their investments. These managers will decide what securities fund will

buy or sell.

Regulatory oversight: Mutual funds are subject to many government regulations

that protect investors from fraud.

Liquidity:Its easy to get your money out of a mutual fund. Write a check, make

a call, and you have got the cash.

Convenience:You can usually buy mutual fund shares by mail, phone or over the

Internet.

Low cost: Mutual fund expenses are often no more than 1.5 percent of your

investment. Expenses for Index Funds are less than that, because index funds are

not actively managed. Instead, they automatically buy stock in companies that are

listed on a specific index.

Transparency

Flexibility

Choice of schemes

Tax benefits

Well regulated


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Draw Backs of Mutual Fund

Mutual funds have their drawbacks and may not be for everyone:

No Guarantees:No investment is risk free. If the entire stock market declines in

value, the value of mutual fund shares will go down as well, no matter how

balanced the portfolio. Investors encounter fewer risks when they invest in mutual

funds than when they buy and sell stocks on their own. However, anyone who

invests through a mutual fund runs the risk of losing money.

Fees and commissions:All funds charge administrative fees to cover their day-to-

day expenses. Some funds also charge sales commissions or "loads" to

compensate brokers, financial consultants, or financial planners. Even if you don't

use a broker or other financial adviser, you will pay a sales commission if you buy

shares in a Load Fund.

Taxes:During a typical year, most actively managed mutual funds sell anywhere

from 20 to 70 percent of the securities in their portfolios. If your fund makes a

profit on its sales, you will pay taxes on the income you receive, even if you

reinvest the money you made.

Management risk: When you invest in a mutual fund, you depend on the fund's

manager to make the right decisions regarding the fund's portfolio. If the manager

does not perform as well as you had hoped, you might not make as much money

on your investment as you expected. Of course, if you invest in Index Funds, you

forego management risk, because these funds do not employ managers.


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Fund Structure and Constituents

Mutual Funds have a unique structure not shared with other entities such as companies orfirms. It is important here to discuss the special nature of this structure because it

determines the rights and responsibilities of the funds constituents viz. Sponsors

Trustees, custodian, transfer agent and of course, the fund and the asset management

company (AMC). The legal structure also drives the inter-relationship between these

constituents.

The Fund Sponsor:

Sponsor is defined under SEBI regulations as any person who, acting alone in a

combination with another body corporate, establishes a mutual fund. The sponsor of the

fund is akin to the promoters of a company as he gets the fund registered SEBI. Sponsors

will form a trust and a point a board of trustees. The sponsors, either directly or acting

through the Trustees, will also appoint an AMC as Fund Manager. All these

appointments are made in accordance with SEBI regulations. As per the existing SEBI

regulations, for a person to qualify as a sponsor, he must contribute at least 40% of the

net worth of the AMC and possess a sound financial track record over 5 years prior to

registration.

Trustee:

The trust- the mutual fund may be managed by board of Trustees body of individuals,

or trust company corporate body. Most of the funds in India are managed by board of

Trustees. While the board of trustees will be governed by the provision of the Indian

Trust Act, where the trustee is a corporate body, it would also be required to comply with

the provisions of independent body acts as a protector of the unit holders interest. The

Trustees being the primary guardian of the unit holders funds and assets, a Trustee has

to be a person of high repute and integrity. SEBI has laid down a set of conditions to be

fulfilled by the individuals being proposed as trustees of mutual fund both dependent

and independent.


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Derivative Risk:

The derivatives will entail a counter party risk to the extent of amount that can

become due from the party. The cost hedged can be higher than adverse impact of the

market movements. An exposure to derivatives can also limit the profits from a genuine

investment transaction.

Reinvestment Risk:

This risk arises from the uncertainty in the rate at which cash flows from an investment

may be reinvested. This is because the bonds will pay coupons, which will have to be

reinvested. The rate at which the coupons will be reinvested will depend upon prevailingmarket rates at the time the coupons are received.

Mutual Fund Companies in India

Some of the major companies are given below

ABN AMRO Mutual Fund

Birla Sun Life Mutual Fund

Bank of Baroda Mutual Fund (BOB Mutual Fund)

HDFC Mutual Fund

HSBC Mutual Fund

ING Vysya Mutual Fund


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Trustees for safekeeping of securities or participating in a clearing system through

approved depository companies on behalf of the mutual fund. The custodian should be an

entity independent of the sponsors and is requires to be registered with SEBI. A Mutual

Funds dematerialized securities holdings will be a depository through depository

participant.

Bankers:

A funds activities involve dealing with money on a continuous basis primarily with

respect to buying and selling units, paying for investments made, receiving the proceeds

on sales of investments and discharging its obligation towards operating expenses. A

funds bankers therefore play crucial role with respect to its financial dealings by holding

its bank accounts and providing it with respect to its financial dealings by holding its

bank accounts and providing it with remittances services.

Transfer Agents:

Transfer agents are responsible for receiving and redeeming units of the Mutual fund and

provide other related services such as preparation of transfer documents and updating

investors records. A fund may choose to carry out this activity in house and charge the

scheme for the service at a competitive market rate. where an outside transfer agent is

used, the fund investor will find the agent to be an important interface to deal with, since

all of the investor services that a fund provides ( besides the investment management) are

going to be dependent on the transfer agents.

Distributors:

Mutual Funds operate as collective vehicles on the principle of accumulating fund from a

large number of investors and then investing on a big scale. For a fund to sell units across

a wide retail base of individual investors and established network of distribution agents is

essential.


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him. The vast sub- broker network ensures a larger geographic coverage than otherwise.

According to AMFI, there are nearly 100,000 agents selling mutual funds and other

financial products. Of this number, 80-85 thousand are UTI agents.

Mutual fund agents are not exclusive but usually sell other financial products as well. The

system has the advantage that the distributor has a broader knowledge of financial

services available, and is therefore potentially in a position to act as investment advisors.

Investors expect the right kind of recommendations from the agents. From the

perspective of the mutual funds themselves, such multi product distributors mean loss of

exclusivity in the marketing of their particular products. However a drawback can be

converted into a benefit for the funds, if the agents are properly trained in their role and

responsibility as financial advisors to the investors.

In India, any investor who signs an assignment with a fund on non judicial stamp paper

can act as its agent. In India, too from November 1, 2001 SEBI has made it mandatory

for newly recruited distributors pass the AMFI Certification test and has recommended

the test for the existing distributors .As financial markets, investment options and the

variety of Mutual Funds get more and more sophisticated, distributors need more and

more information knowledge and skills. This is why distributors in India will find that

many mutual funds now will prescribe minimum qualification that a person must possess

to be its agent. These qualifications may be in terms of education, experience or even

registration on an exchange. For example U.T.I requires its agents to have at least passed

the level of matriculation and also to provide two references. Some private sector funds

like to deal with only stock brokers. Eventually some funds may even require their

distributors to pass the AMFI Testing programmed.

In case of U.T.I agents are provided with in-hose training and refresher courses. Agents

performance is monitored and they receive commission at a basic rate plus incentive

depending on the volume of business of generated by them U.T.I has evolved the concept

of a chief representative for each district, who is assigned a target and has several agents


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reporting to him. U.T.I also has franchisee offices that function as small decentralized

distribution centers. In addition, agents are allowed privileges such as membership to the

chairmans club, based on performance.

Private Mutual Fund also rely on agents for distributing their schemes. However, many of

the relatively small funds, interaction with the large agent force is both costly and

difficult to administer. For this reason the recent trend has been, to shift to distribution

companies as opposed to individual agent.

Distribution companies:

Availing of the services of the established distribution companies is a practice accepted

by mutual fund internationally. This practice evolved with a view to support a large agent

force. Instead of having to deal with several agents a fund can interact with a distribution

company which has several employees or sub-broker under it. A distribution usually

manages distribution for several funds simultaneously and receives commissions for its

services. Many private funds have preferred to adopt this practice because of its

sophisticated nature and because they benefit from the specialist knowledge and

established client contacts of these marketing firms. In India, there are about 10 major

distribution companies in addition to a few hundred small ones.

Banks and NBFCs:

In developed countries, banks are an important marketing vehicle for mutual funds, given

that banks themselves have a large depositor/client base of their own. We can see the

opening up of this new channel in India now. Several banks particularly private and

foreign banks are involved in the fund distribution by providing services similar to those

of distribution companies, on the commission basis. Some NBFCs are also providing

such services. All funds do not yet use this channel, nor all banks have yet taken up the

fund distributor role, but increasing use of bank networks for mutual fund distribution is

almost a certain development.


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Funds are urged to adopt the use of professional selling practices

Management of funds collected has to be in accordance with stated

investment objectives

Funds should avoid conflicts of interest in dealings by directors, officers or

employees

Funds have to refrain from unethical market practices

SEBI Regulations

Although SEBI does not prescribe the minimum amount of commissions payable by a

fund to agents, under SEBI (M.F) Regulations, 1996 all initial issue expenses including

brokerage paid to agents are limited to 6% of resources raised under the scheme. In

addition, SEBI regulated open-end funds are authorized to charge the investors entry

and exit loads to cover the fund distribution expenses. These loads should not exceed thepercentage specified in the schemes offer document. In case the agents commission

paid by the fund result in over all distribution expenses exceeding the rate specified in the

offer document, excess distribution expenses are to be born by the AMC i.e. the excess

cannot be passed on to the unit holders.

A no-load fund charging no entry or exit load, is authorized to charge the schemes

with the commissions paid to the agents as a part of the regular management and

marketing expenses allowed by SEBI, SEBI puts a cap on the total expenses( including

commissions) that can be charged to a scheme each year. Any excess over allowable

expenses is required to be borne by the AMC.


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UTI MUTUAL FUNDS

INTRODUCTION

UTI Mutual Fund is managed by UTI Asset Management Company Private Limited

(Estb: Jan 14, 2003) who has been appointed by the UTI Trustee Company Private

Limited for managing the schemes of UTI Mutual Fund and the schemes transferred /

migrated from UTI Mutual Fund.

The UTI Asset Management Company has its registered office at : UTI Tower, Gn Block,

Bandra - Kurla Complex, Bandra (East), Mumbai - 400 051 will provide professionallymanaged back office support for all business services of UTI Mutual Fund (excluding

fund management) in accordance with the provisions of the Investment Management

Agreement, the Trust Deed, the SEBI (Mutual Funds) Regulations and the objectives of

the schemes. State-of-the-art systems and communications are in place to ensure a

seamless flow across the various activities undertaken by UTI AMC.

UTI AMC is a registered portfolio manager under the SEBI (Portfolio Managers)

Regulations, 1993 on February 3 2004, for undertaking portfolio management services

and also acts as the manager and marketer to offshore funds through its 100 % subsidiary,

UTI International Limited, registered in Guernsey, Channel Islands.

UTI Mutual Fund has come into existence with effect from 1st February 2003. UTI Asset

Management Company presently manages a corpus of over Rs. 34500 Crore.

UTI Mutual Fund has a track record of managing a variety of schemes catering to the

needs of every class of citizenry. It has a nationwide network consisting 70 UTI Financial

Centers (UFCs) and UTI International offices in London, Dubai and Bahrain. With a

view to reach to common investors at district level, 4 satellite offices have also been

opened in select towns and districts. It has a well-qualified, professional fund


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management team, who have been highly empowered to manage funds with greater

efficiency and accountability in the sole interest of unit holders. The fund managers are

also ably supported with a strong in-house equity research department. To ensure better

management of funds, a risk management department is also in operation.

It has reset and upgraded transparency standards for the mutual funds industry. All the

branches, UFCs and registrar offices are connected on a robust IT network to ensure cost-

effective quick and efficient service. All these have evolved UTI Mutual Fund to position

as a dynamic, responsive, restructured, efficient, and transparent and SEBI compliant

entity.

SPONSORS

Three leading public sector banks Bank of Baroda (BOB), Punjab National Bank (PNB)

and State Bank of India (SBI) and Life Insurance Corporation of India (LIC), the largest

public financial investment institution and life insurer in India have entered into an

agreement with the Government of India as Sponsors of the UTI Mutual Fund.

Bank of Baroda

Bank of Baroda was established in July 1908 by Maharaja - Sir Sayajirao Gaikwad III.

During the period since inception, it has always maintained its practice of sound value

based banking to emerge as one of the premier public sector Banks of the country today.

It has a track record of uninterrupted profits since inception in 1908. The financial

strength of the Bank and its long tradition of efficient customer service are drawn

substantially from the extensive reach of its 2,715 strong branch network (as of

31.03.2003) covering almost every State and Union Territory in the Country. The Bank is

also one of the few Indian Banks with a formidable presence overseas with 38 branches.

Thus, the total branch network is 2,753 as at 31.03.2003.


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Life Insurance Corporation of India

Life Insurance Corporation of India (LIC) is amongst the largest insurance companies inthe world, serving over 10 crore policy holders and managing a Fund of over Rs.-186000

crores.

Punjab National Bank

PNB is a statutory body performing banking activities in terms of Banking Companies

(Acquisition and Transfer of undertaking) Act 1970 under which the Undertaking of the

Bank was taken over by the Central Government. The main object of the bank under thesaid Act is as below:-

An act to provide for the acquisition and transfer of the undertaking of certain banking

companies, having regard to their size, resources coverage and organisation, in order to

further to control the heights of the economy, to meet progressively and serve better, the

needs of the development of the economy and to promote the welfare of the people, in

conformity with the policy of the State towards securing the principles laid down in

clause (b) and (c) of Article 39 of the Constitution of India and for matter connected

therewith or incidental therein.

Punjab National Bank has 4037 branches and 4 subsidiaries. The bank has a deposit size

of Rs.75813.49 crores as on 31.03.2003.

State Bank of India

The State Bank of India is the largest public sector bank in India with 9033 branches inIndia and 48 offices in 28 countries worldwide. In addition to this, SBI also has 17

subsidiaries.


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Equity Investments:

The investment approach would be based on the concept of the economic earning power

and cash return on investments.

Five basic principles would serve as the foundation for this investment approach. They

are as follows:

Focus on the long term.

Investment confers proportionate ownership of the business.

Maintain a margin of safety.

Maintain a balanced outlook on the market.

Disciplined approach to selling.

Debt Investments:

Debt securities (in the form of non-convertible debentures, bonds, deep discount bonds,

floating rate bonds, pass through certificates, asset backed securities, mortgage backed

securities etc.) include, but are not limited to-:

Debt obligations of the government of India, state and local government,

Government agencies and statutory bodies (which may or may not carry a central/

state government guarantee).

Securities that have been guaranteed by government of India and state

government.

Securities issued by Public/private sector banks, developed financial institutions.

Money Market Instrument includes:

Commercial Paper

Commercial bills Treasury Bills

Government securities having an unexpired maturity up to 1 year

Call money

Certificate of Deposit


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linked savings (amendment) scheme, 1998 notification issued by the department of

economics Affair. Ministry of Finance, Govt. of India.

Five basic principles would serve as the foundation for this investment approach. They

are as follows:

Focus on the long term :

Investment confers proportionate ownership of the business.

Maintain a margin of safety.

Maintain a balanced outlook on the market.

Disciplined approach to selling.

Short Term Plan:

It is proposed to invest the proceeds of the short-term plan in sovereign securities issued

by the central govt. and state govt. with medium to long-term maturities

Long Term Plan:

It is proposed to invest the proceeds of the long term plan in sovereign securities issued

by the central govt. and the state govt. with medium to long term maturities.

The scheme will purchase securities in the public offering as well as those traded in the

secondary market. On occasion if deemed appropriate, the scheme may also participate in

auction of govt. securities.

HDFC Income Fund:

HDFC Index fund was launched on July3, 2002. he initial offer period of the scheme

ended on July 10, 2002 . HDFC Index fund has been open for ongoing sales and

redemption since July 19, 2002.


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Profession * Aware of Mutual Fund Cross tabulation

Aware of Mutual Fund

No Yes Total

Engineer 11 62 73

Doctor 4 43 47

Profession

Other ServiceClass

14 66 80

Total29 171 200

Inference:

Out of 200 respondents, 86% of them are aware of mutual finds. Among them itis found out that Doctors and Engineers are most aware of mutual funds (In percentage

terms, 91% Doctors, 85% Engineers). The awareness level of other Service class people

is relatively low leaving those who are associated with financial Institution (LIC, Bajaj

Allianz, Standard Charted Insurance).

Count

Engineer Doctor Other Service ClassProfession

0

10

20

30

40

50

60

70

Count

Aware of Mutual

Fund

No

Yes

Mutual Fund Awareness among Different Profession


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Saving Percentage Slab * Percentage Invest in MF's from Saving Cross tabulation

Percentage Invest in MF's from Saving

1-15 15 -30 30-45 45 and Above Total

1-15 24 2 0 0 26

15-30 29 3 0 1 33

30-45 17 2 3 0 22

SavingPercentageSlab

45 and Above 3 3 1 0 7

Total 73 10 4 1 88

Inference:

From the above graph, it can be interpreted that only 44% of people are

investing in mutual funds. Further it is found that people belonging to various income

slab group are mainly investing in slab of 1-15 % in mutual fund from their saving and

maximum investment in mutual fund is made by people of income slab group of Above 3

Lac.

45 and Above30-4515-301-15

Saving Percentage Slab

30

25

20

15

10

5

0

Count

Saving Slab Vs Percentage Investment in MFs

45 and Above30-45

15 -30

1-15

Percentage Invest inMF's from Saving


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Inference:

On the basis of survey it is found that in sample of 200 people, 71% people

found that investing in mutual fund is beneficial and approximately 23% said against it

and 7% of people have no idea about this matter. One of the reasons of such a positive

opinion is continuous growth in economy and high returns from mutual funds.

Frequency Percent Valid PercentCumulativePercent

Valid No 45 22.5 24.1 24.1

Yes 142 71.0 75.9 100.0

Total 187 93.5 100.0

Missing System 13 6.5

Total 200 100.0

No

Yes

Missing

Is MF's Beneficial


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Preferred Investment Pattern

Frequency Percent Valid PercentCumulativePercent

Valid Short Term 62 31.0 32.6 32.6

Long Term 128 64.0 67.4 100.0

Total 190 95.0 100.0

Missing System 10 5.0

Total 200 100.0

Inference:

In this study, it is found that maximum people in sample prefer to long term

investment because in their opinion in long term (period of more than 1 year) suddenmarket fluctuations does not affect their capital. 31% people prefer to invest their money

in short term (period of less than 1 year) because they are the mainly those people who

like to invest in stock market to get quick return.

Short Term

Long Term

Missing

Preferred Investment Pattern


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Investment pattern of Doctors

66

89

26

917 19

0

20

40

60

80

100

FD LIC PO Gold RealEstate

StockMarket

Investment Options

P

ercentageofD

octors

Inference:

From the above graph, it was found that the most preferable investment option

for Doctors is LIC followed by FD and then Post Office. After these options Doctor opts

for stock market as next preferable investment option because they are aware from the

market and they want fast returns. The amount spent on these options depends on amount

of risk involved.


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Investment pattern of Other Service

class

38

75

31

13 1019

01020304050607080

FD LIC PO Gold RealEstate StockMarket

Investment Option

PercentageofOther

serviceclasspeople

Inference:

Their investment pattern is similar to other professional groups. But in compare

of other two groups they are investing more in gold. Rise in percentage of investor of

Stock market and gold in this group is mainly due to those people who are working in

financial institution.


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Awareness of Different Mutual Funds

149131 127

94

142

53

148

51 69 73106

58

147

52

0%10%20%30%40%50%60%70%80%90%

100%

ICICIM

F

RelianceMF

UTIMF

TataM

F

SBIMF

Fran

klinTe

mple

tonM

F

HDFCM

F

Various Mutual Funds

PercentageofRespondents

Unaware

Aware

Inference:From the above graph, it is found that people of sample are much aware of

ICICI MF, followed by HDFC MF; this is mainly due to the good performance of these

two mutual funds in the past. SBI mutual fund is also popular among the people as State

Bank of India has recognized name in India. Since UTI being the oldest mutual fund

launched in India so its awareness is quite common. Reliance, Tata and Franklin

Templeton mutual funds are new in the market but their awareness in market is also

good.


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Investors vs Non-Investors of Mutual Funds

36%

5%

2%

1%

56%

01-15%

15-30%

30-45%

45% and Above

Not Investing

Inference:

In this study, only 44% people are investing in mutual funds and 56% are not.

It is mainly because people dont have proper information about mutual funds. Only 36%

of total group i.e. major part of investors are investing in 1-15% slab of their saving in

mutual fund.


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SUMMARY


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The major reason was that the company promised more than what anybody could ideally

return. It is difficult to promise high return of up to 12 per cent year after year when the

products are equity-based. Nearly 62 per cent of the shortfall was because of `mis-

pricing'.

Roughly 19 per cent of the shortfall was due to equity's underperformance. In the last

four years, the equity market has been rather flat.

When 20-30 per cent of the portfolio consisted of equities in plans like US-64 and when

that investment does not earn, it impacts the overall return.

Around 7-8 per cent of shortfall was due to the NPAs, which have crept into many of our

funds and high-risk investments accounted for 3-4 per cent.

Today, UTI is a world class organisation in terms of an AMC and have introduced a five-

layer approach in asset management business advisory, decision making, dealing

rooms, NAV and back office compliance which is headed by an officer from the RBI.

And all the five layers report directly to the Chairman.


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RECOMMENDATIONS

AND

CONCLUSIONS


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The Mutual Fund as an option of investment is popular among the investors; in the

sample of 200, 86% people are aware of mutual funds .This awareness varies

according to various income groups and profession. This Profession group includes

Doctors, Engineers, and other service class people. In which 91% Doctors, 85%

Engineers and 83% other service class people are aware of mutual funds. But it was

found that only 44% people are investing in mutual funds and in that maximum of

them are investing only 1-15 % of their saving, in mutual fund.

Also in this study, 71% people said that investing in mutual fund is beneficial and

they prefer Long term Investment (period of more than 1 year) than short term

Investment (period of less than 1 year). After this study, it was found that nearly 89%

people are aware of the tax benefit provided by mutual fund.

Also, it was found that people are much aware of ICICI Mutual fund and HDFC

Mutual fund in private sector and SBI and UTI in public sector and many of them are

aware of the emerging mutual fund like Tata mutual fund, Reliance mutual fund.

Finally, after the study it was found that all the three groups likes to invest more in

LIC and Bank FDs and they consider mutual fund as a risky option to invest.

Learning Outcomes

Level of Awareness : From the interaction with the people it was observed that

people do have general awareness about mutual funds, the risk involved and high

return but there is a lack of in depth product knowledge ,so, various promotional

programs so be undertaken to increase the knowledge of end customer.

Perception about Mutual Fund: The general perception about mutual funds is that

they are risky. Risk involved with mutual funds scores more than the returns

which is providing hindrance to Mutual Fund Popularity. Past incidence such as

UTI Scam adds to negative perception about mutual funds. Mutual fund should be

marketed as High Return and Low risk Investment option.


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Target Age Group: After interacting with people a trend is being observed. People

above 35 years of age tend to avoid risk thereby opt for investment options such

as FDs , Post Office, PPF, GPF .In short opt for low risk investment options

,whereas people within age group 22- 35 are more eager to take risk for high

returns, so this age group should be targeted.

For any AMC, it is very necessary to improve their Distribution Channel and sales

practices in order to increase more and more investment. For this, company needs

to make their distributor aware of Information Technology in order to act quickly

and empower themselves with the growing power of Internet. Net based

marketing has the potential to be highly relevant, personalized and productive.

Mutual Fund development needs better and more attractive incentives.

Entry load in Mutual Fund (2.25%) is much higher and it should be reduced.

Income Tax provisions are complicated in case in mutual funds which needs more

clarifications as well as relaxations.

Tax structure should be rationalized so as to promote saving.

Lock-in period for the tax saving scheme should be minimized, liquidity should

be increased.


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BIBLIOGRAPHY


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www.google.com

www.uti.com

www.hdfc.com


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APPENDIX


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strategies of uti and hdfc mutual funds

Documents