Market Survey Mutual Funds IIFT

1

NFO PROCESS IN MUTUAL FUNDS

AT

INDIA INFOLINE LIMITED

Market Survey Report submitted in

Partial fulfillment of the requirements of

POST GRADUATE DIPLOMA IN MANAGEMENT

Submitted by:

MAYANK GARG

Roll No.: 466

Section: FA

Major Specialization: Finance

NEW DELHI INSTITUTE OF MANAGEMENT

TUGHLAKABAD INSTITUTIONAL AREA,

NEW DELHI

(2015-2017)

2

TABLE OF CONTENTS

1. Acknowledgement

2. Research Objectives

3. Preface

4. Introduction

a) New Fund Offer - NFO

b) Mutual Funds

c) Company Profile – IIFL

d) Statistical Technique

e) NFO Process

f) SEBI Guidelines for NFO

5. Research Methodology

a) Data Collection Techniques

b) Limitations of the Study

6. Data Analysis

a) Data

b) Calculations

c) Interpretation

7. Finding And Conclusion

8. Suggestions And Recommendations

9. Bibliography

3

ACKNOWLEDGEMENT

The presentation of this project has given me an opportunity to express my pro found gratitude to

all concern in guiding me. Foremost, I would like to thank Mr AHUWALIA (Manager of India

Infoline) for giving me an opportunity to undertake this project work.

I would like to thank the INDIA INFOLINE PRIVATE LIMITED staff for giving me support

and the required material on time. I would also thank the principal of our college, New Delhi

Institute Of Management, Tughlakabad Institutional Area, New Delhi, for providing an

opportunity to undergo a project study program.

I would like to thank PROF. CHAND TANDON and PROF. BHARAT SHARMA for

assigning me the project.

Lastly, I want to pay my hearted thanks to my friends and people who gave me their valuable

suggestions and guidance in completing my project.

MAYANK GARG

4

RESEARCH OBJECTIVES

Research is one of the most vital part of the survey and is related to collection of information and

knowledge.

The purpose of this survey creates a design in relation to process of NFO (NEW FUND OFFER)

and how this process is carried out till the end.

To study the technical, procedural, legal dimensions of the NFO

To examine briefly the organizational structure, communication network, resource

requirements to launch a new fund

To study a sample of application drawn from Reliance Mutual Fund.

5

PREFACE

Investments goals vary from person to person. While somebody wants security, others might

give more weightage to returns alone. Somebody else might want to plan for his child's

education while somebody might be saving for the proverbial rainy day or even life after

retirement.

Investors of all categories could choose to invest on their own in multiple options but opt for

Mutual Funds for the sole reason that all benefits come in a package.The Mutual Fund industry is

having its hands full to cater to various needs of the investors by coming up with new plans,

schemes and options with respect to rate of returns, dividend frequency and liquidity.

In view of the growing competition in the Mutual Funds industry, it was felt necessary to study

the investors orientation towards Mutual Funds i.e. their pattern of risk apetite and preferences in

various schemes, plans and options in order to provide a better service,

New Fund Offer process may not be same for all Mutual funds that are released. It may differ

from one fund to other depending up on the size like No. of Applications received, Subscriptions

amount received etc.

MAYANK GARG

6

INTRODUCTION

New Fund Offer (NFO)

When a mutual fund asset management company announces public issue of units of a new

fund/scheme it is called a New Fund Offer (NFO).

When a mutual fund company plans for a NFO, it first informs to the registrar or the back office

functions provider through email. This is called as “NFO Launching Information Mail” send by

the fund manager of the asset management company to the NFO coordinator.

Key Information Memorandum (KIM), offer document contains, necessary information for a

prospective investor to make an investment decision. The offer document contains the features of

the scheme like NFO opening date, NFO closing date, Scheme name, Scheme class, reopening

date, plans available banks involved, number of bank branches involved, minimum amount –

fresh purchase, maximum amount – fresh purchase, expected number of applications, entry load

and exit load. The unit manager will arrange a meeting where the AMC team & NFO expert’s

team team and the dispatch team will fix the target dates by which the work has to be completed.

Mutual Fund

Mutual fund is a mechanism for pooling the resources by issuing to the investors and investing

funds in securities in accordance with objectives as disclosed in offer document.

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 securities markets before it

can collect funds from the public.

Mutual fund is a collection of stocks and / bonds. A mutual fund as a company brings together a

group of people and invests their money in stocks, bonds and other securities. Each investor

owns shares, which represent a portion of the holdings of the fund.

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COMPANY PROFILE: INDIA INFO LINE LTD

Probity Research & Services Pvt. Ltd. was later changed to India Info line Ltd.

The Objective was to provide unbiased and independent information to market intermediaries

and investors. The list included consulting firms- McKinsey, companies- HUL, banks- Citibank,

rating agencies- CRISIL, FIS and leading brokers.

The company became dependent on its e-broking business for survival. The core promoters of

the company had little experience of broking. There was a core group who never lost hope. They

cut all possible costs and worked on a bare bones structure. The company rose from strength to

strength to become the leading corporate agent in life insurance and among the top retail players

in mutual fund and broking space.

Company’s Vision:

Its vision will not be accomplished only by maintaining high growth alone. Its vision is to

emerge as the most respected financial services company in India. Needless to emphasize that it

is imperative for all us to align our personal goals and values to this vision.

STATISTICAL TECHNIQUE

Histogram:

A histogram is a graphical representation of the distribution of numerical data. It is an estimate

of the probability distribution of a continuous variable (quantitative variable) and was first

introduced by Karl Pearson.

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SEBI GUIDELINES ON NEW FUND OFFER

1. Procedure for launching of schemes:

a) No scheme shall be launched by the asset management company unless such scheme is

approved by the trustees and a copy of the offer document has been filed with the Board.

b) Every mutual fund shall along with the offer document of each scheme pay filing fees

2. Disclosures in the offer document:

a) The offer document shall contain disclosures which are adequate in order to enable the

investors to make informed investment decision

b) The Board may in the interest of investors require the asset management company to

carry out such modifications in the offer document as it deems fit.

c) No modifications are suggested by the Board in the offer document within 21 [working]

days, the asset management company may issue the offer document.

3. Advertisement material:

Scheme shall be in conformity with the Advertisement Code and shall be submitted to the

Board within 7 days from the date of issue.

4. Misleading statements:

The offer document and advertisement materials shall not be misleading or contain any

statement or opinion, which are incorrect or false.

5. Listing of close ended schemes:

a) scheme provides for periodic repurchase facility to all the unit holders with restriction; or

b) scheme provides for monthly income or caters to special classes of persons like senior

citizens, women, children, widows or physically handicapped providing for repurchase of

units at regular intervals; or

c) Scheme opens for repurchase within a period of six months from the closure of

subscription.

6. Repurchase of close ended scheme:

a) The asset management company may at its option repurchase or reissue the repurchased

units of a close ended scheme.

b) The units of close ended schemes referred to in the proviso to regulation may be open for

sale or redemption at fixed pre-determined intervals if the maximum and minimum

amount of sale

c) The units of close ended scheme may be converted into open ended scheme.

d) If the offer document of such scheme discloses the option; or

e) The unit holders are provided with an option to redeem their units in full.

f) A close ended scheme shall be fully redeemed at the end of the maturity period.

7. Offering Period:

No scheme of a mutual fund other than the [initial] offering period of any equity linked

savings schemes shall be open for subscription for more than 45 days

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8. Allotment of Units and refund of money:

a) The Asset management company shall specify in the offer document

b) Over subscription the extent of subscription of all the applicants applying up to five

thousand units shall be given full allotment

c) The mutual fund and asset Management Company shall be liable to refund the application

money to the applicants-

(i) if the mutual fund fails to receive the minimum subscription amount;

(ii) If the moneys received from the applicants for units are in excess of subscription.

d) Any amount refundable shall be refunded within a period of six weeks from the date of

closure of subscription list, by Registered A.D and by Demand Draft marked "A/C

Payee" to the applicants.

e) In the event of failure to refund the amounts within the period the asset management

company shall be liable to pay interest to the applicants at a rate of fifteen percent per

annum on the expiry of six weeks from the date of closure of the subscription list.

9. Unit certificates:

The asset management company shall issue to the applicant whose application has been

accepted, unit certificates or a statement of accounts specifying the number of units

allotted to the applicant as soon as possible but not later than six weeks from closing date.

10. Transfer of units:

a) A unit certificate unless otherwise restricted or prohibited under the scheme, shall be

freely transferable by act of parties or by operation of law.

b) The asset management company shall, on production of instrument of transfer together

with relevant unit certificates, register the transfer and return the unit certificate to the

transferee within thirty days from the date of such production.

11. Dispatch of warrants and proceeds:

a) Every mutual fund and asset management company shall,

(i) Dispatch to the unit holders the dividend warrants within [30 days] of the declaration

(ii) Dispatch the redemption or repurchase proceeds within 10 working days

b) Wherever an application for a total value of Rs.50,000/- or more, the applicant or in the

case of application in joint names, each of the applicants, should mention his/her

Permanent Account Number (PAN)

12. Instructions for filing scheme offer document with SEBI:

As advised in SEBI circular MFD/CIR/06/275/2001 dated July 9, 2001, while filing offer

document for launching a new scheme/revising and filing existing offer document with

SEBI, the mutual funds should highlight and clearly mention each of the following

observation has been incorporated. In case of any amendment to Regulations, the new

provisions should be incorporated in the offer documents.

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NFO PROCESS

Collect the applications

all branches of the bank

involved in NFO &

segregated bank &

branch wise.

To keep applications

safe, out of any

damage and miss-

place.

All the information or date of an

investor that is available on the

application

Data that is entered in first entry

is checked & missing is entered.

Physical form of application are

kept side by an checking of data

that was entered

Verifies mistakes that are

left in online matching

Prepared based on the data that is

provided after first time verification.

Report is again sent to

external audit team.

If the external auditing is not

satisfied and if they find any

mistakes & missing are rectified

Check name of the investor,

amount invested, bank details

PAN number, name of the

scheme and mode of holding

Once again check further mistakes

After integrity check by the

NFO team it is once checked

by the internal audit team

This is done for convenience in

doing back office functions easily

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Prepare New Fund Report and has to be

submitted to the AMC further to SEBI.

SOA once prepared is dispatched to the

investor

Verification of random investor shows

SOA is cent percent correct and exact

Allotment of units is done as per the

amount that is invested by investors

Resemble the style or Performa or outlook of

the statement of accounts. Final data that

they got after filtering the mistakes and

default values is ported in the task MF

MFS team will once again verify the data

and the final data will come out any

mistakes and default values

Cheques without hue sign of investor

bounced cheques etc., are rejected and

dispatched to the investors

Scanning team will detect and rectify any

further default values and mismatch cases

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RESEARCH METHODOLOGY

Data Collection Technique:

In this study Primary data was collected through interaction with staff of India Info Line Pvt.

Ltd. and the applications of Reliance Equity Fund.

In this study the Secondary data is mainly taken from-

The company’s training material.

Reconciliation statements.

www.iiflmf.com

www.indiainfoline.com/mutualfunds/iifl-mutual-fund

www.sebi.com

Limitations of study:

The data available is therefore restricted by the design of the application.

The inspection is done on the basis of a sample of 200 applications. The sample is drawn

randomly, the possibility of sampling fluctuations affecting the findings cannot be ruled

out.

Numerical data like number of applications received, total subscription amount received,

etc. are not available and therefore a description of these aspects is given.

NFO process may not be same for all mutual funds that are released. It may differ from

one fund to other depending upon the size.

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DATA ANALYSIS

Holding profile of applicant:

Particulars Single Joint Anyone Total

No. of applicants 140 1 59 200

% of applicants 70 0.5 29.5 100

0

10

20

30

40

50

60

70

Holding Profile

single

joint

anyone

Interpretation:

It can be seen that majority of the applicants prefer to hold the allotted units individually and

29.5% prefer to hold anyone/survivors. This corroborates with the age profile of the applicants.

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Occupation profile of applicants:

Particular Business Service Student Retired Housewife Others Total

No. of

applicants

35 75 15 20 30 25 200

% of

applicants

17.5 37.5 7.5 10 15 12.5 100

0

5

10

15

20

25

30

35

40

Occupation

Business

Service

Student

Retired

House Wife

Others

Interpretation:

Majority of the applicants are from services personnel at 37.5%, next comes business People are

17.5%. The housewife occupy 3rd highest at 12.5%. It is found that professionals and retired are

at the lowest.

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Age profile of the applicants:

Particulars Below 18 18-30 31-60 Above 60 Total

No. of applicants 0 35 140 25 200

% of applicants 0 17.5 70 12.5 100

0

10

20

30

40

50

60

70

Age Profile

18-

18-30

31-60

60+

Interpretation:

The age profile of the applicants shows that the majority of the applicants fall into the age Group

31-60 years and the percentage of them being 70.

This is followed by the age Group 18-30 years and 12.5% of the applicants are above 60 years.

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Investment profile of the applicants:

Particulars 5000 -

25000

25001 -

50000

50001 -

100000

Above

100000

Total

No. of applicants 100 45 20 30 200

% of applicants 50 22.5 10 17.5 100

0

5

10

15

20

25

30

35

40

45

50

Investment Profile

5000-25000

25001-50000

50001-100000

100000+

Interpretation:

Amount of investment is high at 50% in the range 5000-25000 and it is very low at 10% in 50001-

100000, but the next slab. Above 100000 has registered 17.5%.

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Scheme profile of applicants:

Particulars Growth

option

Bonus

option

Dividend

reinvestment

Dividend

payout

Total

No. of applicants 110 10 50 30 120

% of applicants 55 5 25 15 100

0

10

20

30

40

50

60

Scheme Profile

Growth

Bonus

Div Reinvest

Div Payout

Interpretation:

Majority of the applicants opted the growth option and the option of dividend reinvestment is

25%. This means that 80% of the applicants are not investing for income sake rather they look at

the accumulation of profits.

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Gender profile of the applicants:

Particulars Male Female Total

No. of applicants 147 53 200

% of applicants 73.5 26.5 100

0

10

20

30

40

50

60

70

80

Gender

Male

Female

Interpretation:

The female participation in the NFO is low at 26.5%. The male applicants are very high at 73.5%

as is not normally found in found in institutional investments.

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FINDINGS AND CONCLUSIONS

The NFO is found to be a complex activity calling for creating an organization polling the

knowledge and expertise of people in different areas.

The NFO process is simple and well structured as long as it is to investor to investor, but

thereafter the process is lengthy time consuming and found to be overlapping at some

stages.

The SEBI regulations governing NFO are comprehensive and protect investor's interest at

each level.

Different funds have been designing different forms of applications for NFO.

An analysis of sample of applications revealed the following -

i. Majority applicants prefer to hold the units individually

ii. Majority of the applicants are in service

iii. The model age group is 31-60

iv. The most common investment amount is 5000-25000

v. About half of the applicants prefer Growth option

vi. Majority the applicants are male

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SUGGESTIONS AND RECOMMENDATIONS

Different funds have been using different forms of applications. A standardized form of

application maybe designed by the competent.

The NFO process is very complex and there is a need to simplify the process by

eliminating certain unnecessary steps in the process i.e. instead of carrying out audit for

three times and appropriate internal check system maybe devised to keep the errors

within the tolerance limits.

The NRI subscribers to the fund maybe encouraged to make the payments from NRO,

NRE and FCNR accounts.

The participation of senior citizens in the NFO’s may be encouraged as they are likely to

hold more surpluses compared to others.

The holding of units in joint names shall be encouraged.

A savings from all channels of India / World are to be tapped by the NFO rather than one

or two states applying for a login share of the option.

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BIBLIOGRAPHY

www.Indiainfoline.com

www.sebi.com

www.amfiindia.com

NFO propeller of India info line.

NFO records of Reliance Mutual Fund.

Mutual Funds in India by H SADHAK.

“Business Statistics” written by Naval Bajpai