Post on 18-Nov-2014
A Summer Internship Project Report on
“Dynamics of Mutual Fund Distribution”
Submitted in partial fulfillment of the requirements for the degree of
Post Graduate Diploma in Management (Marketing)
By
HANISH DHILLON(Roll No. ISBS M 48)
Under the guidance of
Mr. Dilraj SinghManger Banking & Corporate Channel-HDFC AMC Ltd
A Study Conducted for HDFC AMC Ltd
AtIndira School of Business Studies,
Tathawade, Pune 411033
(2008-10)
1
CONTENTS
Chapter/Sub
Headings
Particulars Page No
1 Acknowledgements 4
2 Executive Summary 5
3 Objectives 8
4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
Introduction-
- Mutual Funds
- History of Mutual Funds
- Current state of Mutual Funds
- Key Characteristics
- Advantages of Investing in Mutual Funds
- Disadvantages of Investing in Mutual Funds
- Risks Associated with Investing in Mutual Funds
- Categories of Mutual Funds
- Snapshot of Various funds
- Risk Hierarchy of Different Mutual Funds
10
11
12
14
16
20
22
23
25
28
29
5 Company Profile- HDFC AMC 30
6
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
Research Study
- Introduction
- Review of Literature
- Type of Research
- Data collection Technique
- Scope of the Study
- Data sources
- Sampling procedure
- Sample Size
- Techniques for Analysis
41
42
42
42
42
43
43
43
43
43
2
6.10
6.11
- Data presentation tools
- Limitations
44
44
7
7.1
7.2
7.3
7.4
7.5
7.6
7.7
7.8
7.9
Data Analysis
- Bar Graph 7.1
- Bar Graph 7.2
- Bar Graph 7.3
- Bar Graph 7.4
- Bar Graph 7.5
- Bar Graph 7.6
- Bar Graph 7.7
- Bar Graph 7.8
- Bar Graph 7.9
45
46
48
49
51
53
55
57
58
8 Research Conclusions 60
9 Recommendations 62
10 Annexure and Bibliography 65
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ACKNOWLEDGEMENTS
I take this opportunity to express my deep sense of gratitude to all those who have
contributed significantly by sharing their knowledge and experience in the completion of
this project work.
I am greatly obliged to, for providing me with the right kind of opportunity and facilities
to complete this venture. My first word of gratitude is due to Mr. Dilraj Singh –
Manager Banking & Corporate Channel, HDFC Mutual Fund, My corporate guide, for
his kind help and support and his valuable guidance throughout my project. I am
thankful to him for providing me with necessary insights and helping me out at every
single step.
I am highly thankful to Prof. Bidyut Gogoi – My internal faculty guide under whose able
guidance this project work was carried out. I thank him for his continuous support and
mentoring during the tenure of the project.
Finally, I would also like to thank all my dear friends for their cooperation, advice and
encouragement during the long and arduous task of carrying out the project and
preparing this report.
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2. EXECUTIVE SUMMARY
5
EXECUTIVE SUMMARY
The Indian mutual fund industry has witnessed significant growth in the past few years
driven by several favorable economic and demographic factors such as rising income
levels and the increasing reach of Asset Management Companies (AMCs) and
distributors. However, after several years of relentless growth, the industry witnessed a
fall of 8 percent in the assets under management in the financial year 2008-09 that has
impacted revenues and profitability.
Recent developments triggered by the global economic crisis have served to highlight
the vulnerability of the Indian mutual fund industry to global economic turbulence and
exposed our increased dependence on corporate customers and the retail distribution
system. It is therefore an opportune time for the industry to dwell on the experiences
and develop a roadmap through a collaborative effort across all stakeholders, to achieve
sustained profitable growth and strengthen investor faith and confidence in the health
of the industry. Innovative strategies of AMCs and distributors, enabling support from
the regulator SEBI, and pro-active initiatives from the industry bodies CII and AMFI are
likely to be the key components in defining the future shape of the industry.
Total Investment scenario is changing, in past people were not interested in investment
because there were no good options available for investment. Now there are many
options available for investment like life Insurance, Mutual fund, Equity market, Real
asset, etc.
The basic objective of any financial services company would be to provide an absolute
tailor made products and services to the customer and to advocate them, enrich them
and finally retain them into the organization.
The underlying difference or core competence that can help any AMC outperform
others is by providing differentiated services that are tailor made as according to the
customers need and objective of investing money in a Mutual Fund.
This project involves study of mutual fund Industry and evaluating and suggesting
measures to improve the services provided by the various Banking Channels of HDFC
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AMC and also to identify the strong and the weak points so that an appropriate sales
pitch can be developed.
The sales pitch highlighted features like HDFC being the pioneer in terms of AUM, its
huge distributor base, returns being independent of the market ups and downs, etc.
During the Internship I mainly worked with two of the highest revenue generator
Banking Channels mainly HDFC Bank, Boat Club Road and DBS Bank, Dhole Patil Road.
Initially Cold Calls were made to different customers (Retail) from company‘s database
and appointments were sought. Thereafter a brief questionnaire was filled up by them
regarding their perception about HDFC AMC.
The need for this research is to emphasize and understand the expectations of
customers of mutual funds and how the company can be more customers centric
instead of Product Centric.
This report summarizes the current state of the Indian mutual fund industry highlighting
the key challenges and issues. We have also presented the ‘Voice of Customers’ to
understand their needs and priorities.
I acknowledge the inputs received from AMCs, distributors, customers and service
providers for this report.
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3. PROJECT OBJECTIVES
8
OBJECTIVES OF THE PROJECT
As the title of the project suggests, the objective of the project is to find out the
satisfaction level of different Banking Channels with respect to the services & overall
quality provided by the AMC. The following are the sub objectives of the project:
• To understand the different investment options provided by HDFC mutual funds through its mutual fund schemes.
• To know the investors’ expectations on mutual funds offered by HDFC AMC.
• Find out there preference parameters for selling a particular fund.
• Understanding the competition for the service provided by different mutual fund companies.
• Finding out ways and means to improve on the services by HDFC Mutual Fund.
• Understanding the different ratios & portfolios so as to tell the Banks about these terms, by this, managing the relationship with the Banks.
• Understanding the attitude and behavior of the distributors and channel partners towards HDFC AMC.
• To identify and over come the gap between the management perception and the customers expectation.
• To come up with strategies to maintain better business relationships with our banking channels.
9
4. INTRODUCTION
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4.1 MUTUAL FUNDS
A mutual fund is a professionally-managed firm of collective investments that pools
money from many investors and invests it in stocks, bonds, short-term money market
instruments, and/or other securities, it is a trust registered with the Securities and
Exchange Board of India (SEBI), which 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 markets etc., and distributes the profits.
The value of each unit of the mutual fund, known as the net asset value (NAV), is mostly
calculated daily based on the total value of the fund divided by the number of shares
currently issued and outstanding. The value of all the securities in the portfolio in
calculated daily. From this, all expenses are deducted and the resultant value divided by
the number of units in the fund is the fund’s NAV.
NAV= Total value of the fund
________________________________________ No. of shares currently issued and outstanding
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Invest their Money
Profit/Loss from portfolio of Investments
Profit/Loss from Individual Investments
Invest in Variety of Stocks/ Bonds
MUTUAL FUND SCHEME
MARKET
INVESTORS
4.2 HISTORY OF INDIAN MUTUAL FUND INDUSTRY
The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank. The history of
mutual funds in India can be broadly divided into four distinct phases.
First Phase – 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament by the Reserve
Bank of India and functioned under the Regulatory and administrative control of the
Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial
Development Bank of India (IDBI) took over the regulatory and administrative control in
place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of
1988 UTI had Rs.6, 700 crores of assets under management.
Second Phase – 1987-1993 (Entry of Public Sector Funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation
of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June
1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund
(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda
Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up
its mutual fund in December 1990.At the end of 1993, the mutual fund industry had
assets under management of Rs.47, 004 crores.
Third Phase – 1993-2003 (Entry of Private Sector Funds)
1993 was the year in which the first Mutual Fund Regulations came into being, under
which all mutual funds, except UTI were to be registered and governed. The erstwhile
Kothari Pioneer (now merged with Franklin Templeton) was the first private sector
mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive
and revised Mutual Fund Regulations in 1996. The industry now functions under the
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SEBI (Mutual Fund) Regulations 1996. As at the end of January 2003, there were 33
mutual funds with total assets of Rs. 1, 21,805 crores.
Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust
of India with assets under management of Rs.29, 835 crores as at the end of January
2003, representing broadly, the assets of US 64 scheme, assured return and certain
other schemes
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations. Consolidation
and growth. As at the end of September, 2004, there were 29 funds, which manage
assets of Rs.153108 crores under 421 schemes.
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4.3 CURRENT STATE
The Indian mutual fund industry has evolved from a single player monopoly in
1964 to a fast growing, competitive market on the back of a strong regulatory
framework.
AUM GrowthThe Assets under Management (AUM) have grown at a rapid pace over the past
few years, at a CAGR of 35 percent for the five-year period from 31 March 2005
to 31 March 2009. Over the 10-year period from 1999 to 2009 encompassing varied
economic cycles, the industry grew at 22 percent CAGR. This growth was despite two
falls in the AUM - the first being after the year 2001 due to the dotcom bubble
burst, and the second in 2008 consequent to the global economic crisis (the first
fall in AUM in March 2003 arising from the UTI split.
AUM Base and Growth Relative to the Global Industry
India has been amongst the fastest growing markets for mutual funds since
2004; in the five-year period from 2004 to 2008 (as of December) the
Indian mutual fund industry grew at 29 percent CAGR as against the global
average of 4 percent3. Over this period, the mutual fund industry in mature
markets likes the US and France grew at 4 percent, while some of the
emerging markets viz. China and Brazil exceeded the growth witnessed in the
Indian market. However, despite clocking growth rates that are amongst the
highest in the world, the Indian mutual fund industry continues to be a
very small market; comprising 0.32 percent share of the global AUM of USD
18.97 trillion as of December 20084.
Share of Mutual Funds in Household Financial Savings
Investment in mutual funds in India comprised 7.7 percent of the gross
household financial savings in FY 2008, a significant increase from 1.2
percent in FY 2004. The households in India continue to hold 55 percent of
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their savings in fixed deposits with banks, 18 percent in insurance and 10
percent in currency as of FY 2008. In 2008, the UK had more than thrice
the investments into mutual funds as a factor of total household savings (26
percent), than India had in the same time period. As of December 2008, UK
households held 61 percent of the total savings in bank deposits, 11.6
percent in equities and 1 percent in bonds.
Profitability
The increase in revenue and profitability in the Indian mutual fund industry
has not been commensurate with the AUM growth in the last 5 years. The
AUM grew at 35 percent CAGR in the period from March 2005 to 2009,
while the profitability of AMCs - which is defined as PBT as a percentage
of the AUM - declined from 24 bps in FY 2004 to 14 bps in FY 2008.
During FY 2004 and FY 2008, the investment management fee as a percent
of average AUM was in the range of 55 to 58 bps (small increase to 64
bps in FY 2006) due to the industry focus on the underlying asset mix
comprising relatively low margin products being targeted at the institutional
segment. The operating expenses, as a percentage of AUM, rose from 41 bps
in FY 2004 to 113 bps in FY 2008 largely due to the increased spend on
marketing, distribution and administrative expenses impacting AMC margins.
Rising cost pressures and decline in profitability have impacted the entry
plans of global players eyeing an Indian presence. The growth in AUM
accompanied by a decline in profitability necessitates an analysis of the
underlying characteristics that have a bearing on the growth and profitability
of the Indian mutual fund industry.
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4.4 THE INDIAN MUTUAL FUND INDUSRTY KEY- KEY CHARACTERISTICS
Customers
The Indian mutual fund industry has significantly high ownership from the
institutional investors. Retail investors comprising 96.86 percent in number
terms held approximately 37 percent of the total industry AUM as at the
end of March 200811, significantly lower than the retail participation in the
US at 82 percent of AUM as at December 2008. Out of a total population
of 1.15 billion, the total number of mutual fund investor accounts in India
as of 31 March 2008 was 42 million (the actual number of investors is
estimated to be lower as investors hold multiple folios). In the US, an
estimated 92 million individual investors owned mutual funds out of a total
population of 305 million in 2008.
In the last few years, the retail investor participation, in particular, in Tier 2
and Tier 3 towns, has been on the rise aided by the buoyant equity
markets.
Products
The Indian mutual fund industry is in a relatively nascent stage in terms of
its product offerings, and tends to compete with products offered by the
Government providing fixed guaranteed returns. As of December 2008, the
total number of mutual fund schemes was 1,002 in comparison to 10,349
funds in the US. Debt products dominate the product mix and comprised 49
percent of the total industry AUM as of FY 200915, while the equity and
liquid funds comprised 26 percent and 22 percent respectively. Open-ended
funds comprised 99 percent of the total industry AUM as of March 2009.
While traditional vanilla products dominate in India, new product categories
viz. Exchange Traded Funds (ETFs), Gold ETFs, Capital Protection and Overseas
Funds have gradually been gaining popularity 2008.
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Markets
While the mutual fund industry in India continues to be metro and urban
centric, the mutual funds are beginning to tap Tier 2 and Tier 3 towns as
a vital component of their growth strategy. The contribution of the Top 10
cities to total AUM has gradually declined from approximately 92 percent in
2005 to approximately 80 percent currently.
Distribution Channels
As of March 2009, the mutual fund industry had 92,499 registered
distributors as compared to approximately 2.5 million insurance agents. The
Independent Financial Advisors (IFAs) or Individual distributors, corporate
employees and corporates comprised 73, 21 and 6 percent respectively of
the total distributor base.
Banks in general, foreign banks and the leading new private sector banks in
particular, dominate the mutual fund distribution with over 30 percent AUM
share. National and Regional Distributors (including broker and dealers) together
with IFAs comprised 57 percent of the total AUM as of 2007. The public
sector banks are gradually enhancing focus on mutual fund distribution to
boost their fee income.
Industry Structure
The Indian mutual fund industry currently consists of 38 players that have
been given regulatory approval by SEBI. The industry has witnessed a shift
has changed drastically in favour of private sector players, as the number of
public sector players reduced from 11 in 2001 to 5 in 2009. The public
sector has gradually ceded market share to the private sector. Public sector
mutual funds comprised 21 percent of the AUM in 2009 as against 72
percent AUM share in 2001.
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The mutual fund houses based on product portfolio and distribution strategy,
the key elements of competitive strategy, can be segmented into three
categories:
• The market leaders having presence across all product segments
• Players having dominant focus on a single product segment - debt or
equity
• Players having niche focus on an emerging product category or distribution
channels.
The market leaders have focused across product categories for a more
diversified AUM base with an equitable product mix that helps maintain a
consistent AUM size. Although the Indian market has relatively low entry
barriers given the low minimum networth required to venture into mutual
fund business, existence of a strong local brand and a wide and deep
distribution footprint are the key differentiators.
Operations
The Indian mutual fund industry while on a high growth path needs to
address efficiency and customer centricity. AMCs have successfully been using
outsourced service providers such as custodians, Registrar and Transfer Agents
(R&T) and more recently, fund accountants, so that mutual funds can focus
on core aspects of their business such as product development and
distribution. Functions that have been outsourced are custody services, fund
services, registrar and transfer services aimed at investor servicing and cash
management. Managing costs and ensuring investor satisfaction continue to be
the key goals for all mutual funds today.
However, there is likely to be scope for optimizing operations costs given
the trend of rising administrative and associated costs as a percentage of
AUM.
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Regulatory Framework
The Indian mutual fund industry in terms of regulatory framework is believed
to match up to the most developed markets globally. The regulator, Securities
and Exchange Board of India (SEBI), has consistently introduced several
regulatory measures and amendments aimed at protecting the interests of
the small investor that augurs well for the long term growth of the
industry. The implementation of Prevention of Money Laundering (PMLA)
Rules, the latest guidelines issued in December 2008, as part of the risk
management practices and procedures is expected to gain further momentum.
The current Anti Money Laundering (AML) and Combating Financing of
Terrorism (CFT) measures cover two main aspects of Know Your Customer
(KYC) and ‘suspicious transaction monitoring and reporting’.
The regulatory and compliance ambit seeks to dwell on a range of issues
including the financial capability of the players to ensure resilience and
sustainability through increase in minimum net worth and capital adequacy,
investor protection and education through disclosure norms for more
information to investors, distribution related regulations aimed at introducing
more transparency in the distribution system by reducing the information gap
between investors and distributors, and by improving the mechanism for
distributor remuneration. The success of the relatively nascent mutual fund
industry in India, in its march forward, will be contingent on further evolving
a robust regulatory and compliance framework that in supporting the growth
needs of the industry ensures that only the fittest and the most prudent
players survive.
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4.5 ADVANTAGES OF MUTUAL FUND
Diversification of Risk Helps diversifying risk by investing money in a Basket of Assets. Diversification reduces
risk of loss, as compared to investing directly in one or two shares or debentures or
other instruments. When an investor invests directly, all the risk of potential loss is his
own. This risk reduction is one of the most important benefits of a collective investment
vehicle like mutual fund.
Reduction of Transaction CostMutual Funds provide the benefit of cheap access to expensive stocks. A direct investor
bears all the cost of investing such as brokerage and custody of security. When going
through a fund, he has the benefits of economies of scale; the funds pay a lesser costs
because of larger volumes, benefits passed on to its investors.
Convenience and Flexibility Being institutions with good bargaining power in markets, mutual funds have access to
crucial corporate information, which individual investors cannot access. Mutual fund
management companies offer many investor services that a direct market investor
cannot get. Investors can easily transfer their holdings from one scheme to the other;
get updated market information, and so on.
Liquidity An investor can liquidate the investment, by selling the units to the fund if open-end, or
selling them in the market if the fund is close-end, and collect funds at the end of each
period specified by the mutual fund or the stock market.
Choice of SchemesThe Investor gets choice from varied Funds in accordance to his Needs and Objectives.
Lucidity
You get regular information on the value of your investment in addition to disclosure on
the specific investments made by the mutual fund scheme.
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Professional Management
Most mutual funds pay topflight professionals to manage their investments. These
managers decide what securities the fund will buy and sell.
Regulatory Over-sight
Mutual funds are subject to many government regulations that protect investors from
fraud. Securities Exchange Board of India (“SEBI”), the mutual funds regulator has clearly
defined rules, which govern mutual funds. These rules relate to the formation,
administration and management of mutual funds and also prescribe disclosure and
accounting requirements. Such a high level of regulation seeks to protect the interest of
investors.
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4.6 DISADVANTAGES OF MUTUAL FUND
No GuaranteesNo 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 commissionsAll 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.
TaxesDuring 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 34 on its sales,
you will pay taxes on the income you receive, even if you reinvest the money you made.
Management riskWhen 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.
DilutionIt’s possible to have too much diversification. Because funds have small holdings in so
many different companies, high returns from a few investments often don’t make much
difference on the overall return. Dilution is also the result of a successful fund getting
too big. When money pours into funds that have had strong success, the manager often
has trouble finding a good investment for all the new money.
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4.7 RISKS ASSOCIATED WITH MUTUAL FUNDS
Market Risk
Market risk relates 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 Risks
Changes in the tax laws, trade regulations, administered prices, etc are 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
Interest rate risk relates to future changes in interest rates. For instance, if an investor
invests in a long-term debt Mutual Fund scheme and interest rates increase, the NAV
of the scheme will fall because the scheme will be end up holding debt offering lower
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 cannot 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 the Mutual Fund scheme, which has invested in the
equity of such a company.
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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 fail in a year, equity
stocks of agriculture-based companies will fall and NAVs of Mutual Funds, which have
invested in such stocks, will fall proportionately.
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4.8 CATEGORIES OF MUTUAL FUNDS
Mutual funds can be classified as follow:
Based on their structure
Open-ended funds: Investors can buy and sell the units from the fund, at any point of time.
Close-ended funds: These funds raise money from investors only once.
Therefore, after the offer period, fresh investments can not be made into the
fund. If the fund is listed on a stocks exchange the units can be traded like stocks
(E.g., Morgan Stanley Growth Fund). Recently, most of the New Fund Offers of
close-ended funds provided liquidity window on a periodic basis such as monthly
or weekly. Redemption of units can be made during specified intervals.
Therefore, such funds have relatively low liquidity.
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Based on their investment objective:
• Equity funds: These funds invest in equities and equity related instruments. With
fluctuating share prices, such funds show volatile performance, even losses.
However, short term fluctuations in the market, generally smoothens out in the
long term, thereby offering higher returns at relatively lower volatility. At the
same time, such funds can yield great capital appreciation as, historically,
equities have outperformed all asset classes in the long term.
• Balanced fund: Their investment portfolio includes both debt and equity. As a
result, on the risk-return ladder, they fall between equity and debt funds.
Balanced funds are the ideal mutual funds vehicle for investors who prefer
spreading their risk across various instruments. Following are balanced funds
classes:
Debt-oriented funds -Investment below 65% in equities.
Equity-oriented funds -Invest at least 65% in equities, remaining in debt.
• Debt fund: They invest only in debt instruments, and are a good option for
investors averse to idea of taking risk associated with equities. Therefore, they
invest exclusively in fixed-income instruments like bonds, debentures,
Government of India securities; and money market instruments such as
certificates of deposit (CD), commercial paper (CP) and call money. Put your
money into any of these debt funds depending on your investment horizon and
needs.
– Liquid funds
These funds invest 100% in money market instruments, a large portion
being invested in call money market.
– Gilt funds ST
26
They invest 100% of their portfolio in government securities of and T-
bills.
– Floating rate funds
Invest in short-term debt papers. Floaters invest in debt instruments
which have variable coupon rate.
– Arbitrage fund
They generate income through arbitrage opportunities due to mis-pricing
between cash market and derivatives market. Funds are allocated to
equities, derivatives and money markets. Higher proportion (around 75%)
is put in money markets, in the absence of arbitrage opportunities.
– Gilt funds LT
They invest 100% of their portfolio in long-term government securities.
– Income funds LT
Typically; such funds invest a major portion of the portfolio in long-term
debt papers.
– MIPs
Monthly Income Plans have an exposure of 70%-90% to debt and an
exposure of 10%-30% to equities.
– FMPs
Fixed monthly plan invest in debt papers whose maturity is in line with
that of the fund.
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4.9 SNAPSHOT OF MUTUAL FUND SCHEMES
The following table summarizes different types of mutual fund schemes, their objective, where do they invest and their suitability
Mutual Fund Type
Objective Risk Investment Portfolio
Who should invest
Investment horizon
Money Market
Liquidity + Moderate Income +
Reservation of Capital
Negligible Treasury Bills,
Certificate of Deposits,
Commercial Papers, Call
Money
Those who park their funds in current
accounts or short-term
bank deposits
2 days - 3 weeks
Short-term Funds
(Floating - short-term)
Liquidity + Moderate
Income
Little Interest Rate
Call Money, Commercial
Papers, Treasury Bills, CDs,
Short-term Government
securities.
Those with surplus
short-term funds
3 weeks - 3 months
Bond Funds
(Floating - Long-term)
Regular Income
Credit Risk & Interest Rate
Risk
Predominantly
Debentures, Government
securities, Corporate
Bonds
Salaried & conservative
investors
More than 9 - 12 months
Gilt Funds Security & Income
Interest Rate Risk
Government securities
Salaried & conservative
investors
1 year and more
Equity Funds
Long-term Capital
Appreciation
High Risk Stocks Aggressive investors with long
term outlook
> 3 years
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Index Funds
To generate returns that
are commensurat
e with returns of respective
indices
NAV varies with index
performance
Portfolio indices like BSE, NIFTY
etc
Aggressive investors
> 3 years
Balanced Funds
Growth & Regular Income
Capital Market Risk and Interest
Rate Risk
Balanced ratio of
equity and debt funds to ensure
igher returns at lower risk
Moderate & Aggressive
> 2 years
4.10 RISK HEIRARCHY OF DIFFERENT FUNDSThus, different mutual fund schemes are exposed to different levels of risk and investors
should know the level of risks associated with these schemes before investing. The
graphical representation hereunder provides a clearer picture of the relationship
between mutual funds and levels of risk associated with these funds
29
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5. COMPANY PROFILE
VISION
“To be a dominant Player in the Mutual Fund space recognized for its higher levels of
ethical and professional conduct and a commitment towards enhancing Investor
Interests”.
HDFC Asset Management Company Ltd. has a vision of being a leading player in the
Mutual Fund business and has achieved significant success and visibility in the market.
Growth and visibility is adhered to Good Conduct in the marketplace. At HDFC AMC, the
implementation and observance of ethical processes and policies has helped them to
stand up to the scrutiny of the domestic and international investors.
MANAGEMENT
The management at HDFC AMC is committed to good Corporate Governance, which
includes transparency and timely dissemination of information to its investors and unit
holders. The HDFC AMC Limited Board is a professional body, including well-experienced
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and knowledgeable Independent Directors. Regular Audit Committee meetings are
conducted to review the operations and performance of the company.
HDFC MF
HDFC Mutual Fund is one of the largest mutual funds and well-established fund house in
the country with consistent and above average fund performance across categories
since its incorporation on December 10, 1999. While our past experience does make us
a veteran, but when it comes to investments, we have never believed that the
experience is enough.
HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies
Act, 1956, on December 10, 1999, and was approved to act as an Asset Management
Company for the HDFC Mutual Fund by SEBI vide its letter dated June 30, 2000.
In terms of the Investment Management Agreement, the Trustee has appointed the
HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up
capital of the AMC is Rs. 25.161 crore.
INVESTMENT PHILOSOPHY
The single most important factor that drives HDFC Mutual Fund is its belief to give the
investor the chance to profitably invest in the financial market, without constantly
worrying about the market swings. To realize this belief, HDFC Mutual Fund has set up
the infrastructure required to conduct all the fundamental research and back it up with
effective analysis. HDFC lays strong emphasis on managing and controlling portfolio risk
avoids chasing the latest “fads” and trends.
OFFERINGS
HDFC believes, that, by giving the investor long-term benefits, they have to constantly
review the markets for new trends, to identify new growth sectors and share this
knowledge with their investors in the form of product offerings. They have come up
32
with various products across asset and risk categories to enable investors to invest in
line with their investment objectives and risk taking capacity. Besides, they also offer
Portfolio Management Services.
ACHIEVEMENTS
HDFC Asset Management Company (AMC) is the first AMC in India to have been
assigned the ‘CRISIL Fund House Level – 1’ rating. This is its highest Fund Governance
and Process Quality Rating which reflects the highest governance levels and fund
management practices at HDFC AMC. It is the only fund house to have been assigned
this rating for third year in succession. Over the past, HDFC has won a number of awards
and accolades for their performance.
PRODUCTS
Equity/ Growth Fund
– HDFC mid Cap Opportunities Fund.
– HDFC Prudence Fund.
– HDFC Index Fund- Nifty Plan.
– HDFC Capital builder Fund.
– HDFC Infrastructure Fund.
– HDFC Long term advantage Fund.
– HDFC Index Fund- Sensex plus Plan.
– HDFC Core and Satellite Fund.
– HDFC Growth Fund.
– HDFC top 200 Fund.
– HDFC Index Fund- Sensex plan.
– HDFC Balanced Fund.
– HDFC Long term Equity Fund.
– HDFC Equity Fund.
– HDFC Premiere Multi-cap Fund.
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– HDFC Arbitrage Fund.
– HDFC Tax saver (ELSS).
Children’s Gift Fund
– HDFC Children’s Gift Fund Savings Plan.
– HDFC Children’s Gift Fund Investment Plan.
HDFC Liquid Fund
– HDFC Cash Management Fund- Savings Plan.
– HDFC Liquid Fund Premier Plus Plan.
– HDFC Liquid Plan.
– HDFC Cash Management Fund- Call Plan.
– HDFC Liquid Fund Premier Plan.
Debt/Income Funds
– HDFC Floating rate Income Fund- Long term Plan.
– HDFC High Interest Fund- Short term Plan.
– HDFC Multiple Yield Fund- Plan 2005.
– HDFC Cash Management Fund- Treasury Advantage Fund.
– HDFC Gilt Fund- Short term Plan.
– HDFC Income Fund.
– HDFC Multiple Yield Fund.
– HDFC Short term Plan.
– HDFC Floating rate Income Plan- Short term Plan.
– HDFC MF Monthly Income Plan- Long term Plan.
– HDFC High Interest Fund.
– HDFC Gilt Fund- Long term Plan.
HDFC Quarterly Income Fund
HDFC Fixed Maturity Fund
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MEASURING AND EVALUATING PERFORMANCE
Every investor investing in the mutual funds is driven by the motto of either wealth
creation or wealth increment or both. Therefore it’s very necessary to continuously
evaluate the funds’ performance with the help of factsheets and newsletters, websites,
newspapers and professional advisors. If the investors ignore the evaluation of funds’
performance then he can loose hold of it any time. In this ever-changing industry, he can
face any of the following problems:
– Variation in the funds’ performance due to change in its management/ objective.
– The funds’ performance can slip in comparison to similar funds.
– There may be an increase in the various costs associated with the fund.
– The funds’ ratings may go down in the various lists published by independent
rating agencies.
– It can merge into another fund or could be acquired by another fund house.
Performance measures
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Equity funds- The performance of equity funds can be measured on the basis of: NAV
Growth, Total Return; Total Return with Reinvestment at NAV, Annualized Returns and
Distributions, Computing Total Return (Per Share Income and Expenses, Per Share
Capital Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio Turnover
Rate, Fund Size, Transaction Costs, Cash Flow, Leverage.
Debt fund- The performance of debt funds can be measured on the basis of: Peer Group
Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs, besides
NAV Growth, Total Return and Expense Ratio.
Liquid funds- The performance of the highly volatile liquid funds can be measured on
the basis of: Fund Yield, besides NAV Growth, Total Return and Expense Ratio.
DISTRIBUTION CHANNELS
Mutual funds posses a very strong distribution channel so that the ultimate customers
doesn’t face any difficulty in the final procurement. The various parties involved in
distribution of mutual funds are:
Direct marketing by the AMCs: The forms could be obtained from the AMCs directly.
The investors can approach to the AMCs for the forms. Some of the top AMCs of India
are; Reliance ,Birla Sun life, Tata, SBI magnum, Kotak Mahindra, HDFC, IDFC, ICICI, LIC,
AXIS etc. whereas foreign AMCs include: Standard Chartered, Franklin Templeton,
Fidelity, JP Morgan, HSBC, DSP Merill Lynch, etc.
Broker/ sub broker arrangements: The AMCs can simultaneously go for broker/sub-
broker to popularize their funds. AMCs can enjoy the advantage of large network of
these brokers and sub brokers.
Individual agents, Banks, NBFC: Investors can procure the funds through individual
agents, independent brokers, banks and several non- banking financial corporations too,
whichever he finds convenient for him.
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COSTS ASSOCIATED
Expenses
AMCs charge an annual fee, or expense ratio that covers administrative expenses,
salaries, advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC
charges Rs1.50 for every Rs100 in assets under management. A fund's expense ratio is
typically to the size of the funds under management and not to the returns earned.
Normally, the costs of running a fund grow slower than the growth in the fund size - so,
the more assets in the fund, the lower should be its expense ratio
Loads
Entry Load/Front-End Load (0-2.25%) - It’s the commission charged at the time of
buying the fund to cover the cost of selling, processing etc however the RBI has waived
off this charge w.e.f 1 Aug 2009.
Exit Load/Back- End Load (0.25-2.25%) -It is the commission or charged paid when an
investor exits from a mutual fund; it is imposed to discourage withdrawals. It may
reduce to zero with increase in holding period.
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WHY HAS IT BECOME THE LARGEST AND ATTRACTIVE INVESTMENET INSTRUMENT?
If we take a look at the recent scenario in the Indian financial market then we can find
the market flooded with a variety of investment options which includes mutual funds,
equities, fixed income bonds, corporate debentures, company fixed deposits, bank
deposits, PPF, life insurance, gold, real estate etc. All these investment options could be
judged on the basis of various parameters such as- return, safety convenience, volatility
and liquidity. Measuring these investment options on the basis of the mentioned
parameters, we get this in a tabular form:
Return Safety Volatility Liquidity Convenienc
e
Equity High Low High High Moderate
Bonds Moderate High Moderate Moderate High
Co.
Debentures
Moderate Moderate Moderate Low Low
Co. FDs Moderate Low Low Low Moderate
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Bank
Deposits
Low High Low High High
PPF Moderate High Low Moderate High
Life
Insurance
Low High Low Low Moderate
Gold Moderate High Moderate Moderate Gold
Real Estate High Moderate High Low Low
Mutual
Funds
High High Moderate High High
We can very well see that mutual funds outperform every other investment option. On
three parameters:
– It scores high whereas it’s moderate at one.
– Comparing it with the other options, we find that equities gives us high returns
with high liquidity but its volatility too is high with low safety which doesn’t
makes it favorite among persons who have low risk- appetite.
– Even the convenience involved with investing in equities is just moderate.
Now looking at bank deposits, it scores better than equities at all fronts but lags badly in
the parameter of utmost important i.e.; it scores low on return , so it’s not an
appropriate option for person who can afford to take risks for higher return. The other
option offering high return is real estate but that even comes with high volatility and
moderate safety level, even the liquidity and convenience involved are too low. Gold
have always been a favorite among Indians but when we look at it as an investment
option then it definitely doesn’t gives a very bright picture. Although it ensures high
safety but the returns generated and liquidity are moderate. Similarly the other
investment options are not at par with mutual funds and serve the needs of only a
specific customer group. Straightforward, we can say that mutual fund emerges as a
clear winner among all the options available. The reasons for this being:
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Mutual funds combine the advantage of each of the investment products
Mutual fund is one such option which can invest in all other investment options. Its
principle of diversification allows the investors to taste all the fruits in one plate. Just by
investing in it, the investor can enjoy the best investment option as per the investment
objective.
Dispense the shortcomings of the other options
Every other investment option has more or les some shortcomings. Such as if some are
good at return then they are not safe, if some are safe then either they have low
liquidity or low safety or both, likewise, there exists no single option which can fit to the
need of everybody. But mutual funds have definitely sorted out this problem. Now
everybody can choose their fund according to their investment objectives.
Returns get adjusted for the market movements
As the mutual funds are managed by experts so they are ready to switch to the
profitable option along with the market movement. Suppose they predict that market is
going to fall then they can sell some of their shares and book profit and can reinvest the
amount again in money market instruments.
Flexibility of invested amount
Other then the above mentioned reasons, there exists one more reason which has
established mutual funds as one of the largest financial intermediary and that is the
flexibility that mutual funds offer regarding the investment amount. One can start
investing in mutual funds with amount as low as Rs. 500 through SIPs and even Rs. 100
in some cases.
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41
RESEARCH STUDY
RESEARCH DESIGN
42
6.1 Introduction The project consisted of working mainly two Banking Channels HDFC Bank and DBS Bank in
Pune, chosen for the survey. The reason for choosing these two particular Banking Channel
is that they have lot of potential and were amongst the highest revenue generator for
HDFC AMC. It consisted of three stages:
Stage 1: Gathering data from the company and plan schedule to meet the concerned
person.
Stage 2: Collecting the data by survey method, on the basis of questionnaire.
Stage 3: Analyzing and interpreting the primary data collected.
6.2 Review of Literature Study Literature given from the company was studied in order to gain an insight of past
market and future prospects of mutual fund industry. Also the requirements of various
concepts were understood using the help of internet and various other books.
6.3 Type of Research It is a framework or blueprint for conducting the marketing research project. The research
design used here is Descriptive Research Design which is used for description of
something. Here it is used to describe the characteristics of Existent and Potential
Customers with respect to the services expected HDFC AMC.
6.4 Data Collection Technique
The survey method of collecting data is based on the questioning of respondents. They
were asked variety of questions regarding their behavior, intensions, attitude, awareness
and motivations. In Structured data collection, a formal Questionnaire is prepared thus
the process is direct. The questionnaire designed for this project consists of questions
based on various parameters which a relationship manager would consider before selling a
mutual fund. Each question is based on different variables like investment decisions, selling
decisions, company policies, serving issues etc.
6.5 Scope of the study
43
The research was carried on in the Pune Region of Maharashtra. It is restricted to Pune
where it has got its head office at Shivaji Nagar and operates or sells its products through a
large network of Distribution Channels. I have visited people randomly while pitching for
products and also existing customers of HDFC and DBS (Development Bank of Singapore).
6.6 Data sources
Research is totally based on primary data. Secondary data can be used only for the
reference. Research has been done by primary data collection, and primary data has been
collected by interacting with various people. The secondary data has been collected
through various journals and websites and some special publications of HDFC AMC.
6.7 Sampling procedure
The sample is selected in a random way, irrespective of them being investor or not or
availing the services or not. It was collected through mails personal visits to the known
persons, by formal and informal talks at HDFC Bank and DBS Bank and through filling up
the questionnaire prepared. The data has been analyzed by using the measures of central
tendencies like mean, median, mode. The group has been selected and the analysis has
been done on the basis statistical tools available.
6.8 Sample size
The sample sizes of my project is limited to 100 only and have got questionnaires filled
only with the ones who invest in various other and HDFC AMC’s however have taken
different opinions as to why certain people or respondents are not Investing in the current
Market Scenario.
6.9 Technique of analysis
44
Percentage analysis was used to analyze the data collected.
6.10 Statistical tools used for Data presentation
Data has been presented with the help of bar graph, pie charts, line graphs etc.
6.11 Limitations
– Time limitation.
– Research has been done only at Pune.
– Some of the persons were not so responsive.
– Possibility of error in data collection.
– Possibility of error in analysis of data due to small sample size.
7. DATA ANALYSIS
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7.1 Have you ever invested/ interested to invest in mutual funds?
YES 100
NO 0
YES
NO
Graph 7.1DATA INTERPRETATIONAnalysis is carried on only for those respondents who are already Investing in Mutual Funds and the reasons for not Investing( Non Investors) citied while filling or while interacting with the respondents were
Lack of Knowledge about Mutual Funds.
Enjoy Investing in other financial instruments.
Its benefits are not that lucrative or better than other instruments.
No trust over the schemes.
No trust over the Fund manager or AMC.
Current Market scenario.
Complex KYC procedure.
PAN Card a Mandate.
7.2 In which of the following type funds you have invested?
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Equity 18
Debt 23
Balanced 29
ELSS 30
Gilt 0
Graph 7.2
DATA INTERPRETATION18% of the respondents have Invested in Equity Funds, 23% have invested in Debt
Schemes while 29% and 30% have invested in Balanced and ELSS schemes respectively.
FINDINGS Respondents in the Current market scenario have Invested mostly in Balanced schemes
which give leverage to their investments and have switched their investments to balances
or debt schemes in the recession period because it helps them to accumulate more Units
as the NAV’s are low.
Respondents who have invested in Tax saving schemes have a Lock in period of 3 years so
they still are continuing to invest in Recession period as it gives them leeway in terms of
47
saving Tax over a period of time.
7.3 Preferred Investment Period?
Less than 1 Year 2
48
1 to 3 years 42
3 to 5 years 41
More than 5 years 15
Graph7.3DATA INTERPRETATION
42% prefer to stay invested for a period of 1-3 years, while 41% for the period of 3-5 years
and 15 % for more than 5 years and only 2% stay invested for less than a year.
FINDINGS
It was found out that most Respondents have either invested for a time spam of 1 to 3
years or more than 5 years. Investment period purely and solely depends on the
Investment Objective and the Schemes thus chosen. Respondents who have invested in
Equity diversified funds have invested for a time spam of 1-3 years and Debt schemes
customer usually invest for a period of 3 to 5 years and ELSS customers have to invest in a
lock in period of 3 years so they opt for 3 year Investment strategy.
7.4 AMC in which money is Invested?
Kotak 6
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Reliance 8
HDFC 36
SBI 16
DSP Black Rock 5
DSP M Lynch 6
ICICI 15
Religare 6
IDFC 2
Graph 7.4
DATA INTERPRETATION
36% have Invested with HDFC AMC, 16% with SBI and 15% with ICICI Securities, 8% have
invested with Reliance AMC and the rest 6%, 5%, 6% and 2% have invested with other
AMC’s such as DSP, Kotak, Religare, IDFC etc.
FINDINGS
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It was found out that Respondents have not invested in a particular AMC or their
Portfolio is managed by single AMC. They have simultaneously invested in two AMC’s
and the ones which are popular are HDFC and ICICI and the others have got place in the
reckoning.
7.5 Which according to you are the factors important while investing in Mutual Funds?
51
Risk factor 8
Returns 9
Tax savings 9
Performance if the particular Fund 9
NAV 10
AMC 10
Safety 11
Ratings of a particular fund 11
Portfolio of the Fund 11
Profile of the Fund Manager 12
Graph 7.5
DATA INTERPRETATION
52
12% say that profile of Fund manager is an important element, 11% prefer safety,
portfolio and Ratings of the fund to be an Important factor,while 10% say services by the
AMC and the NAV value play an Important role and rest of them prefer investing to safe
tax and look at returns over a short period of time.
FINDINGSDifferent Investors have different needs for Investment purposes. However people if
Investing in Equtiy Instruments would look for better returns in a short spam of time as
it carries equal risk.
And other factors which are considerate with the investement purposes would be
Performance or Rating of a Particular Fund and Fund manager also plays a important
role as generally people invest in funds keeping in mind the profile of the Fund Manager
and for Instance Prashant Jain who is a pass out of IIT and has done is MBA from IIM
having over 14 years of experience in Equity research market has lot of funds in his Kitty
to manage.
7.6 Preferred Channels through which Investments are made?
53
Directly through AMC 27
Through Distributor 40
Broker/ Sub Broker 33
Graph 7.6
DATA INTERPRETATION
27% dodge entry load and prefer to invest directly through AMC, while 33% prefer to
Invest through a Sub- broker who can manage their portfolio’s and 40% invest it through
authorized Distributors.
FINDINGS
It was found out that most Investors usually invest through Brokers or Distributors
because they get the advantage of having statements on timely basis and also switching
or redeeming of funds becomes an ease as they are just a phone call away.
They can easily review they portfolio and seek Investment recommendation in order to
suffice their short term needs and also to manage their assets.
However all of this comes with a charge which is usually known as Commission charged
in the form of Entry Load which is usually between 0-2.5% for retail customers and there
54
are few who manage their own portfolio and invest directly through the AMC’s and the
entry load or the commission charge is weaved off for those Investors.
7.7 Have you invested in the current Recession period?
55
YES 38
NO 62
Graph 7.7
DATA INTERPRETATION62% say no that they rather prefer to stay out the stock markets during Recession and
38% want to enjoy the benefit of Rupee cost averaging that’s why they haven’t
redeemed their Units.
FINDINGSIt was observed that people are not investing the current market scenario as it is hard of
them to believe that the market is facing a U shaped recovery mode where in the
positivity will be reflected in the Market over the period of time as per the new Changes
and Amendments bought in by the new UPA Govt. However Existing customers have
also redeemed or switched their funds as they lost a lot of money in the year 2008.
However there are some Investors who are positive about the Market and have
Switched to Balanced funds because that helps them fetch more units as the NAV is low
and have Invested money in the NFO’s that were out in the market for e.g. Reliance
Infrastructure fund and DSP Black Rock World Energy Fund.
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7.8 In the recession period which type of funds are the best option?
Equity Diversified 4
57
Debt 8
Balanced 60
Tax Saving Schemes 28
Graph 7.8
DATA INTERPRETATIONIn recession period 60% of the respondents prefer to stay invested with Balanced
schemes while 28% are with ELSS schemes and 8% have invested in Debt Schemes while
only 4% have Invested in Equity schemes.
FINDINGSIt is observed that most of the Investors during the recession period have taken a step
back in terms of Investments in Mutual Funds as the share market saw an Impeccable
down fall last year and had lost a lot of money last year.
However what is more promising is the confidence amongst these Investors who are
betting on an attitude that shows a sign of recovery for the market right now and have
kept their fingers crossed in terms of Promises by the Congress.
So either balanced schemes are the one’s for a safe bet right now or else tax saving
schemes have always given investors a leeway under Section 80©.
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7.9 Other Financial Instruments that are a safe bet right now?
Bank FD’s 14
59
NBFC’s 17
PPF 19
NSC’s 21
ULIP 29
Graph 7.9DATA INTERPRETATION14% prefer to park their money with FD’s, 29% prefer to stay connected with ULIP’s as
that gives them benefit of saving tax and 21% prefer to invest in NSC’s and 19% and 17%
prefer to Invest with PPF’s and NBFC’s.
FINDINGSBank FD’s are one of the means for the different banks to get NTB’s and helps investors
to park their money for a spam of 1-2 years in attractive FD’s thus offered. However
after maturity is the main Game Plan through which Banks anticipate to invest the same
in the Equity markets after they take a respectable position. It scores better than
equities at all fronts but lags badly in the parameter of utmost important i.e.; it scores
low on returns. ULIP schemes have sustainably taken a peek in the recession period
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where in they not only provide leverage to one’s investment in debt and equity market
but also insurance for a life time.
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RESEARCH CONCLUSIONS
62
At the survey conducted upon approx 100 people, most of them are already
mutual fund investors or are interested to invest in future and the remaining are
not interested in it. So there is enough scope for the advisors to convert those
leads into potential investors through their offerings and services.
Now, when people were asked about the reason for not investing in mutual
funds, then most of the people held their ignorance responsible for that. They
lacked knowledge and information about the mutual funds. Whereas just few
people enjoyed investing in other option. For few people, the benefits arousing
from these investments were not enough to drive them for investment in MFs
and few of them expressed no trust over the fund managers’ decision. Again the
financial advisors can tap upon these people by educating them about mutual
funds.
Out of the people who already have invested in mutual funds/ are interested to
invest, only few have sound knowledge of MFs, and few have a sound knowledge
of the mutual funds and its operations and thereby prefer to Invest it directly
through the AMC’s and maintain their own Portfolio’s. However it is important to
realize that a lot of investors are aware of the schemes and the operations of the
Indian Market but prefer a Financial Advisor to cater to their Investment
Objectives as they are well versed with the markets and are qualified advisors to
recommend them on Investment strategies with minimal Commission co-
responding to the portfolio managed.
When asked about the most alluring feature of MFs during the current market
conditions, most of them opted for diversification, followed by reduction in risk,
helps in achieving long term goals and helps in achieving long term goals
respectively and also helps them in terms of Tax saving benefits.
The other financial instruments that are a lucrative option for the Investors in
the recession are ULIP plans, NSC’s, Bank FD’s however are not in the same
reckoning of Mutual funds in terms of returns.
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RECOMMENDATIONS
64
The most vital problem spotted is of ignorance. Investors should be made aware
of the benefits and the current status of Economy. Nobody will invest until and
unless he is fully convinced of the future of one’s Investments. Investors should
be made to realize that ignorance is no longer bliss and what they are losing by
not investing.
Mutual funds offer a lot of benefit which no other single option could offer. But
most of the people are not even aware of what actually a mutual fund is? They
only see it as just another investment option. So the advisors should try to
change their mindsets. The advisors should target for more and more young
investors. Young investors as well as persons at the height of their career would
like to go for advisors due to lack of expertise and time.
The advisors may try to highlight some of the value added benefits of MFs such
as tax benefit, rupee cost averaging, and systematic transfer plan, rebalancing
etc. These benefits are not offered by other options single handedly. So these
are enough to drive the investors towards mutual funds. Investors could also try
to increase the spectrum of services offered.
Now the most important reason for not availing the services of Banking Channel;
was being expensive. The advisors should try to charge a nominal fee at the
beginning. But if not possible then they could go for offering more services and
benefits at the existing rate. They should also maintain their Banking Channels
should try to attract more and more persons and turn them into investors and
finally their clients.
With the globalize economy and immense competition among countries for
faster development of their respective economies, the significance of Mutual
Funds and Foreign investment has taken manifold. With a buoyant vibrant and
experienced stock market, India today is looking ahead to surpass China in terms
of foreign Investment and growth prospects. Stock exchange being the
barometer of the economy plays a vital role in showcasing growth of an
economy and luring investment.
65
While studying the role of Mutual fund and FIIs in Stock Market, I discussed with
a few persons who are into stock broking business. And the information they
have provided shows that though the investment and participation of domestic
investors are rising, still, they have not been able to prove themselves to be as
influential as mutual funds and FIIs.
Importance and the role of Mutual funds and FIIs play in the Indian stock market
can be seen from the fact that the recent surge in Sensex and NIFTY is attributed
to the active Participation of FIIs in the Stock Market. Despite being aware of the
Asian economic crisis where FIIs role was of a major concern, the importance of
foreign capital in the development of economy can not be undermined in
anyway so the people more emphasis on mutual fund to earn more return
increasing our benefit .
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ANNEXURE
67
Exhibit 1
QUESTIONNAIRE
1. Have you ever invested in mutual funds?a. Yesb. No
2. In which of the following type funds you have invested?a. EQUITYb. DEBTc. BALANCEDd. GILTe. TAX SAVING SCHEMES
3. What is your preferred investment period?a. Less than 1 yrb. 1 yr—3yrc. 3 yr—5yrd. more than 5 yr
4. Which AMC you have invested in? Please specify
5. Rank according to importance the factor you look for while investing in MF(1 being the most important and 5 the least important)
a. Risk factor b. Return c. Tax saving d. Performance e. NAV f. AMC g. Safety h. Ratings of the fund i. portfolio of fund j. Profile of the Fund manager
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6. How have you invested in MF?a. Directlyb. Through Distributorc. Through Sub-brokers/Brokers.
7. Have you invested or would you like to invest in the current period?a. Yesb. No
8. If yes then rank in 1-5 (with 1 being best and 4 being worst) of the following optionsa. Mutual funds are no doubt the best investment option in spite of the
current economic slowdown b. I am getting more units as NAV is low, so I will definitely earn profit when
market goes up. c. Mutual fund are still giving better return for longer period( 5yrs) than
other investment option d. Despite all the slowdown, I will prefer MF as it gives me tax benefit
9. If yes in which kind of fund you will prefer to invest now?a. Equityb. Debtc. Balancedd. Tax saverse. ETFs
10. Which is your preferred mood of investment in mutual fund?a. Lump sum b. SIP (Systematic Investment Plan)
11. Rank the option which u think best describe your views ( 1 being the best & 5 being worst)
i. I will better invest in FDs of Banks in this condition as it is the safest ii. I will invest in FDs of NBFC as they give better interest
iii. I will go for PPF iv. I will invest in NSC v. I will put my money in ULIPs because it will give me insurance cover.
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Bibliography
Websiteswww.the-finapolis.comwww.mutualfundsindia.comwww.valueresearchonline.comwww.moneycontrol.comwww.morningstar.comwww.yahoofinance.comwww.theeconomictimes.comwww.rediffmoney.comwww.bseindia.comwww.nseindia.comwww.investopedia.com
Journals & other referencesHDFC AMC manualThe Economic TimesBusiness StandardThe TelegraphBusiness IndiaFact sheet and statements of various fund houses
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