A PROJECT ON IMPORTANCE OF CHANNELS IN SELLING OF MUTUAL FUNDS ____________________________________________________ Company Name : Bonanza Portfolio Pvt. Ltd. and address Plot M-2, Cama Industrial Estate Walbhat Road, Goregaon(e), Mumbai- 400063 Industry Guide’s : Bhushan Ajani, Mobile: 9867711055 1
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Chapter No. Title Page No. Declaration from student 5Certificate from organization 6Certificate from Guide 7Acknowledgement 8Executive Summary 9
1 Introduction 101.1 Current Financial Sector 111.2 Company profile 151.3 Services Provided by Bonanza 171.4 Competitors of Bonanza 18
2 The Product2.1 What is mutual fund 202.2 Concept of Mutual Fund 21
3 The Project 223.1 The Buying cycle 233.2 Rules for Selling of Financial Products 243.3 What is Distribution Channel 253.4 Distribution of Mutual Funds 253.5 Bonanza – An Advice Channel 27
3
Table ofC O N T E N
T S
4
3.6 Essentials of a Good Distribution System
29
3.7 Role of various Channels 303.8 Importance of Distribution Channels 31
3.9 Distribution Staff at Bonanza 343.10 Training of Sub brokers at Bonanza 353.11 Establishing Channel Relationship 39
4 Research Methodology 414.1 Findings of the Research 444.2 Observations 47
4.3 Recommendations 53
5 Conclusions 54
6 Webliography 55
I Appendices Questionnaire 56
DECLARATION
I, RISHABH KAPOOR, hereby declare that this project report is the record of authentic work
carried out by me during the period from MAY 10, 2009 to JUNE 30, 2009 and has not been
submitted to any other University or Institute for the award of any degree / diploma etc.
RISHABH KAPOOR
Date
5
6
CERTIFICATE
This is to certify that Mr. RISHABH KAPOOR of Atharva Institute of Management Studies has
successfully completed the project work titled “IMPORTANCE OF CHANNEL IN SELLING
OF MUTUAL FUNDS” in partial fulfillment of requirement for the completion of MMS course
as prescribed by the University of Mumbai.
This project report is the record of authentic work carried out by him during his Summer
Training. He has worked under my guidance.
Bhaktidhara Mohapatra Dr. N S Rajan
Project Guide (Internal) Dean
Date: Atharva Institute of Management Studies
7
ACKNOWLEDGEMENT
The successful completion of this report would not have been possible without the co-operation
and support of our Dean Dr. N. S RAJAN who is always a Motivating factor for me. I would like
to acknowledge the relentless and wholehearted support of our Director Dr. S
BHATTACHARJEE whose encouragement has made this project a Success.
I would like to thank my External Guide Mr. Bhushan Ajani for being a support factor in all
my appointments with the sub brokers and for teaching me the detailed aspects of selling a
Mutual Fund and a special Mention of the Vice President of Bonanza Portfolio Mr. Rakesh
Goyal who brings out the best in all his employees and always motivate us to perform better and
better.
I am Thankful to my Internal Guide Mrs. Bhaktidhara Mohpatra who extended her full
support during the term of the project to make the project not only a source of knowledge but
also a skill enhancing platform.
Above All I would like to thank my Parents; without their blessings and support, this project
would not have been possible.
Without the support extended by all these, the success of the report would have been a mere
obligation, thank you once again.
RISHABH KAPOOR
8
EXECUTIVE SUMMARY
With Market Sentiments turning Positive there has been a ripple effect seen in the Financial Sec-
tor. When sensex had dropped from around 22000 to nearly 6000, all the Mutual Funds had in-
curred huge losses and their NAV(Net Asset Value) was reduced to half (or even one-fourth in
few cases) of its value when sensex was above 15000.This had affected the sentiments of the in-
vestors to a great extent. Now with the Market being stabilized with sensex at around 15000, the
confidence of investors have increased but still they are watchful about their investments and al -
ways consult their brokers/ Financial Advisors for the investments. Hence irrespective of the
market conditions the distributors or Intermediaries always play a crucial role in success of a
fund.
In the past 25 years, there have been dramatic changes in how mutual funds are sold to the in -
vesting public. Today The Distribution channels play a very crucial role in selling of Mutual
Funds primarily because AMCs are located at selected locations only so it’s the task of the inter-
mediaries /Distributors to ensure that the fund penetrates in the smaller towns as well. The aim of
this project is to highlight the types of the Distribution channels in Mutual Funds and their im-
portance in selling of the same and also the importance of maintaining good Channel relation-
ship.
This project also includes a research done for the company to find out the opinion of the sub
brokers about the company and what the company needs to do to ensure long term relationship
with its sub brokers. The findings, observations and the recommendations for the company is
also a part of this report.
9
Chapter – I
Introduction
ANALYSIS OF CURRENT FINANCIAL SECTOR10
With market sentiment turning positive due to the formation of a stable newly elected
government, the ripple effect is likely to felt across all the financial services in India. The
sectors, including banking and insurance, and mutual funds are all beginning to reap the benefits
of a good closure for 2008-09. In 2008-09, the Indian economy is estimated to have grown by 6.7
per cent. According to the latest Central Statistical Organization (CSO) data, financial services
and real estate sector rose by 9.5 per cent in the first quarter of 2009-2010.
The government has taken a number of steps in recent months to revive the economy, including
slashing interest rates, lowering factory levies and more than doubling the limit on foreign
investment in corporate bonds. The financial services space is a rapidly growing one in India.
The country received US$ 45 billion in foreign currency remittances from non-resident Indians
in 2008, the highest in the world.
The period April-May 2009 saw increased inflow in to equity with investors steadily turning
positive on equity according to mutual fund analysts. As per the Securities and Exchange Board
of India (SEBI), on May 15, net investment of mutual funds in equity was around US$ 83.3
million lowering to US$ 20.5 million on May 21. As against this, net investment of mutual funds
in debt has more than tripled from US$ 42.9 million on May 15 to US$ 134.2 million on May 31,
2009.
There is optimism in the economy as funds are investing in corporate bonds, making liquidity
available to enterprises. The total amount traded in corporate bonds tripled from US$ 17.8
million to US$ 55.7 million during May 15 to May 21, 2009.
The largest fund house, Reliance Mutual Fund, registered 16 per cent growth in its average assets
under management (AUM) to US$ 21.6 billion in May 2009 compared to April’s figure of US$
18.6 billion. The second-largest fund house, HDFC Mutual Fund, grew 18 per cent to US$ 16
billion, compared with the previous month’s figure of US$ 13.4 billion.
11
The Spice Group is now looking for a US$ 1-billion valuation in financial services business in
the next three to five years. It has put US$ 105.2 million as seed money for the financial services
business and is roping in a Singapore-based firm as a partner for the asset reconstruction
business.
India has increased its exposure to American debt securities by over three-fold to US$ 38.2
billion till March 2009 as against US$ 11.8 billion in March 2008, according to the data from the
US Treasury Department.
SEBI’S NEW GUIDELINES ON REMOVAL OF ENTRY LOAD FOR
DIRECT INVESTMENT IN MUTUAL FUND SCHEMES
The manner of investing in mutual funds has changed over a period of time for individuals. This
is likely to shift even more dramatically in the coming days.
The decision of the Securities and Exchange Board of India (SEBI) to abolish the entry load on
schemes has been a big surprise for everyone. For investors this signals a possible change in the
way they take their investment decisions.
There will be some benefit available, but at the same time there also has to be some element of
care taken in the process so that it is completed properly.
Entry load
The entry load is the additional expense that has to be paid by the investor when they make an
investment in the mutual fund. The entry load usually was in the range of 2-2.5 per cent of the
investment and this was an extra burden for the investor.
The load is usually used to cover various selling expenses of the scheme like payment of
distributor’s commission, miscellaneous expenses and so on. Till some time ago, there was an
12
option for the investor to actually save the entry load by making their own investments directly
and this ensured that the burden did not fall on them.
Now according to the new guidelines, the schemes should not charge any entry load at all so the
investor would not have to pay anything extra. When an entry load is charged, the investor ends
up getting a lesser number of units for the same investment.
So, if for example, the net asset value of the scheme is Rs 15 and the entry load is 2 per cent the
investor will actually get the units at Rs 15.30 which means that for the same investment there
will be a lesser number of units allotted to them.
Selection of scheme
Now with the abolition of the entry load, the investor has to concentrate on the process of
selecting the right scheme. There are such a large number of options that need to be considered
and this will require some element of work.
Investors will need to consider its performance more closely while making decisions. With no
entry load present, the final returns that are coming in for the investor will be influenced largely
by the performance or the returns that are generated by the scheme. In such a situation, the
investor would do well to concentrate more on the potential returns that can be generated, so that
this will help them in their decision-making.
The investor should also look at the fund manager, because this is an important factor that will
play a role for their selection.
Payment to distributor
13
The condition about how the investor goes about the entire investment process is important
because this can give rise to another element of negotiation.
Under the new conditions, if one uses the service of the distributor then there is no fixed fee for
the distributor that will be paid by the mutual fund. Rather than this, one will have to pay the
distributor, but this will have to be done after discussion and mutual agreement.
The figure will thus vary from person to person and hence there has to be a very clear idea about
the manner in which this part of the transaction will actually take place.
The amount that one is willing to pay and how one actually makes the decision and the points to
consider will vary from person to person, so the right balance needs to be struck in deciding this
issue.
Own efforts
There could be a lot of efforts that have to be done on their own by investors because of the
entire change due to the fact that there could be a very low interest from the distributor to
actually serve the customer.
With the financial incentive gone, there could be a reduction in the services and the only option
for the investor is to ensure that they complete a lot of work on their own.
This will require some more time and effort along with the knowledge about the process. The
effort could involve the issue of doing some amount of follow up or even communicating
directly with the mutual fund, but this can vary depending upon the exact situation for the
investor. This factor has to be brought into the consideration, as it will impact the way in which
the overall investment is done.
COMPANY PROFILE14
Bonanza a leading Financial Services & Brokerage House working diligently since 1994 can be
described in a single word as a "Financial Powerhouse". With acknowledged industry leadership
in execution and clearing services on
Exchange Traded Derivatives and cash market products. Bonanza has spread its trustworthy
tentacles all over the country with more than 1025 outlets spread across 340 cities.
It provides an extensive smorgasbord of services in equity, commodities, currency derivatives,
wealth management, distribution of third party products etc. Keeping in par with the modern
tech-savvy world , Bonanza makes an integrated and innovative use of technology; it also
enables its clients to trade online as well as offline and the strategic tie-ups with the latest
technology partners has earned Bonanza this prestigious place in one of the top brokerage houses
in the country. Client -focused philosophy backed by memberships of all principal Indian Stock
and Commodity Exchanges makes Bonanza stand apart from its competitors and a preferred
service provider in the industry for value-based services.
To add to our ever-growing achievements, a study by Dun and Bradstreet has
rated Bonanza as the SIXTH largest broking house in terms of equity terminal listings in the
country. If this is not enough, Bonanza Portfolio Ltd was recently nominated amongst the Top 3
Retail Financial Advisors of the country in an event conducted by CNBC-TV18 and OptiMix
Financial Advisor Awards 2008. Also Bonanza has been awarded by BSE the "Major Volume
driver for the year 2004-2005, 2006-2007 and 2008-2009".
ACHIEVEMENTS
15
1. Top Equity Broking House in terms of branch expansion for 2008*.
2. 3rd in terms of Number of Trading Accounts for 2008*.
3. 6th in terms of trading terminals in for two consecutive years 2007- 2008*.
4. 9th in terms of Sub Brokers for 2007*
5. Awarded by BSE 'Major Volume Driver 04-05, 06-07, 07-08’.
6. Nominated among the Top 3 for the "Best Financial Advisor Awards '08" in the category
of National Distributors - Retail instituted by CNBC-TV18 and OptiMix.
* As per the survey by DUN & BRADSTREET.
CORPORATE TIE UPS
The company has Corporate Tie ups with Birla Sunlife ,Bajaj Allianz, ICICI Prudential, SBI ,
Aviva , Kotak Mahindra and Reliance for Life Insurance and General Insurance.
In General Insurance, Bonanza provides Insurance for Motor, Health, Travel,
Housekeeper, Shopkeeper, Marine, Personal and Group Insurance.
SERVICE PROVIDED BY BONANZA16
1. Mutual Funds
2. Insurance
Life Insurance
General Insurance
3. PMS
4. Share Broking
5. IPO
6. Currency Derivatives
7. Share Broking
8. Commodity Broking
COMPETITORS
17
18
CHAPTER II
THE PRODUCT
WHAT IS MUTUAL FUND
Mutual Fund pools up the money from individual / corporate investors and invests the same on
behalf of the investors /unit holders, in equity shares, Government securities, Bonds, Call money
19
markets etc., and distributes the profits. The income earned through these investments and the
capital appreciation realised are shared by its unit holders in proportion to the number of units
owned by them. This pooled income is professionally managed on behalf of the unit-holders, and
each investor holds a proportion of the portfolio i.e. entitled not only to profits when the
securities are sold, but also subject to any losses in value as well.
FLOW OF MUTUAL FUND
20
CHAPTER III
THE PROJECT
21
THE BUYING CYCLE
1. Recognition of Needs : The First stage in the Buying cycle is to
understand the needs of the client, whether he wants to invest into Mutual funds or is
looking for life insurance/general insurance etc.
2. Evaluation of options : Once the needs are identified then the
corresponding products can be pitched to the client. For example If the client wants to invest
then Options are Mutual Funds, Fixed Deposits etc but if the client wants moderate as well
as assured returns then we would not pitch him for Mutual Funds rather we shall present
Different Fixed Deposits schemes to him.
22
E Eliminating Doubts
D Decide
Post Sale Service
R Recognition of Needs
E Evaluation of Options
3. Elimination of Doubts : Once it is known that the client would put
his money in Fixed deposits then the client is eager to know the different options like