“A STUDY ON COMPARITIVE ANALYSIS OF VARIOUS MUTUAL FUNDS WITH SPECIAL REFERENCE TO IIFL” A Summer Training Project Report Submitted in partial fulfillment of the requirement for the Award of Degree of Master of Business Administration 2011-2013 Under the Guidance of: - Submitted By:- Mr. Nakul Anand Ankit Kumar (Assistant Professor) Enroll No:-04514803911
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“A STUDY ON COMPARITIVE ANALYSIS OF VARIOUS MUTUAL FUNDS WITH SPECIAL REFERENCE TO IIFL”
A Summer Training Project Report
Submitted in partial fulfillment of the requirement for the
Award of Degree of Master of Business Administration
2011-2013
Under the Guidance of: - Submitted By:-
Mr. Nakul Anand Ankit Kumar
(Assistant Professor) Enroll No:-04514803911
DEPARTMENT OF MANAGEMENT
MAHARAJA AGRASEN INSTITUTE OF TECHNOLOGY
(Affiliated to G.G.S.I.P. University)
Sector – 22, Rohini, Delhi -110086An ISO 9001:2008 Certified Institute
AICTE NBA Accredited Institute
Certificate from the Company/Organization
This is to certify that Ankit Kumar Son of Late Sh. Ravinder Kumar pursuing
MBA from Maharaja Agrasen Institute of Technology (Affiliated to G.G.S.I.P.
University),New Delhi has successfully completed Project Report in our organization on
the topic titled, ” A STUDY ON COMPARITIVE ANALYSIS OF VARIOUS
MUTUAL FUND WITH SPECIAL REFERENCE TO IIFL”” from 04TH JUNE
2012 to 04TH AUG 2012. During his/ her project tenure in the organization/ company, we
found her hard working, sincere and diligent person and her behavior and conduct was
good during the project. We wish her all the best for her future endeavors.
Comments of Guide (if Any)1.2.3.
Name and Signature of the Mentor (Industrial Guide)
Designation
STUDENT UNDERTAKING
This is to certify that I Ankit Kumar had completed the Project titled “A
STUDY ON COMPARITIVE ANALYSIS OF VARIOUS MUTUAL
FUND WITH SPECIAL REFERENCE TO IIFL” in INDIA INFOLINE
LTD.” under the guidance of Mr. Nakul Anand in the partial fulfillment of
the requirement for the award of degree of MBA from Maharaja Agrasen
Institute of Technology (Affiliated to G.G.S.I.P. University), New Delhi.
This is an original piece of work and I had neither copied nor submitted it
earlier
Elsewhere.
Ankit Kumar
MBA
CERTIFICATE FROM GUIDE
This is to certify that the project titled “A STUDY ON COMPARITIVE ANALYSIS OF VARIOUS MUTUAL FUND WITH SPECIAL REFERENCE TO IIFL” is an academic work done by Ankit Kumar submitted in the partial fulfillment of the requirement for the award of the Degree of MBA from Maharaja Agrasen Institute of Technology (Affiliated to G.G.S.I.P. University), New Delhi under my guidance and direction. To the best of my knowledge and belief the data and information presented by her in the project has not been submitted earlier.
ABBREVIATIONS
INITIALS TERMS
SEBI Securities and Exchange Board of India
F&O Future and Option
NSE National Stock Exchange
BSE Bombay Stock Exchange
MCX Multi Commodity Exchange
NCDEX National Commodity Exchange
NSDL National Securities Depository Limited
MTM Marking-to-market
GDP Gross Domestic Product
ATM At-the-money-option
OTC Over The Counter
OPEC The Organization of the Petroleum Exporting
Counties
MFI Mutual fund Of India
AMC The company vested with the responsibility of
managing investments of the schemes of a fund in line with
the stated investment objective of each scheme.
Back End Load The difference between the NAV of the units of a
scheme and the price at which they are redeemed. The
difference is charged by the fund.
Current Load Load structure applicable currently. Funds keep
revising the load structures prospectively from time to time.
Equity Schemes Schemes where more than 65% of the investments are
done in equity and equity related securities of various
companies. These funds tend to provide maximum returns
over a long-term horizon. However, the returns from these
funds are directly linked to the stock market and are volatile
as compared to those from debt funds.
Exit Load The fee charged at the time of redemption. It amounts to
the difference between the NAV of the units of a scheme and
the price at which existing units are redeemed. The fee has to
fall within the overall limit laid down by SEBI.
Face Value The original issue price of one unit of a scheme.
Fund A mutual fund is a trust under the Indian Trust Act.
Each fund manages one or more schemes.
Growth Option A scheme where the fund ploughs back the dividend
announced. The fund allots as many units of the scheme as
are arrived at on dividing the dividend amount by the ex-
dividend NAV.
Gilt funds Funds which invest only in government securities of
different maturities with virtually no default risk. While returns
are steady and secure, they are generally lower than those
from other debt funds.
Initial Offer Price The price at which units of a scheme are offered in its
New Fund Offer (NFO).
Income / Debt Funds Funds that invest in income bearing instruments such
as corporate debentures, PSU bonds, gilts, treasury bills,
certificates of deposit, commercial papers etc. Although
these funds are less volatile, the underlying investments
carry a credit risk. Comparatively, these funds are less risky
and are preferred by risk-averse investors.
Index Funds A class of equity funds that invest in equity shares of
various companies in the same proportion in which they
appear in the composition of any popular index, such as the
BSE Sensex, S&P 500 or NASDAQ composite. The
performance of such funds closely tracks the performance of
the index.
Junk Bond A speculative bond rated BB or below."Junk bonds" are
generally issued by corporations of questionable financial
strength or without proven track records. They tend to be
more volatile and higher yielding than bonds with superior
quality ratings. "Junk bond funds" emphasize diversified
investments in these low-rated, high-yielding debt issues.
Load A sales charge or commission assessed by certain
mutual funds ("load funds,") to cover their selling costs. The
commission is generally stated as a portion of the fund's
offering price, usually on a sliding scale from one to 8.5%.
Mutual Fund An open-end investment company that buys back or
redeems its shares at current net asset value. Most mutual
funds continuously offer new shares to investors.
Net Asset Value Per
Share
The current market worth of a mutual fund share.
Calculated daily by taking the funds total assets securities,
cash and any accrued earnings deducting liabilities, and
dividing the remainder by the number of shares outstanding.
Performance performance of an investment indicates the returns
from an investment. the returns can come by way of income
distributions as well as appreciation in the value of the
investment.
Portfolio the basket of investments in which the funds of a
scheme are deployed.
Prospectus an offer document by which a mutual fund invites the public for subscription to units of a scheme, and informs them of the terms & conditions for management of the scheme on a day to day basis thereafter. the document contains information about the scheme to enable a prospective investor make an informed investment decision.
Registrar an agent appointed by the trustees of a mutual fund in consultation with the amc or by the companies for the purpose of handling the records of the unit holders or shareholders.
Redemption /
Repurchase price
the price of a unit (net of exit load) that the fund offers the investor to redeem his investment.
systematic
investment plan (sip)
a systematic investment plan allows an investor to buy units of a mutual fund scheme on a regular basis by means of periodic investments into that scheme in a manner similar to instalments paid on purchase of normal goods. the investor is allotted units on a predetermined date specified in the offer document of the scheme. here the plan allows the investor to
take advantage of the rupee cost averaging methodology.
TOPICSPAGE
NO.
1 ABSTRACT 2
2 COMPANY PROFILE 3-6
3 RESEARCH DESIGN & METHODOLOGY 7
3.1 OBJECTIVES OF THE STUDY 8
3.2 SCOPE 9
3.3 TYPE OF DATA 9
3.4 LIMITATIONS 9
3.5 TOOLS OF ANALYSIS 10
4 INTRODUCTION TO THE TOPIC 11
4.1 WHAT IS MUTUAL FUND 12
4.2 EQUITY FUNDS 12
4.3 DEBT FUNDS 13
4.4 BY INVESTMENT OBJECTIVES 14
4.5 OTHER SCHEMES 14
4.6 PROS AND CONS OF INVESTMENT IN MUTUAL FUNDS 15-18
4.7 ADVANTAGES OF INVESTMENT IN MUTUAL FUNDS 19-20
4.8 DISADVABTAGE OF INVESTMENT IN MUTUAL FUNDS 21
4.9 MUTUAL FUNDS INDUSTRY IN INDIA 21
4.10 MAJOR PLAYERS OF MUTUAL FUNDS INDUSTRY 22
4.11 CATEGORIES OF MUTUAL FUNDS 23
4.12 INVESTMENT STRATAGIES 24
4.13 WORKING OF MUTUAL FUNDS 26-28
4.14 GUIDELINES OF THE SEBI FOR MUTUAL FUNDS 29
4.15 PORTFOLIO ANALYSIS TOOLS 30
5 DATA ANALYSIS AND INTERPRETATION 31-44
6 RESEARCH FINDINGS 45
7 SUGGESTIONS 46
8 CONCLUSION 47
9 BIBLIOGRAPHY 48
10 WEBLIOGRAPHY 49
List of FiguresSr. No. Particulars Page No.
1. Diversification of India Infoline Ltd. 23
2. Concept of mutual fund 30
3. Categories of mutual fund 35
4. Risk Vs. Return 42
5. Organization of mutual fund 43
List of Tables
1. List of Stock Exchanges 19
2. Swot Analysis of IIFL 28
3. Relative comparison of Mutual funds and Other Investment
59
4. Investment risk and objective Comparison
60
List of Graphs
1. Investors Convention. 71
2. Investors 72
3. Investor’s preference. 73
4. Investment option having all round capability.
74
5. Factors while investing. 75
6. Previously Invested in mutual fund or not.
76
7. Where you find yourself as mutual fund investor.
77
8. Factors that attract you to invest in mutual fund.
78
9. Expected rate of return onInvestments 79
10. Investors risk taking ability. 80
11. Investors experience with mutual fund 81
EXECUTIVE SUMMARY
A mutual fund is a scheme in which several people invest their money for a common
financial cause. The collected money invests in the capital market and the money, which
they earned, is divided based on the number of units, which they hold.
The mutual fund industry started in India in a small way with the UTI Act creating what
was effectively a small savings division within the RBI. Over a period of 25 years this
grew fairly successfully and gave investors a good return, and therefore in 1989, as the
next logical step, public sector banks and financial institutions were allowed to float
mutual funds and their success emboldened the government to allow the private sector to
foray into this area.
The advantages of mutual fund are professional management, diversification, and
economies of scale, simplicity, and liquidity.
The disadvantages of mutual fund are high costs, over-diversification, possible tax
consequences, and the inability of management to guarantee a superior return.
The biggest problems with mutual funds are their costs and fees it include Purchase fee,
AMC has been appointed as the Investment Manager to IIFL Mutual Fund by the Trustee
vide Investment Management Agreement (IMA) April 29, 2010, executed between India
Infoline Trustee Company Ltd. and India Infoline Asset Management Company Ltd.
Sponsor: India Infoline Limited (IIFL)
Trustee: India Infoline Trustee Company Limited
Investment Manager: India Infoline Asset Management Company Limited
Statutory Details: IIFL Mutual Fund has been set up as a Trust under the Indian Trust
Act, 1882.
PARAMETERS OF MUTUAL FUND EVALUATION:
Risk
Returns
Liquidity
Expense Ratio
Composition of Portfolio Risks
Risk Associated With Mutual Funds
Investing in mutual funds as with any security, does not come without risk. One of the
most basic economic principles is that risk and reward are directly correlated. In other
words, the greater the potential risk, the greater the potential return. The types of risk
commonly associated with mutual funds are:
Market Risk:
Market risk relate to the market value of a security in the future. Market prices fluctuate
and are susceptible to economic and financial trends, supply and demand, and many other
factors that cannot be precisely predicted or controlled.
Political Risk:
Changes in the tax laws, trade regulations, administered prices etc. is some of the many
political factors that create market risk. Although collectively, as citizens, we have
indirect control through the power of our vote, individually as investors, we have
virtually no control.
Inflation Risk:
Inflation or purchasing power risk, relates to the uncertainty of the future purchasing
power of the invested rupees. The risk is the increase in cost of the goods and services, as
measured by the Consumer Price Index. Interest Rate Risk: Interest Rate risk relates to
the future changes in interest rates. For instance, if an investor invests in a long term debt
mutual fund scheme and interest rate increase, the NAV of the scheme will fall because
the scheme will be end up holding debt offering lowest interest rates.
Business Risk
Business Risk is the uncertainty concerning the future existence, stability and
profitability of the issuer of the security. Business Risk is inherent in all business
ventures. The future financial stability of a company can not be predicted or guaranteed,
nor can the price of its securities. Adverse changes in business circumstances will reduce
the market price of the company’s equity resulting in proportionate fall in the NAV of
mutual fund scheme, which has invested in the equity of such a company.
Economic Risk :
Economic Risk involves uncertainty in the economy, which, in turn can have an adverse
effect on a company’s business. For instance, if monsoons fall in a year, equity stocks of
agriculture bases companies will fall and NAVs of mutual funds, which have invested in
such stocks, will fall proportionately. There are 3 different methods with the help of
which we can measure the risk.
Measurement of risk
I. Beta Coefficient Measure Of Risk
Beta relates a fund’s return with a market index. It basically measures the sensitivity
of funds return to changes in market index.
If Beta = 1Fund moves with the market i.e. Passive fund
If Beta < 1Fund is less volatile than the market i.e. Defensive Fund
If Beta > 1Funds will give higher returns when market rises & higher losses when
market falls i.e. Aggressive Fund
II. Ex –Marks or R-squared
Ex –Marks represents co relation with markets. Higher the Ex-marks lower the risk of
the fund because a fund with higher Ex-marks is better diversified than a fund with lower
Ex-marks.
Standard Deviation Measure of Risk:
It is a statistical concept, which measures volatility. It measures the fluctuations of
fund’s returns around a mean level. Basically it gives you an idea of how volatile your
earnings are. It is broader concept than BETA. It also helps in measuring total risk and
not just the market risk of the portfolio.
How to Calculate the Value of a Mutual Fund:
The investors’ funds are deployed in a portfolio of securities by the fund manager. The
value of these investments keeps changing as the market price of the securities change.
Since investors are free to enter and exit the fund at any time, it is essential that the
market value of their investments is used to determine the price at which such entry and
exit will take place. The net assets represent the market value of assets, which belong to
the investors, on a given date.
Net Asset Value or NAV of a mutual fund is the value of one unit of investment in the
fund, in net asset terms.
NAV = Net Assets of the scheme / Number of Units Outstanding Where Net Assets are
calculated as:-(Market value of investments + current assets and other assets + Accrued
income – current liabilities and other liabilities – less accrued expenses) / No. of Units
Outstanding as at the NAV date NAV of all schemes must be calculated and published at
least weekly for closed-end schemes and daily for open-end schemes.
The major factors affecting the NAV of a fund are.
Sale and purchase of securities
Sale and repurchase of units
Valuation of assets
Accrual of income and expenses
SEBI requires that the fund must ensure that repurchase price is not lower than
93% of NAV (95% in the case of a closed-fund). On the other side, a fund may
sell new units at a price that is different from the NAV, but the sale price cannot
be higher than 107 % of NAV. Also the difference between the repurchase price
and the sale price of the unit is not permitted to exceed 7% of the sale price.
Measuring Mutual Fund Performance:
We can measure mutual fund’s performance by different method:
• Absolute Return Method:
Percentage change in NAV is an absolute measure of return, which finds the NAV
appreciation between two points of time, as a percentage
.e .g: If NAV of one fund changes from Rs.20 to Rs.22 in 12 months then Absolute
return = (22 – 20)/20 X 100 =10%
• Simple Annual Return Method :
Converting a return value for a period other than one year, into a value for one year, is
called as annualisation In order to annualize a rate, we find out what the return would be
for a year, if the return behaved for a year, in the same manner it did, for any other
fractional period .E .g: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months
then Annual Return = (22 – 20) /20 X 12/6 X 100 = 20%
• Total Return Method :
The total return method takes into account the dividends distributed by the mutual fund,
and adds it to the NAV appreciation, to arrive at returns .Total Return =(Dividend
distributed + Change in NAV)/ NAV at the start X 100
e .g: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months if in between dividend
of Rs 4 has then Total Return = {4 + (22 – 20)}/20 X 100 = 30%
• Total Return when dividend is reinvested
This method is also called the return on investment (ROI) method. In this method, the
dividends are reinvested into the scheme as soon as they are received at the then
prevailing NAV (ex-dividend NAV).= ((Value of holdings at the end of the period/ value
of the holdings at the beginning) – 1)*100
E.g. An investor buys 100 units of a fund at Rs. 10.5 on January 1, 2007. On June 30,
2007 he receives dividends at the rate of 10%. The ex-dividend NAV was Rs. 10.25. On
December 31, 2007, the fund’s NAV was Rs. 12.25. Value of holdings at the beginning
period= 10.5*100= 1050 Number of units re-invested = 100/10.25 = 9.756 End period
value of investment = 109.756*12.25 = 1344.51 Rs. Return on Investment =
((1344.51/1050)-1)*100 = 28.05%
• Compounded Average Annual Return Method:
This method is basically used for calculating the return for more than 1 year. In this
method return is calculated with the following formula: A = P X (1 + R / 100) N Where P
= Principal invested A = maturity value N = period of investment in years R =
Annualized compounded interest rate in %R = {(Nth root of A / P) – 1} X 100E. g: If
amount invested is Rs. 100 & in the end we get return of Rs. 200 & period of investment
is 10 years then annualized compounded return is 200 = 100 (1 + R / 100) 10Rate = 7.2
%
RETURNS:
Returns have to be studied along with the risk. A fund could have earned higher return
than the benchmark. But such higher return may be accompanied by high risk. Therefore,
we have to compare funds with the bench marks, on a risk adjusted basis. William Sharpe
created a metric for fund performance, which enables the ranking of funds on a risk
adjusted basis.
Sharpe Ratio = Risk Premium
Funds Standard Deviation
Treynor Ratio = Risk Premium
Funds Beta
Risk Premium = Difference between the Fund’s Average return and Risk free return on
government security or treasury bill over a given period .
LIQUIDITY:
Most of the funds being sold today are open-ended. That is, investors can sell their
existing units, or buy new units, at any point of time, at prices that are related to the NAV
of the fund on the date of the transaction. Since investors continuously enter and exit
funds, funds are actually able to provide liquidity to investors, even if the underlying
markets, in which the portfolio is invested, may not have the liquidity that the investor
seeks.
EXPENSE RATIO:
Expense ratio is defined as the ratio of total expenses of the fund to the average net assets
of the fund. Expense ratio can actually understate the total expenses, because brokerage
paid on transactions of a fund are not included in the expenses. According to the current
SEBI norms, brokerage commissions are capitalized and included in the cost of the
transactions.
Expense ratio = Total Expenses
Average Net Assets
COMPOSITION OF THE PORTFOLIO:
Credit quality of the portfolio is measured by looking at the credit ratings of the
investments in the portfolio .Mutual Fund fact sheets show the composition of the
portfolio and the investments in various asset classes overtime.
Portfolio turnover rate is the ratio of lesser of asset purchased or sold by funds in the
market to the net assets of the fund.
If Portfolio ratio is 100% means portfolio has been changed fully. When Portfolio ratio is
high means expense ratio is high.
Portfolio Ratio = Total Sales & Purchase
Net Assets of fund
In order to meaningfully compare funds some level of similarity in the following factors
has to be ensured.
Size of the funds
Investment objective
Risk profile
Portfolio composition
Expense ratios
Fund evaluation against benchmark:
Funds can be evaluated against some performance indicators which are known as
benchmarks. There are 3 types of benchmarks:
Relative to market as whole
Relative to other comparable financial products
Relative to other mutual funds
Relative to market as whole:
There are different ways to measure the performance of fund w.r.t market as
Equity Funds
• Index Fund – An Index fund invests in the stock comprising of the index in the same
ratio. This is a passive management style.
For example,
Market Index Fund - BSE Sensex
Nifty Index Fund – NIFTY
The difference between the return of this fund and its index benchmark can be explained
by “TRACKINGERROR”.
• Active Equity Funds:
The fund manager actively manages this fund. To evaluate performance in such case we
have to select an appropriate benchmark.
Large diversified equity fund - BSE 100
Sector fund - Sectoral Indices
• Debt Funds :
Debt fund can also be judged against a debt market index e.g. I-BEX
Table 1.3
Table 1.4
TREATMENT FOR THE INVESTORS (UNITHOLDERS)
Tax benefits of investing in the Mutual Fund
As per the taxation laws in force as at the date of the Offer Document, some broad
income tax implications of investing in the units of the Scheme are stated below. The
information so stated is based on the Mutual Funds understanding of the tax laws in force
as of the date of the Offer Document, which have been confirmed by its auditors. The
information stated below is only for the purposes of providing general information to the
investors and is neither designed nor intended to be a substitute for professional tax
advice. As the tax consequences are specific to each investor and in view of the changing
tax laws, each investor is advised to consult his or her or its own tax consultant with
respect to the specific tax implications arising out of his or her or its participation in the
Scheme .Implications of the Income-tax Act, 1961 as amended by the Finance Act, 2006
To the Unit holders
(a.) Tax on Income In accordance with the provisions of section 10(35)(a) of the Act,
income received by all categories of unit holders in respect of units of the Fund will be
exempt from income-tax in their hands. Exemption from income tax under section 10(35)
of the Act would, however, not apply to any income arising from the transfer of these
units.
(b.) Tax on capital gains: As per the provisions of section 2(42A) of the Act, a unit of a
Mutual Fund, held by the investor as a capital asset, is considered to be a short-term
capital asset, if it is held for 12 months or less from the date of its acquisition by the unit
holder. Accordingly, if the unit is held for a period of more than 12 months, it is treated
as a long-term capital asset
Computation of capital gain Capital gains on transfer of units will be computed after
taking into account the cost of their acquisition. While calculating long-term capital
gains, such cost will be indexed by using the cost inflation index notified by the
Government of India. Individuals and HUFs, are granted a deduction from total income,
under section 80C of the Act upto Rs. 100,000, in respect of specified investments made
during the year (please also refer paragraph d).
Long-term capital gains
As per Section 10(38) of the Act, long-term capital gains arising from the sale of unit of
an equity oriented fund entered into in a recognized stock exchange or sale of such unit of
an equity oriented fund to the mutual fund would be exempt from income-tax, provided
such transaction of sale is chargeable to securities transaction tax.
Pursuant to an amendment made in the Finance Act, 2006, effective 1April 2006,
companies would be required to include such long term capital gains in computing the
book profits and minimum alternated tax liability under section 115JB of the Act.
Short -term capital gains
As per Section 111A of the Act, short-term capital gains from the sale of unit of an
equity oriented fund entered into in a recognized stock exchange or sale of such unit of an
equity oriented fund to the mutual fund would be taxed at 10 per cent, provided such
transaction of sale is chargeable to securities transaction tax.
The said tax rate would be increased by a surcharge of:
- 10 per cent in case of non-corporate Unit holders, where the total income exceeds
Rs.1,000,000,
- 10 per cent in case of resident corporate Unit holders, and
- 2.5 per cent in case of non-resident corporate unit holders irrespective of the amount of
taxable income.
Further, an additional surcharge of 2 per cent by way of education cess would be charged
on amount of tax inclusive of surcharge.
In case of resident individual, if the income from short term capital gains is less than the
maximum amount not chargeable to tax, then there will be no tax payable.
Further, in case of individuals/ HUFs, being residents, where the total income excluding
short-term capital gains is below the maximum amount not chargeable to tax1, then the
difference between the current maximum amount not chargeable to tax and total income
excluding short-term capital gains, shall be adjusted from short-term capital gains.
Therefore only the balance short term capital gains will be liable to income tax at the rate
of 10 percent plus surcharge, if applicable and education cess.
Non-residents
In case of non-resident unit holder who is a resident of a country with which India has
signed a Double Taxation Avoidance Agreement (which is in force) income tax is
payable at the rates provided in the Act, as discussed above, or the rates provided in the
such agreement, if any, whichever is more beneficial to such non-resident unit holder.
Investment by Minors
Where sale / repurchase is made during the minority of the child, tax will be levied on
either of the parents, whose income is greater, where the said income is not covered by
the exception in the proviso to section 64(1A) of the Act. When the child attains majority,
such tax liability will be on the child.
Losses arising from sale of units
As per the provisions of section 94(7) of the Act, loss arising on transfer of units, which
are acquired within a period of three months prior to the record date (date fixed by the
Fund for the purpose of entitlement of the unit holder to receive income from units) and
sold within a period of nine months after the record date, shall not be allowed to the
extent of income distributed by funds in respect of such units.
SEBI REGULATIONS:
As far as mutual funds are concerned, SEBI formulates policies and regulates the
mutual funds to protect the interest of the investors.
SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds
sponsored by private sector entities were allowed to enter the capital market.
The regulations were fully revised in 1996 and have been amended thereafter
from time to time.
SEBI has also issued guidelines to the mutual funds from time to time to protect
the interests of investors.
All mutual funds whether promoted by public sector or private sector entities
including those promoted by foreign entities are governed by the same set of
Regulations. The risks associated with the schemes launched by the mutual funds
sponsored by these entities are of similar type. There is no distinction in
regulatory requirements for these mutual funds and all are subject to monitoring
and inspections by SEBI.
SEBI Regulations require that at least two thirds of the directors of trustee
company or board of trustees must be independent i.e. they should not be
associated with the sponsors.
Also, 50% of the directors of AMC must be independent. All mutual funds are
required to be registered with SEBI before they launch any scheme.
Further SEBI Regulations, inter-alia, stipulate that MFs cannot guarantee returns
in any scheme and that each scheme is subject to 20 : 25 condition [i.e. minimum
20 investors per scheme and one investor can hold more than 25% stake in the
corpus in that one scheme].
Also SEBI has permitted MFs to launch schemes overseas subject various
restrictions and also to launch schemes linked to Real Estate, Options and Futures,
Commodities, etc
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 organization. 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 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.
AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual
fund industry.
Associations 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.
AMFI Publications: AMFI publish mainly two types of bulletin. One is on the monthly
basis and the other is quarterly. These publications are of great support for the investors
to get intimation of the knowhow of their parked money.
CHAPTER 2RESEARCH
METHODOLOGY
OBJECTIVES
To study the benefits available from Mutual Fund investment.
To give an idea of the types of schemes available.
To analyze about the market trends of Mutual Fund investment.
To study some popular mutual fund schemes.
Observe the fund management process of mutual funds.
Explore the recent developments in the mutual funds in India.
To give an idea about the regulations of mutual funds
Methodology
The technique deployed to analyze and interpret the data for the purpose of hitting the
target objectives plays a crucial role. The effective research technique has a significant
contribution for effective objective achievement. Throughout this project I have blanked
some of the questions placed in the questionnaire and the secondary data gathered
Developing a Research plan:
A proper plan was developed and finalized and decision regarding data sources, research
sampling plan was designed. The research was exploratory as well as conclusive in nature
and the database was gathered through secondary and primary sources in order to achieve
the objective of the study.
Type of Research methods:
The research technique used for the study involve following two methods:
1.) Exploratory Research: The exploratory research was used to search the secondary and
primary database in form of survey of the customers dealing with various mutual fund
companies with the help of questionnaire. The hypothesis for the research has been
generated in the following manner:
- Survey of Individuals
2.) Conclusive research: The database for the research has been conducted
systematically; and its observations and analysis has been done as per the research
objectives.
Sample Design:-
Sample Size: The Total sample size was 30
Sampling Method: - The study is based on the non-probability sampling and wherein
convenience sampling was used to collect the data by picking out people in the most
convenient and fastest way to immediately get their reactions.
Research Type:
The research types used for the above mentioned research methods are as follows:
Analytical
The analytical research instruments include surveys and fact-findings and enquire of
different kinds. As it is a data base project, analytical research is done to make facts and
information already available, analyze these to make critical evaluation.
Empirical
Empirical research relies on experience/observation. This is a data base research, coming
up with conclusion.
Data Sources:
Database serves as a base for concluding any type of research. It is necessary to know
which type of data is relevant for the present research. As the present study is a literature
survey, secondary data plays a crucial role in concluding the project. While secondary
data are easy to measure and quantify, relatively easy to assign money value, objectively
based, a common measure of organizational performance and very credible, the primary
data on the other hand are difficult to measure or quantify directly, difficult to assign
money value in absolute term, subjective, less creditable as a performance measure and
usually behaviorally oriented.
Primary data source
Secondary data source
1.)Sources of primary data were feedback of the questionnaire from the investors as well
as non-investors in various mutual funds, the person authorize for selling of mutual funds
and managers of various banks having their mutual fund schemes.
2.) Secondary data sources are those which have already been passed through the
statistical process. In the present study secondary data is used to from the literature
reviews of various banks.
CHAPTER 3DATA ANALYSIS
&INTERPRETATION
Ques 1.) Are you conventional of making investments?
Graph 3.1
INTERPRETATION:According to this chart out of 30 investors of Delhi mostly conventional of making investment i.e. 53% and others are not i.e. 47%.
Ques 2.) Are you planning to invest in future?
Graph 3.2
INTERPRETATION
According to this chart out of 30 investors of Delhi majority of the investors are planning to invest in near future i.e. 87% and very few are not eager in investments i.e. 13%.
Ques 3.) What kind of investment you prefer the most?
Graph 3.3
INTERPRETATION From above graph it can be inferred that of 30, people have invested in fixed deposit 19%, 9% in insurance, 16% in mutual funds, 19% in real estate, 12% in commodity, 12% in equity, and 13% in gold.
Ques 4.) From the following, which Investment option do you think has good All-round capacity performing ability?
Graph 3.4
INTERPRETATION
Out of 30 investors, they found that stock has the most all round investment performing ability i.e. 40%, than mutual funds 27%, than real estate 20% and finally money market 13%.
Ques 5.) While investing your money factor you prefer the most?
Graph 3.5
INTERPRETATION
Out of 30 investors, 7 people prefer to invest where there is low risk, 15 prefer to invest where there is high return and remaining 8 prefer easy liquidity.
Ques 6.) Have you ever invested in mutual fund or are you aware about mutual funds?
Graph 3.6
INTERPRETATION
From the above chart it is inferred that 63% of the people are aware of mutual funds and its operations and 37% are not aware of mutual funds and its operations.
Ques 7.) Where do you find yourself as mutual fund investor?
Graph 3.7
INTERPRETATION
From the above chart it can be inferred that 60% of the investors have partial knowledge of mutual funds and its operations, whereas 13% are fully aware, 20% are totally ignorant and 7% are aware of only specific scheme of the 30 respondents.
Ques 8.) What are the factors that attract you to invest in mutual fund?
Graph 3.8
INTERPRETATION
Out of the 30 investors, 33% invested to get tax benefit, 46% invested to get good returns, 8% invested to get the professional management of the fund managers and 13% invested because of other specific reasons.
Ques 9.) What is your expected rate of return on Investments in a year?
Graph 3.9
INTERPRETATION
Out of the 30 investors the expected rate of return upto 10% were 9, 10-15% were of 10, 15-20% were of 5 and above 20% were of 6 investors.
Ques 10.) How do you rate the risk taking ability?
Graph 3.10
INTERPRETATION
From the above chart it can be inferred that the risk bearing ability of the investors, out of 30 investors 53% are medium risk takers, 34% are low risk takers and 13% can bear high risk.
Ques 11.) How do you rate your experience with Mutual Funds?
Graph 3.11
INTERPRETATION
From the above chart it can be interpreted that experience of the investors was 7% poor, 27% average, 46% good and 20% excellent of the 30 respondents.
CHAPTER 4
FINDINGS
&
CONCLLUSION
Findings
In Delhi the age groups of 20-25 were more in numbers. The second most
investors were in the age group of 30-35 and least were in the age group of above
40.
In Delhi most of the investors were graduates or post graduates. Investors below
high school were very few in numbers.
In occupation group most of the investors were employed and very few of them
were students or unemployed.
In family income group , between Rs. 1,50,000-5,00,000 were more in numbers,
the second most were in the group of 5,00,000-10,00,000, and least were in the
group of 10,00,000 and above.
About all respondents had a savings A/c in the bank, 75% invested in fixed
deposits, only 25% invested in mutual fund.
Mostly respondents preferred high return while investment, the second most
preferred low risk and least preferred was liquidity.
Only 63% respondents were aware of the mutual fund and its operations and 37%
are not.
Among 30 respondents 27% found mutual fund has all round investment
performing capability, 40% found stocks, 20% real estate and 13% money market.
Among 30 respondents 30% expected rate of return to be upto 10%, 33%
expected it to be 10-15%, 17% expected it to 15-20% and 20% expected it to be
more than 20%.
87% of the investors wanted to invest in near future and only 13% were not of
making investment.
Out of the 30 investors, 33% invested to get tax benefit, 46% invested to get good
returns, 8% invested to get the professional management of the fund managers
and 13% invested because of other specific reasons
CONCLUSION
Mutual Funds now represent perhaps most appropriate investment opportunity for most
investors. As financial markets become more sophisticated and complex, investors need a
financial intermediary who provides the required knowledge and professional expertise
on successful investing. As the investor always try to maximize the returns and minimize
the risk. Mutual fund satisfies these requirements by providing attractive returns with
affordable risks. The fund industry has already overtaken the banking industry, more
funds being under mutual fund management than deposited with banks. With the
emergence of tough competition in this sector mutual funds are launching a variety of
schemes which caters to the requirement of the particular class of investors. Risk takers
for getting capital appreciation should invest in growth, equity schemes. Investors who
are in need of regular income should invest in income plans.
The stock market has been rising for over three years now. This in turn has not only
protected the money invested in funds but has also helped to grow these investments.
This has also instilled greater confidence among fund investors who are investing more
into the market through the MF route than ever before.
Mutual funds like Reliance India mutual funds, SBI mutual funds, and LIC mutual fund
provide major benefits to a common man who wants to make his life better than previous.
India’s largest mutual fund, UTI, still controls nearly 80 per cent of the market. Also, the
mutual fund industry as a whole gets less than 2 per cent of household savings against the
46 percent that go into bank deposits.
Some fund managers say this only indicates the sectors potential."If mutual funds
succeed in chipping away at bank deposits, even a triple digit growth is possible over the
next few years.
CHAPTER 5
LIMITATIONS
LIMITATIONS
Time and money are critical factors limiting this study.
The data provided by the prospects may not be 100% correct as they too have
their limitations.
The study is limited to selected mutual fund schemes.
CHAPTER 6SUGGESTIONS
AND RECOMMENDATIONS
Suggestions and recommendation
The most vital problem spotted is of ignorance. Investor should be made aware of
the benefits. Nobody will invest until and unless he is fully convinced. Investor
should be made to realize that ignorance is no longer bliss and what they are
losing by not investing.
Mutual fund offers a lot of benefit which no other single option could offer. But
most of the people are not aware of what a mutual fund is? Then only see it is just
another option. So the advisors try to change their mind. The advisors should
target more and more young investors. Young investors as well as the person at
the height of their career would like to for advisors due to lack of time and
expertise.
Mutual fund company need to give the training of individual financial advisor
about the fund/scheme and its objectives, because they are the main source to
influence the investors.
Before making any investment financial advisors should first enquire about the
risk tolerance of the investor/customer, their need and time(how long they want to
invest). By considering these three things they can take the customers into
considerations.
Younger people under age 35 are a new customer group. So making greater
efforts with younger customers who show some interest in investing should pay
off.
Customers with graduate level education are easier to sell to and there is large
untapped market there. To succeed however, advisors must provide sound advise
and high quality.
Systematic Investment Plan (SIP) is one the innovative products
l a u n c h e d b y A s s e t s M a n a g e m e n t c o m p a n i e s v e r y r e c e n t l y i n
t h e industry. SIP is easy for monthly salaried person as it provides
the facility of do the investment in EMI. Though most of the
prospects and potential investors are not aware about the SIP. There is a large
scope for the companies to tap the salaried persons.
BIBLIOGRAPHY
BIBLIOGRAPHY
BOOKS:
1. Nataragan and Gordan “Financial Services and Markets” Himalaya Publishing
House, Mumbai (Edition 2000)
2. Clifford Gomez “Financial Markets, Institutions and Financial services” Prentice-
Hall of -India Pvt. Ltd. (Edition 2008)
3. Ponithavatih Pandian “Security Analysis and Portfolio -Management” Vikas
Publishing House Pvt. Limited (Edition 2009)
4. A.K Vashisht and R.K Gupta “Investment Management and Stock market” Deep
& Deep publications Pvt. Ltd. (Edition 2005)
5. S. Kevin “Security Analysis and Portfolio Management” Prentice- Hall of -India
Pvt. Ltd. (Edition 2003)
6. Donald E. Fisher, Ronald J. Jordan “Security Analysis and Portfolio-Management”
Pearson Prentice hall (Edition 2006)
News Papers- The Economic Times and Business line
Magazines:- Business World India Today and Outlook Money
2. Are you planning to invest in future?o Yes o No
`3. What kind of investment you prefer the most?
Equity Mutual Fund Fixed Deposit Gold/ Sliver Real Estate PPF/PF Insurance
4. From the following, which Investment option do you think has good All-round capacity performing ability?
Stock market Money market Mutual Fund Other (specify)
5. While investing your money, which factor you prefer the most?
Liquidity Low risk High return Other(Specify)
6. Have you ever invested your money in mutual fund or are you aware about mutual funds?
o Yeso No
7. Where do you find yourself as mutual fund investor?
o Totally ignoranto Partial knowledgeo Fully awareo Aware of only specific schemes
8. What are the factors that attract you to invest in mutual fund?
Good returns Tax benefit/exemption Professional management Other(Specify)
9. What is your average annual income
o Below 150000o 150000-500000o 500000-1000000o Above 1000000
10. What is your expected rate of return on Investments in a year?
o Up-to 10%o 10-15%o 15-20%o Above 20%
11. How do you rate the risk taking ability?
o Lowo Mediumo Averageo High
12. Do you think mutual fund is a safe investment?Low 1 2 3 4 5 High
13. Which other facilities would you like Mutual Funds to provide you with?________________________________________________________________________________________________________________________________________________________________________________________________________________________
14. Any Mutual Fund scheme you are satisfied with?________________________________________________________________________________________________________________________________________________________________________________________________________________________
15. How do you rate your experience with Mutual Funds?