Study on Factors Influencing Investment Decision on Mutual Funds

PROJECT REPORT ON

Study on Factors influencing investment decision with reference to Mutual Funds

SIVA SIVANI INSTITUTE OF MANAGEMENT

Approved by AICTE

By

Priyanka.Areti

2012-2014

Table of Contents Chapter-1................................................................... 1

Introduction ........................................................................................................................................ 2

Need/Importance Of Study .................................................................................................................. 3

Objectives ........................................................................................................................................... 4

Methodology ....................................................................................................................................... 5

Data:- .............................................................................................................................................. 5

Data Sources:- ................................................................................................................................. 5

Tools Used For Analysis:- ................................................................................................................. 5

Limitations:- .................................................................................................................................... 6

Scope Of Study:- .............................................................................................................................. 6

Review Of Literature ............................................................................................................................ 7

Chapter-2.................................................................. 13 Company Profile ................................................................................................................................ 14

Brief Profile Of Organization:- ........................................................................................................ 14

Corporate Profile Of Sbi Mutual Funds ........................................................................................... 14

Fund House Expertise ........................................................................................................................ 16

Industry Profile .................................................................................................................................. 18

History Of The Indian Mutual Fund Industry ................................................................................... 18

Key Developments Over The Years ................................................................................................. 21

Trends In Mutual Fund Industry In India ......................................................................................... 23

Chapter-3.................................................................. 27 Theory On Mutual Funds ................................................................................................................... 28

Mutual Concept And Design........................................................................................................... 28

Organisation Of A Mutual Fund ...................................................................................................... 29

Mutual Funds Definition ................................................................................................................ 32

Advantages Of Mutual Funds ......................................................................................................... 33

Disadvantages Of Mutual Funds ..................................................................................................... 34

Mutual Fund Variants .................................................................................................................... 35

Costs Involved In Mutual Funds ..................................................................................................... 39

Mutual Fund Schemes In Sbi .......................................................................................................... 41

Types Of Mutual Funds And Sbi Funds In Each Category................................................................. 43

Risk Profile Of Funds ...................................................................................................................... 48

Chapter-4.................................................................. 49 Data Analysis And Interpretation ....................................................................................................... 50

Frequencies ................................................................................................................................... 50

Crosstabs ....................................................................................................................................... 65

T-Test For Testing The Perception Of Investor And Non-Investor ................................................... 94

Reliability Of The Factors ............................................................................................................... 99

Factor Analysis ............................................................................................................................. 100

Chapter-5................................................................. 107 Summary Of Conclusions:- ............................................................................................................... 108

Frequency .................................................................................................................................... 108

Cross Tabs ................................................................................................................................... 109

Concluding Observations ............................................................................................................. 110

Bibilography.............................................................. 111 Questionnaire:-........................................................... 112

List of Tables

Table 1:- Age ......................................................................................................................................... 50 Table 2:Gender ...................................................................................................................................... 51 Table 3:Income ...................................................................................................................................... 52 Table 4:Occupation ............................................................................................................................... 53 Table 5:Investment Pattern ................................................................................................................... 54 Table 6:Rate of Return expectations ...................................................................................................... 55 Table 7:Liquidity .................................................................................................................................... 56 Table 8:Reputation ................................................................................................................................ 57 Table 9: Investor or non investor ........................................................................................................... 58 Table 10:investment opinion ................................................................................................................. 59 Table 11:Major factors on Non-investment/Reinvestment..................................................................... 60 Table 12:preference of approach ........................................................................................................... 61 Table 13:Preferred mode of knowing investment information ............................................................... 62 Table 14:Frequency of checking investment performance ..................................................................... 63 Table 15:Preferred mode of communication ......................................................................................... 64 Table 16: Age * Savings Crosstabulation ........................................................................................... 65 Table 17 Gender * Savings Crosstabulation ........................................................................................... 67 Table 18:Gender vs Investment Decision ............................................................................................... 69 Table 19: Gender vs Expected rate of return .......................................................................................... 71 Table 20:Age vs Investment ................................................................................................................... 73 Table 21;Age vs Type of MF ................................................................................................................... 75 Table 22:Occupation vs Investment in MF ............................................................................................. 77 Table 23:Income vs Investment in MF .................................................................................................... 79 Table 24 :Investment Tenure vs Rate of return Expectation ................................................................... 81 Table 25 :Savings vs Investment in MF ................................................................................................... 83 Table 26:qualification vs Investment in MF ............................................................................................ 85 Table 27:Investment tenure vs MF instrument choice ........................................................................... 87 Table 28:Investment Tenure vs Income ................................................................................................. 89 Table 29 :Type of Mutual fund vs options .............................................................................................. 91 Table 30:Type of MF vs options ............................................................................................................. 92 Table 31: Type of MF vs options ............................................................................................................ 93 Table 32:T-test Group Ststistics ............................................................................................................. 94 Table 33:Independent Sample test ........................................................................................................ 95 Table 34:reliability statistics .................................................................................................................. 99 Table 35:KMO and Bartletts test ......................................................................................................... 100 Table 36:Component Matrix ................................................................................................................ 102 Table 37:Rotated Component Matrix and component transformation ................................................. 103 Table 38: Factors ................................................................................................................................. 104

List of Figures

Figure 1:Age .......................................................................................................................................... 50 Figure 2 : Gender ................................................................................................................................... 51 Figure 3:Income..................................................................................................................................... 52 Figure 4:Occupation .............................................................................................................................. 53 Figure 5:Investment pattern .................................................................................................................. 54 Figure 6:Rate of return expectation ....................................................................................................... 55 Figure 7:liquidity.................................................................................................................................... 56 Figure 8:Reputation ............................................................................................................................... 57 Figure 9:Investor and Non-Investor ....................................................................................................... 58 Figure 10:Investment opinion ................................................................................................................ 59 Figure 11: Major factors Non-investment/Reinvestment ....................................................................... 60 Figure 12:Preference of Approach ......................................................................................................... 61 Figure 13: Preferred mode of knowing investment information ............................................................. 62 Figure 14:Frequency of checking investment performance .................................................................... 63 Figure 15:Preferred mode of communication ........................................................................................ 64 Figure 16:Age vs Savings ........................................................................................................................ 66 Figure 17 Gender vs Savings .................................................................................................................. 68 Figure 18:Gender vs Investment Decision .............................................................................................. 70 Figure 19 :Gender vs Expected return .................................................................................................... 72 Figure 20:Age vs investment Decision .................................................................................................... 74 Figure 21:Age vs Type of MF .................................................................................................................. 76 Figure 22:Occupation vs Investment in MF ............................................................................................ 78 Figure 23:Income vs investment Decision in MF .................................................................................... 80 Figure 24; Investment tenure vs Rate of return Expectancy ................................................................... 82 Figure 25:Savings vs Investment in MF .................................................................................................. 84 Figure 26:Qualification vs Investment in MF .......................................................................................... 86 Figure 27:Tenure vs MF instrument choice ............................................................................................ 88 Figure 28:Investment tenure vs Income ................................................................................................. 90 Figure 29:Type of Mutual fund vs options .............................................................................................. 91 Figure 30: Type of MF vs options ........................................................................................................... 92 Figure 31: Type of MF vs options ........................................................................................................... 93

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CHAPTER-1

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INTRODUCTION

A Mutual Fund is a trust that pools the savings of a number of investors who share a

common financial goal. The money thus collected is then invested in capital market instruments

such as shares, debentures and other securities.

The income earned through these investments and the capital appreciation realized are shared by

its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the

most suitable investment for the common man as it offers an opportunity to invest in a

diversified, professionally managed basket of securities at a relatively low cost.

The mutual fund industry in India has come a long way. Significant spurts in size were

noticed in the late 80s, when public sector mutual funds were first permitted, and then in

the mid-90s, when private sector mutual funds commenced operations. In the last few

years, institutional distributors increased their focus on mutual funds.

Growth in AUM(in Cr), 846,677

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NEED/IMPORTANCE OF STUDY

Mutual fund has many variants which cater to even small savers and many advantages

like professional management, tax benefits, Systematic investment, diversifies portfolio,

simplicity and liquidity. Each fund has a predetermined investment objective that tailors the

fund's assets, regions of investments and investment strategies.

Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial

position, risk tolerance and return expectations. AUM of the mutual fund industry, as of March

31, 2012 has touched Rs 587,217 from 1309 schemes offered by 44 mutual funds.

The business of Indian mutual funds (MFs) industry is largely confined within the Tier 1

cities, however, the industry is focused on developing the penetration ratio and increasing its

presence in other cities. Currently, the top five cities of India contribute to 74% of the entire pie,

with the remaining 26% distributed among other cities, according to the CII-PwC report on MFs.

According to the CII-PwC report, there is untapped potential in the Indian MF market. In

some advanced countries, mutual fund AUM is a multiple of bank deposits. In India, mutual fund

AUM is not even 10% of bank deposits. This is indicative of the immense potential for growth of

the industry.

The primary challenges are low awareness levels and financial literacy, adapting the

distribution channels, reach, scalability and cultural and attitudinal change. In order to reach the

bottom of the pyramid, challenges remain in terms of unavailability of proper documentation like

PAN card, bank account etc.

This study on mutual funds aims at understanding the factors which affect the investment

decision with respect to mutual funds. The study is conducted in a Branch office of SBI bank to

understand the customer preferences and their interest in different variants of mutual fund

products and their expectations from their choice of investment.

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OBJECTIVES

The Main objective is to determine the factors affecting the Investment decision in Mutual funds.

The other objectives of the study are as follows:-

To understand the needs and expectations of the customers and the products

To analyze the options that is attracting customers to invest in mutual funds.

To understand the mutual fund industry.

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METHODOLOGY

DATA:- The study is based on primary data and secondary data.

The study is concluded with primary data analysis , Hence the sample of 100 respondents were

administrated were administrated with a questionnaire. The sample was randomly selected and

convenience sampling was used.

The Nature of the project comprises of Descriptive and Inferential statistics to understand

customer preferences by way of descriptive research with a questionnaire to understand customer

preference by way of a cross sectional study across many age groups, based on Gender, based on

income, occupation, qualification, investment requirements in terms of tenure and return, savings

pattern and liquidity requirements.

Close ended Questionnaire administrated was divided under four sections Basic questions

Investors profile, Perception and Factors affecting investment decision. The scale used in the

questionnaire is 5-point likert scale.

DATA SOURCES:-

Primary data was collected randomly from 100 respondents comprising of customers visiting

SBI Mudfort Branch, a government office, housewives and students to gather data from all

varied groups and backgrounds.

Secondary data for the project was collected from from various websites like www.amfiindia.com; www.nsim.ac.in; www.sbimf.com; www.mutualfundsindia.com.

TOOLS USED FOR ANALYSIS:- SPSS statistics 20 software was used to analyze the data.

The Investors choice of approach for new products, information for Investment, mode of

approach was also estimated by using Frequency tool.

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Cross tabulations between 2 variables was processed to estimate the association through Chi-

square analysis, Contingency coefficient, Correlation. Cross tabulations gave an insight

understanding about influence of one variable over the other.

A T-test of independent samples was conducted to understand the perception difference between

Existing Investors and Non-Investors and future prospective customers.

The data obtained from the study in the last section i.e, factors affecting investors decision was

analyzed by using Factor Analysis for identification of the key features preferred by the

respondents in a mutual fund product.

Factor analysis identifies common dimensions of factors from the observed variables that

have a high correlation with the observed and seemingly unrelated variables but no correlation

among the factors.

Principal Component Analysis is the commonly used method for grouping the variables under

few unrelated factors. However the data was run under varimax rotation to reduce, if there was

any chance of co -linearity among these factors. Variables with a factor loading of higher than

0.45 are grouped under a factor.

LIMITATIONS:- The respondents of the questionnaire have been selected randomly and the responses are

based on their current understanding and perceptions and can be change over a period of

short span.

SCOPE OF STUDY:-

The present study is confined to understanding the demographics of the respondents and their

investment preferences .However the present study has not covered how much investrors are

investing and how frequently are they investing.

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REVIEW OF LITERATURE

Dr Tapan K Panda and Dr Nalini Prava Tripathy have made a research on customer orientation

in designing mutual fund products to understand the customer key buying criteria for mutual

fund products. Their study aims at tracking investors preferences and priorities towards different

types of mutual fund products and for identifying key features of a mutual fund for deciphering

sustainable marketing variables in the design of a new mutual fund product.

The data obtained from the study were analyzed by using Factor Analysis for

identification of the key features preferred by the respondents in a mutual fund product.

24 factors were considered to understand the investors preferences. Core Product was identified

which constitute the awareness, product features, convenience, exclusive for small investors,

public/private ownership, technology, lock in period and brand name. The other factors

identified was Investors Expectations, Service behaviour, Persuasive promotion, Investor

Confidence.

The study has concluded that the small investors purchase behavior does not have a

high level of coherence due to the influence of different purchase factors. The buying

intent of a mutual fund product by a small investor can be due to multiple reasons

depending upon customers risk return trade off. Due to the reduction in the bank interest

rates and high degree of volatility in Indian stock market, investors are looking for an

alternative for their small time investments which will provide them a higher return and

also safety to their investments.

K.Viyyanna Rao and Nirmal Daita have made a research study on Fundamental factors

Influencing Investments in Mutual Funds The EIC Approach : A Case study on RCAML

which identified the correlation between Key economic variables and also studied the breakup of

various schemes and the correlation between the fund attributes on the mutual funds.

Descriptive statistics of reliance products was analyzed and concluded that Fund size has a

positive correlation with NAV and P/E ratio indicating that earnings increases with increase in

fund size. The high negative correlation is found with turnover and standard deviation which

signifies that increase in turnover is reducing the risk of the funds.

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Dr. Ravi Vyas, has made a research study On Mutual Fund Investors Behaviour And Perception

In Indore City and found that Gold is most preferred investment option. It is found that mutual

fund has got average in all parameters like safety, liquidity, reliability, tax benefits and high

returns, amongst all popular investment avenues. 58% investor select lump sum mode and

occupation has significant association with mode of investment. The risk perception towards

mutual funds was tested and surprising that nearly 53% investors analyze the risk in their mutual

fund investment though risk awareness percentage was 73% and 74% investors feel that Mutual

investment is profitable than Share market. It was concluded that about 90% investor hold their

investment for not less than six years.

R.Padmaja, has made a research study on A Study of Consumer Behavior towards

Mutual Funds with Special Reference To ICICI Prudential Mutual Funds, Vijayawada and found

that Awareness on Mutual fund products was high and respondents were aware of tax benefits

and basic purpose of investment in mutual funds was found to be savings.One on the basis of

Tax benefits SBI Magnum Tax gain schemes were highly rated.Age wise investment preference

to mutual funds was give by 20-30 year age group. In Business class respondents,30-40 year age

group preferred mutual funds. In professional Class Age groups below 40 years preferred mutual

funds.Equity funds were mostly preferred by all respondents.The study was concluded with

ICICI Mutual funds were most preferred by Service class in Equity.

Dr. G. Malyadri And B. Sudheer Kumar(2013) have conducted study on Mutual funds with

reference to HDFC and concluded that Open ended schemes are very popular option for

investment for short term and high return while close ended option are popular for long term

investment and for low return with minimum risk. Awareness level of mutual fund products was

73% among respondents still only 12 % preferred mutual funds.

Dr. Binod Kumar Singh(2012) research on study on investors attitude towards mutual funds as

an investment option was conducted on 250 respondents, 71 respondents have a positive attitude,

117 respondents have a neutral attitude and 62 respondents have a negative attitude towards the

mutual funds. Variables like age, sex, income and educational qualification were tested by Chi

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square analysis at 5% significance level and conclusions were gender ,income and level of

education have significant influence on investors attitude. Weighted scores were assigned to

various factors and the factors responsible for investing in mutual funds is concerned return

potential has got first rank, liquidity has got second rank, flexibility, transparency and

affordability have been ranked third, fourth and fifth respectively.

Sanjay Das has conducted research on small investors perceptions on mutual funds in assam: an

empirical analysis and it reveals that liquidity, flexibility, tax savings, service quality and

transparency etc. are the factors which have a higher impact on perception of investors. The

factors influencing investment in the Mutual Funds were the capital gains, returns, diversification

of risk. Some draw backs such as low awareness, too many formalities, difficult to select were

identified and concluded that MFs business in Assam is still in as embryonic stage and needs high

returns, professional competence of Fund managers to succeed. The investigation outlined that mostly the

investors have positive approach towards investing in MF.

K. Lakshmana Rao(2011) research on analysis of individual investors behaviour towards

mutual fund schemes (a study on awareness and adoption of educational levels) which concludes

that respondents with P.G. professional and Graduation level qualifications have adopted more,

in comparison to respondents without formal qualification or U.G. qualification and the

awareness and adoption of schemes increases proportional to an increase in education. It is found

that the awareness of equity fund schemes is the highest (35.71 per cent) followed by balanced

fund schemes (32.86 per cent). ELSS (26.29 per cent) in respect of respondents with a P.G

graduates. However, the awareness and adoption of debt Funds in comparison to other schemes

is found to be the least.

Dr.Hayat M.Awan And Shanza Arshad(2011) research on Factors Valued By Investors While

Investing In Mutual Funds-A Behavioral Context in 5 cities of Pakistan showed that investor

education level and occupation, income level has no effect on Four main variables ,investor

behavior, market conditions, fund related qualities, sponsor & investor related qualities. This

means that on basis of education level and occupations investor preferences does not differ.

While age group has an association with fund related qualities, but other three variables does not

have relationship with age group. Multinomial logistic regression is applied on categories

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investor type i.e. professional investor, image conscious, professional plus image conscious on

four variables of study. Image conscious investors and professional plus image conscious

investors give more importance to sponsor & investor related qualities than professional

investors. Professional plus image conscious give more emphasis to fund qualities than

professional investor and as well as image conscious. Professional investor and image conscious

investors are more confident and more risk averse than professional plus image conscious

investors. This means that on geographic basis i.e. city investor exhibits the different investment

behavior in term of overconfidence and risk attitude and their preferences about the fund related

qualities also differ.

Dr.Nishi Sharma(2012)studied Indian Investors Perception towards Mutual Funds trough

Factor Analysis and concluded Factor 1 as Scheme / Fund related Attributes which includes

Regular Updates on every trading day (regarding investment, NAV etc.), Safety of Investment,

Full Disclosure of Information regarding Scheme / Fund like objective, periodicity of valuation,

schemes sale/ repurchase etc., Favorable Credit Rating of Scheme, Factor 2 as Monetary

Benefits which includes six variables viz., Capital Appreciation, Charges (Expense Ratio, Entry

Load and Exit Load), Regular Return on Investment, Early Bird Incentives, Fringe Benefits like

Tax Benefits, Free Insurance, Free Credit Card, Loans on Collateral etc., Liquidity and Factor 3

as Sponsors Attributes which includes four variables viz., Reputation of Sponsor, Sponsors

Expertise, Promptness in Service and Retaliation of Investors Grievances.

Mohamed.zaheeruddin, Pinninti Sivakumar, K.Srinivas Reddy(2013) studied Performance

evaluation of mutual funds in India with special reference to selected financial intermediaries

and investigated the financial performance of the mutual funds with the tools of return, standard

deviation and beta and evaluated selected funds assessment on the basis of various performance

ratios (Sharpe, Treynor, Jensen) .The selected 3 mutual funds are HDFC, Birla sun life and ICICI

equity funds performance with their benchmark as S&P CNX Nifty Index concluded that ICICI

is ranked best followed by HDFC and Birla based on beta value for low risk, various

performance ratios and returns.

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Gunjan Adhikari, Mustfa Hussain, Syed Md Faisal Ali Khan, Divya Rana and Amal Mohammed

Sheikh Damanhouri(2013) have conducted a research on Preferences of Investors for Investment

in Mutual Funds in India using factor analysis and concluded Monetary Benefits was major

factor which included Dividend, Return ,Safety, Growth, NAV; Factor -2 was Service which

includes Bonus, Reinvestment of fund, payout facility; Factor-3 as Investors Protection which

includes Tax benefits and sector preferred. Followed by Factor-4 as Fund Management and

Factor-5 as Fund Strength which includes Knowledge of mutual fund and Advertising.

T.R. Rajeswari conducted a research on An Empirical Study on Factors Influencing the

Mutual Fund/Scheme Selection by Retail Investors to analyze the variables under factors

Scheme Qualities, Fund Sponsor Qualities and Investor services. In the factors influencing

investors the Scheme qualities was the major influencer followed by Investors service and Fund

Sponsor qualities. Factor Analysis to understand each of the Major factors was done and

concluded that in Scheme Qualities factor 1 was Intrinsic Product Qualities, factor 2 was

Portfolio Management and factor 3 was Image. The factors underlying Identification of sponsor

related factors in fund/scheme selection were infrastructure and Reputation. For Identification of

Service related factors in Fund/Scheme Selection were Subsequent disclosure followed by

Preliminary disclosures and Fringe benefits as underlying factors.

Subramanya P R and T P Renuka Murthy conducted research on Investors Attitude Towards

Mutual Fund (Special Reference to Chikkamagalore District, Karnataka State, India)(2013)

which concludes that the socio economic variables like age, gender, qualification, income and

occupation have been encouraging the attitude of investors towards Mutual fund and are

significantly associated. This study reveals that out of 150 respondents surveyed said the saving

level of the respondents and their attitude towards mutual fund are dependent of each other.32%

of the respondents are rational and invest their money for the purpose of safety for the principal

followed by safety for family, retirement life and safety for their own life. Hence the study

concluded that majority of them invest for the safety of the invested amount and keeping their

family needs in consideration. This converges to the point that investors look for safety while

investing in MFs as the invested amount will be put into various portfolios i.e. it is diversified.

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Dhimen Jani and Dr. Rajeev Jain (2013)conducted A Comparative Analysis of Investors

Buying Behavior of Urban Rural for Financial Assets specifically focused On Mutual Fund and

concluded that both investors(urban and rural) are having same behavioral pattern.

Demographics like Age, Gender, Occupation, Marital status, Income and level of Education has

a significant association with investment in mutual fund for both urban and rural investor. The

ranking suggested that both urban and rural investors prefer advice of financial planner/agent at

the first place, risk and return profile also plays crucial role in determining the investment

decision in financial assets, both of the investors have placed risk and return profile on the

second rank. Past performance is placed at the third rank, which indicates that investors do

observe past performance but do not take decision only on it. Investors had placed tax

consideration into fourth place. Brand being the fifth ranked by both the investors.

Manasa Vipparthi and Ashwin Margam(2013) have conducted a research on Perceptions of

investors on mutual funds: A comparative study on public and private sector mutual funds. The

study concluded that that the investors Age, Marital status and occupation has direct impact on

the investors choice of investment. It reveals that Liquidity. Flexibility, Tax savings, Service

Quality and Transparency are the primary factors which have a higher impact on perception of

investors. The factor analysis concluded that for both the public and private sector mutual funds

on factors influencing the investment decision on mutual funds were Monetary and Core product

were the major influencers followed by Fund strength, Promotional measures Customer

Expectations and Service quality.

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CHAPTER-2

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COMPANY PROFILE

Brief Profile of Organization:- State Bank of India is a multinational banking and financial services company based in

India. It is a government owned corporation founded in 1st July, 1955, with its headquarters in

Mumbai, Maharashtra. Its origin goes back to the first decade of the 19th century with the

establishment of Bank Of Calcutta on 2nd June, 1806.

The State Bank of India was thus born with a new sense of social purpose aided by the

480 offices comprising branches, sub offices and three Local Head Offices inherited from the

Imperial Bank. The concept of banking as mere repositories of the community's savings and

lenders to creditworthy parties was soon to give way to the concept of purposeful banking sub

serving the growing and diversified financial needs of planned economic development. The State

Bank of India was destined to act as the pacesetter in this respect and lead the Indian banking

system into the exciting field of national development.

. The Government of India is the single largest shareholder of this Fortune 500 entity with

61.58% ownership. SBI is ranked 60th in the list of Top 1000 Banks in the world by "The

Banker" in July 2012.

Corporate Profile of SBI Mutual Funds

SBI Mutual Funds is a Joint Venture between SBI and AMUNDI (France), one of the

world's leading fund management companies. It has a network of over 222 points of acceptance

across India, which is known to deliver value and nurture the trust of our vast and varied family

of investors.

SBI has been actively managing investor's assets not only through investment expertise

in domestic mutual funds, but also offshore funds and portfolio management advisory services

for institutional investors. This makes SBI one of the largest investment management firms in

India, managing investment mandates of over 5.4 million investors.

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Vision

To be the most preferred and the largest fund house for all asset classes, with a consistent track

record of excellent returns and best standards in customer service, product innovation,

technology and HR practices.

Services

1.Mutual Funds

SBIs mission has been to establish Mutual Funds as a viable investment option to the masses in

the country. Working towards it, SBI has developed innovative, need-specific products and

educated the investors about the added benefits of investing in capital markets via Mutual Funds.

SBI has been actively managing investor's assets not only through investment expertise in

domestic mutual funds, but also offshore funds and portfolio management advisory services for

institutional investors.

2.Portfolio Management and Advisory Services

SBI Funds Management has emerged as one of the largest player in India advising various

financial institutions, pension funds, and local and international asset management companies.

SBI have excelled by understanding the investor's requirements and terms of risk / return

expectations, based on which it suggests customized asset portfolio recommendations. It also

provides an integrated end-to-end customized asset management solution for institutions in terms

of advisory service, discretionary and non-discretionary portfolio management services.

3.Offshore Funds

SBI Funds Management has been successfully managing and advising India's dedicated offshore

funds since 1988. SBI Funds Management was the 1st bank sponsored asset management

company fund to launch an offshore fund called 'SBI Resurgent India Opportunities Fund' with

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an objective to provide our investors with opportunities for long-term growth in capital, through

well-researched investments in a diversified basket of stocks of Indian Companies.

Fund House Expertise

Investment Expertise

The best investment strategies put together by the best minds, SBI Fund Managers. With a sharp

eye to monitor, gauge and understand the changes in the market, fund managers and analysts

gear up to meet new challenging environments. Their ability to capture the growth potential of

Indian securities and manage complex portfolios as well as the drive to deliver optimum results

is their forte. With superior securities selection, incisive research, intensive coverage including

internal forecasts, active monitoring and regular tracking, our dedicated team ensures

minimization of risks while protecting the investor's interest.

Investment Philosophy

Growth through innovation.

SBIs expert team of experienced and market savvy researchers prepare comprehensive

analytical and informative reports on diverse sectors and identify stocks that promise high

performance in the future. SBI also seeks to provide investors with opportunities for progressive

growth through our innovative products, superior stock selection and active portfolio

management. Accordingly, SBI also enhance and optimize asset allocation and stock selection

based on internal and external research. Derivatives are used to hedge and rebalance portfolios to

keep the risk factors at reasonable levels,

The three main phrases, which act as a guiding force for the investment performance, are as

follows:

1. Long-term capital appreciation for the investor: SBIs fund manager's view is not guided

by any momentum play but by the objective of generating sustainable performance for

the investor.

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2. Superior stock selection: SBIs team is encouraged to be ahead of the rest of the industry

in terms of identifying new ideas & opportunities.

3. Active fund management: While the performance of all the funds is benchmarked against

a specific index, SBI do not encourage the investment team to replicate the index

composition with the fund portfolio.

Optimal Risk Management

Risk Management is an inherent part of any business. As one of the core focus areas, each of our

strategies is subject to close scrutiny on a continuous basis. Regulatory agencies around the

world are placing increasing pressure on institutions to measure and manage risk better.

SBI Funds Management follow enterprise wide approach to risk management with a dedicated,

experienced and professional risk management team covering significant functions of the

organization.

Risk Management focuses on:

Identifying actual and potential areas of risk

Assessing the adequacy of internal controls

Proposing risk mitigating measures and

Safeguarding investor interest through ongoing analysis and monitoring

Investment Objective

Setting benchmarks time and again. For our investors.

SBI objective is to endeavor to outperform the benchmarks through well researched investments

in Indian equities. This is achieved by implementing an active management style based on

fundamental analysis, leading to the construction of a portfolio. It could be blended, large cap,

mid cap, or specific sector oriented - which aims at capturing the growth potential of Indian

equities.

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INDUSTRY PROFILE

History of the 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 of India. 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. It was set up by the

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

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

Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The

first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.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

Canbank 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.

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Third Phase 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund

industry, giving the Indian investors a wider choice of fund families. Also, 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 SEBI (Mutual

Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds setting

up funds in India and also the industry has witnessed several mergers and acquisitions. As at the

end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The

Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other

mutual funds.

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 Specified Undertaking of

Unit Trust of India, functioning under an administrator and under the rules framed by

Government of India and does not come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with

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SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile

UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with

the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and

with recent mergers taking place among different private sector funds, the mutual fund industry

has entered its current phase of consolidation and growth.

The graph indicates the growth of assets over the years.

Current Mutual funds Market in India

The first introduction of a mutual fund in India occurred in 1963, when the Government of India

launched Unit Trust of India (UTI). Until 1987, UTI enjoyed a monopoly in the Indian mutual

fund market. Then a host of other government-controlled Indian financial companies came up

with their own funds. These included State Bank of India, Canara Bank, and Punjab National

Bank. This market was made open to private players in 1993, as a result of the historic

constitutional amendments brought forward by the then Congress-led government under the

existing regime of Liberalization, Privatization and Globalization (LPG). The first private sector

fund to operate in India was Kothari Pioneer, which later merged with Franklin Templeton.

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Key Developments over the Years The mutual fund industry in India has come a long way. Significant spurts in size were

noticed in the late 80s, when public sector mutual funds were first permitted, and then in

the mid-90s, when private sector mutual funds commenced operations. In the last few

years, institutional distributors increased their focus on mutual funds.

The emergence of stock exchange brokers as an additional channel of distribution, the

continuing growth in convenience arising out of technological developments, and higher

financial literacy in the market should drive the growth of mutual funds in future.

AUM of the industry, as of March 31, 2012 has touched Rs 587,217 from 1309 schemes

offered by 44 mutual funds. These were distributed as follows:

(Source:www.amfiindia.com)

In some advanced countries, mutual fund AUM is a multiple of bank deposits. In India,

mutual fund AUM is not even 10% of bank deposits. This is indicative of the immense

potential for growth of the industry.

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The high proportion of AUM in debt, largely from institutional investors is not in line with

the role of mutual funds, which is to channelize retail money into the capital market.

Various regulatory measures to reduce the costs and increase the conveniences for

investors are aimed at transforming mutual funds into a truly retail vehicle of capital

mobilization for the larger benefit of the economy.

The mutual fund industry has registered a compound annual growth rate (CAGR) of 18% from

2009 - 2013, but the national population is still largely underbanked with a very low level of

financial inclusion.

Investors pumped in more than Rs 37,000 crore in various mutual fund schemes in May 2013

taking the total funds mobilisation during the first two months of the current fiscal to Rs 1.44

lakh crore. The funds mobilisation in May comes after net inflow of Rs 1.06 lakh crore in the

preceding month.

As per the latest data available with market regulator Securities and Exchange Board of India

(SEBI), there was a net inflow of Rs 37,435 crore during May as against Rs 1.06 lakh crore

infused in April. The April's figure was the highest net inflow by investors in mutual fund (MF)

schemes in a single month since April 2011, when investors had put in Rs 1.84 lakh crore.

At gross level, mutual funds mobilized Rs 7.03 lakh crore in May, while there was redemption

worth Rs 6.65 lakh crore as well during the period. This resulted in a net inflow of Rs 37,435

crore.

The fund mobilization has also helped the total asset under management (AUM) of mutual funds

to grow to Rs 8.68 lakh crore as on May 31, 2013. The net mobilization by investors in various

mutual fund schemes during the current fiscal (April-May) reached Rs 1.44 lakh crore.

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TRENDS IN MUTUAL FUND INDUSTRY IN INDIA The business of Indian mutual funds (MFs) industry is largely confined within the Tier 1 cities,

however, the industry is focused on developing the penetration ratio and increasing its presence

in other cities. Currently, the top five cities of India contribute to 74% of the entire pie, with the

remaining 26% distributed among other cities, according to the CII-PwC report on MFs.

According to the report, there is untapped potential in the Indian MF market. The primary

challenges are low awareness levels and financial literacy, adapting the distribution channels,

reach, scalability and cultural and attitudinal change. In order to reach the bottom of the pyramid,

challenges remain in terms of unavailability of proper documentation like PAN card, bank

account etc. However, it is likely that the roll out of 'Aadhaar' initiative will to some extent

resolve these problems.

Mutual fund industry manifests big opportunity for growth and further penetration, and this can

be achieved over time, with support from technology. It is also important to market MFs as a

'concept' in order to create a strong pull from customers.

The report suggests that mobile banking can be a potential game changer, because it can use

existing infrastructure to reach out to un-banked rural population. With a subscriber base of over

900 million, mobile phones can be used as a huge facilitator to investing, redeeming and exiting

funds. Additionally, new distribution channels can be explored for cash transactions beyond PoS

(Point of Service) and ATM networks of banks.

The report also recommends use of social media to engage with customers for product

innovation, customer service and distribution of real time information with the aim to create

unique solutions and experiences. Best practices will need to be adopted from Micro-finance

Institutions (MFIs), the FMCG industry, the telecom industry and the postal channel to bring

about innovation in distribution model.

Looking ahead, the CII-PwC report points out that the industry needs to have a relook at their

distribution path, product design, technology mix, awareness programs for investors and service

initiatives among other things to increase penetration and business as a whole.

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Average assets under management (AUM) of mutual fund industry rose 3.7 per cent to a record

high of Rs 8.47 lakh crore in the April-June quarter, making it the fifth consecutive quarterly

rise, despite the fall in equity funds assets, a Crisil report said today.

The AUM of the previous quarter was at Rs 8.17 lakh crore for the industry.

"The rise was led by heavy inflows into debt mutual funds on the back of interest rate cuts by the

Reserve Bank," the report said.

However, equity funds' assets witnessed highest fall in past six quarters, which fell around 5 per

cent in the June quarter to Rs 1.99 lakh crore led by heavy outflows.

As per the report, assets under debt and gilt funds saw a rise on strong inflows on the back of

expectation of easing interest rate cycle in the coming months.

While assets of long-term debt funds rose 31 per cent to Rs 1.12 lakh crore, gilt funds rose by 10

per cent to Rs 8,600 crore in the quarter.

Similarly, AUMs of short-term debt and ultra short term debt funds also rose on the back of

improvement in the banking system's liquidity in the first quarter of this fiscal.

While assets in short-term debt funds rose to Rs 72,800 crore in the June quarter, ultra short-term

category's AUM gained by Rs 5,600 crore to Rs 1.05 lakh crore during this period.

However, equity funds' assets saw highest fall in past six quarters with AUM falling for the sixth

quarter in a row by around 5 per cent to Rs 1.99 lakh crore, led by heavy outflows despite mark

to market gains seen during the quarter.

Meanwhile, average AUM of gold ETF saw a record fall of around 11 per cent to Rs 10,600

crore in the June quarter.

Most fund houses post a rise in average AUM during the June quarter as per the agency with 24

fund houses reporting rise in AUM out of the 44 MF houses.

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Mutual fund industry is set for a slew of regulatory changes, including setting up of a single SRO

(Self Regulatory Organisation) for all distributors, who would also be allowed to access the stock

exchange platforms.

Besides, the fund houses may also be allowed to conduct proprietary trades on the debt segments

of stock exchanges, while separate changes are also in works to further strengthen the newly

launched independent debt platforms of the bourses. The proposed measures are expected to be

discussed by the capital markets regulator SEBI at its board meeting here tomorrow, sources

said.

SEBI is of the view that a single SRO for the mutual fund distributors would help remove

complexity and duplication and also lower the costs while it would also help in a better oversight

by the various regulatory authorities.

Some entities have already evinced interest in setting up SROs for the distributors of mutual fund

products and a single applicant would be selected from amongst them by SEBI after getting

formal applications from them. SEBI may soon finalise the deadline for accepting such

applications and the same would be communicated to the interested parties, sources said.

Regarding the separate debt segment of stock exchanges, SEBI would also consider various steps

for their growth and the proposals being considered include mutual funds being allowed to trade

on them as 'proprietary trading members'. Besides, the mutual fund distributors may also get

access to infrastructure at the stock exchanges by getting their memberships was also proposed.

Keeping in mind these views, SEBI is likely to deliberate on alternatives such as admitting

subsidiary floated by mutual funds as member with the stock exchange with distributors

effectively being authorised persons of these subsidiaries. These subsidiaries would be

responsible towards the investors and for complying with the regulatory norms.

The regulator might also suggest distributors to take 'limited purpose membership' of the stock

exchanges that would involve lesser financial and compliance burden. Under this category the

distributors may be allowed to use the infrastructure at the bourses to deal in mutual funds but

may not be permitted to handle payout and pay-in of funds on behalf of the investors.

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For enabling mutual funds to directly trade on the debt platform, SEBI plans to permit Asset

Management Company (AMC) appointed by these fund houses to take the membership under the

'proprietary trading members'. Further, SEBI is likely to bring in some changes to the broker

norms related to the debt segment such as a deposit of Rs 10 lakh for the new clearing members

and an annual fee of Rs 50,000, among others

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CHAPTER-3

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THEORY ON MUTUAL FUNDS

MUTUAL CONCEPT AND DESIGN CONCEPT

A Mutual Fund is a trust that pools the savings of a number of investors who share a common

financial goal. The money thus collected is then invested in capital market instruments such as

shares, debentures and other securities.

The income earned through these investments and the capital appreciation realized are shared by

its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the

most suitable investment for the common man as it offers an opportunity to invest in a

diversified, professionally managed basket of securities at a relatively low cost.

The flow chart below describes broadly the working of a mutual fund:

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ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organizational set up of a

mutual fund:

SEBI

SEBI regulates mutual funds, depositories, custodians and registrars & transfer agents in the

country.

Sponsors

The application to SEBI for registration of a mutual fund is made by the sponsor/s.

Thereafter, the sponsor invests in the capital of the AMC.

Trustee

The trustees have a critical role in ensuring that the mutual fund complies with all the

regulations, and protects the interests of the unit-holders.

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AMC

Day to day operations of asset management are handled by the AMC. It therefore arranges for

the requisite offices and infrastructure, engages employees, provides for the requisite software,

handles advertising and sales promotion, and interacts with regulators and various service

providers.

Custodian

The custodian has custody of the assets of the fund. As part of this role, the custodian

needs to accept and give delivery of securities for the purchase and sale transactions of the

various schemes of the fund.

Other Service providers

RTA

The RTA maintains investor records. Their offices in various centres serve as Investor Service

Centres (ISCs), which perform a useful role in handling the documentation of investors

Auditors

Auditors are responsible for the audit of accounts.Accounts of the schemes need to be

maintained independent of the accounts of the AMC.

Fund Accountants

The fund accountant performs the role of calculating the NAV, by collecting information

about the assets and liabilities of each scheme.

Distributors

Distributors have a key role in selling suitable types of units to their clients i.e. the investors in

the schemes.

Collecting Bankers

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The investors moneys go into the bank account of the scheme they have invested in. These bank

accounts are maintained with collection bankers who are appointed by the AMC

KYC Registration Agencies

To do away with multiple KYC formalities with various intermediaries, SEBI has mandated a

unified KYC for the securities market through KC Registration Agencies registered with SEBI.

Constitution of SBI Mutual Funds

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MUTUAL FUNDS DEFINITION A mutual fund is a collection of stocks and/or bonds. A mutual fund as a company is that 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.

An Investor can make money from a mutual fund in three ways:

1) Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all

of the income it receives over the year to fund owners in the form of a distribution.

2) If the fund sells securities that have increased in price, the fund has a capital gain. Most funds

also pass on these gains to investors in a distribution.

3) If fund holdings increase in price but are not sold by the fund manager, the fund's shares

increase in price. An Investor can then sell your mutual fund shares for a profit..

Funds will also usually give you a choice either to receive a check for distributions or to reinvest

the earnings and get more shares that is Growth option or Dividend option

Net asset value (NAV), which is a fund's assets minus liabilities, is the value of a mutual fund.

NAV per share is the value of one share in the mutual fund

When one buy shares, one pays the current NAV per share plus any sales front-end load. When

one sells shares, the fund will pay the customer NAV less any back-end load.

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Advantages of Mutual Funds Professional Management - The primary advantage of funds is the professional management of

your money. Investors purchase funds because they do not have the time or the expertise to

manage their own portfolios. A mutual fund is a relatively inexpensive way for a small investor

to get a full-time manager to make and monitor investments.

Diversification - By owning shares in a mutual fund instead of owning individual stocks or

bonds, your risk is spread out. The idea behind diversification is to invest in a large number of

assets so that a loss in any particular investment is minimized by gains in others.

Economies of Scale - Because a mutual fund buys and sells large amounts of securities at a

time, its transaction costs are lower than what an individual would pay for securities transactions.

Liquidity Like an individual stock, a mutual fund allows the customer to request that your

shares be converted into cash at any time.

Simplicity - Buying a mutual fund is easy and the minimum investment is small.

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Disadvantages of Mutual Funds

Professional Management - Management is by no means infallible, and, even if the fund loses

money, the manager still gets paid.

Costs - Creating, distributing, and running a mutual fund is an expensive proposition.

Everything from the manager's salary to the investors' statements cost money. Those expenses

are passed on to the investors.

Dilution - It'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.

Taxes - When a fund manager sells a security, a capital-gains tax is triggered. Investors who are

concerned about the impact of taxes need to keep those concerns in mind when investing in

mutual funds. Taxes can be mitigated by investing in tax-sensitive funds or by holding non-tax

sensitive mutual fund in a tax-deferred account.

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MUTUAL FUND VARIANTS

Each fund has a predetermined investment objective that tailors the fund's assets, regions of

investments and investment strategies. At the fundamental level, there are three varieties of

mutual funds:

1) Equity funds (stocks)

2) Fixed-income funds (bonds)

3) Money market funds

1.Equity Funds

The primary objective is to invest in equity shares.

The investment style box gives a clear idea about the Equity fund investments to customers .

Value:-The term value refers to a style of investing that looks for high quality companies that are

out of favor with the market. These companies are characterized by low P/E and price-to-book

ratios and high dividend yields.

Growth:-The opposite of value is growth, which refers to companies that have had strong growth

in earnings, sales and cash flow.

Blend:-A compromise between value and growth is blend, which simply refers to companies that

are neither value nor growth stocks and are classified as being somewhere in the middle.

Large Cap and Value:-A mutual fund that invests in large-cap companies that are in strong

financial shape but have recently seen their share prices fall would be placed in the upper left

quadrant of the style box .

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Small Cap and Growth :-The opposite of this would be a fund that invests in startup technology

companies with excellent growth prospects. Such a mutual fund would reside in the bottom right

quadrant.

Global/International Funds

An international fund (or foreign fund) invests only outside your home country. Global funds

invest anywhere around the world, including your home country.

It's tough to classify these funds as either riskier or safer than domestic investments. They do

tend to be more volatile and have unique country and/or political risks. But, on the flip side, they

can, as part of a well-balanced portfolio, actually reduce risk by increasing diversification.

Although the world's economies are becoming more inter-related, it is likely that another

economy somewhere is outperforming the economy of your home country.

Specialty Funds

This classification of mutual funds is more of an all-encompassing category that consists of

funds that have proved to be popular. This type of mutual fund forgoes broad diversification to

concentrate on a certain segment of the economy.

Sector funds

Sector funds are targeted at specific sectors of the economy such as financial, technology, health,

etc. Sector funds are extremely volatile. There is a greater possibility of big gains, but you have

to accept that your sector may tank.

Regional funds

Regional funds make it easier to focus on a specific area of the world. This may mean focusing

on a region or an individual country . An advantage of these funds is that they make it easier to

buy stock in foreign countries, which is otherwise difficult and expensive. Just like for sector

funds, you have to accept the high risk of loss, which occurs if the region goes into a bad

recession.

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Socially responsible funds

Socially-responsible funds (or ethical funds) invest only in companies that meet the criteria of

certain guidelines or beliefs. Most socially responsible funds don't invest in industries such as

tobacco, alcoholic beverages, weapons or nuclear power. The idea is to get a competitive

performance while still maintaining a healthy conscience.

Index Funds

The last but certainly not the least important are index funds. This type of mutual fund replicates

the performance of a broad market index . An investor in an index fund figures that most

managers can't beat the market. An index fund merely replicates the market return and benefits

investors in the form of low fees.

2.Bond/Income Funds

Income funds purpose is to provide current income on a steady basis. When referring to mutual

funds, the terms "fixed-income," "bond," and "income" are synonymous. These terms denote

funds that invest primarily in government and corporate debt. While fund holdings may

appreciate in value, the primary objective of these funds is to provide a steady cash flow to

investors.

Bond funds are likely to pay higher returns than certificates of deposit and money market

investments, but bond funds aren't without risk. Because there are many different types of bonds,

bond funds can vary dramatically depending on where they invest.

3.Money Market Funds

The money market consists of short-term debt instruments, mostly Treasury bills. This is a safe

place to park your money. A typical return is twice the amount you would earn in a regular

checking/savings account and a little less than the average certificate of deposit (CD).

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Others

Balanced Funds

The objective of these funds is to provide a balanced mixture of safety, income and capital

appreciation. The strategy of balanced funds is to invest in a combination of fixed income and

equities. A typical balanced fund might have a weighting of 60% equity and 40% fixed income.

The weighting might also be restricted to a specified maximum or minimum for each asset class.

The portfolio manager is therefore given freedom to switch the ratio of asset classes as the

economy moves through the business cycle.

Capital Protected Schemes

Capital Protected Schemes are close-ended schemes, which are structured to ensure that

investors get their principal back, irrespective of what happens to the market. This is ideally done

by investing in Zero Coupon Government Securities whose maturity is aligned to the schemes

maturity.

Real Estate Funds

They take exposure to real estate. Such funds make it possible for small investors to take

exposure to real estate as an asset class.

Exchange Traded Funds

Exchange Traded funds (ETF) are open-ended funds, whose units are traded in a stock

exchange.A feature of open-ended funds, which allows investors to buy and sell units from the

mutual fund, is made available only to very large investors in an ETF.

Commodity Funds

The investment objective of commodity funds would specify the commodities it proposes to

invest in. As with gold, such funds can be structured as Commodity ETF or Commodity Sector

Funds.

In India, mutual fund schemes are not permitted to invest in commodities, other than Gold

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Therefore, the commodity funds in the market are in the nature of Commodity Sector Funds, i.e.

funds that invest in shares of companies that are into commodities. Like Gold Sector Funds,

Commodity Sector Funds too are a kind of equity fund.

Fund of Funds

The feeder fund was an example of a fund that invests in another fund. Similarly, funds can be

structured to invest in various other funds, whether in India or abroad. Such funds are called fund

of funds.

COSTS INVOLVED IN MUTUAL FUNDS

Fees can be broken down into two categories:

1. Ongoing yearly fees to keep you invested in the fund.

2. Transaction fees paid when you buy or sell shares in a fund (loads).

The Expense Ratio

Two kinds of expenses come up:

Initial Issue Expenses These are one-time expenses that come up when the scheme is offered

for the first time (NFO). These need to be borne by the AMC.

Recurring Expenses These can be charged to the scheme. Since the recurring expenses drag

down the NAV, SEBI has laid down the expenses, which can be charged to the scheme.

The ongoing expenses of a mutual fund is represented by the expense ratio. This is sometimes

also referred to as the management expense ratio (MER). The expense ratio is composed of the

following:

The cost of hiring the fund manager(s) - Also known as the management fee, this cost is

between 0.5% and 1% of assets on average.

Administrative costs - These include necessities such as postage, record keeping, customer

service etc.

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On the whole, expense ratios range from as low as 0.2% (usually for index funds) to as high as

2%. The average equity mutual fund charges around 1.3%-1.5%. You'll generally pay more for

specialty or international funds, which require more expertise from managers.

Loads

Loads are just fees that a fund uses to compensate brokers or other salespeople for selling you

the mutual fund.

Front-end loads - These are the most simple type of load: you pay the fee when you purchase

the fund.

Back-end loads (also known as deferred sales charges) These are charged one sells a fund

within a certain time frame.

A no-load fund sells its shares without a commission or sales charge.

Transaction Charges

In order to enable people with small saving potential and to increase reach of Mutual Fund

products in urban areas and smaller towns, SEBI has allowed a transaction charge per

subscription of Rs. 10,000/- and above to be paid to distributors of the Mutual Fund

products. However, there shall be no transaction charges on direct investments. The

transaction charge, if any, shall be deducted by the AMC from the subscription amount and paid

to the distributor; and the balance shall be invested.

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MUTUAL FUND SCHEMES IN SBI Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk

tolerance and return expectations etc. The table below gives an overview into the different

options available to customers.

Open-ended funds are open for investors to enter or exit at any time, even after the NFO.

Close-ended funds have a fixed maturity. Investors can buy units of a close-ended scheme, from

the fund, only during its NFO.

Interval funds combine features of both open-ended and close-ended schemes. They are

largely close-ended, but become open-ended at pre-specified intervals.

In a Dividend Payout Option, the fund declares a dividend from time to time.

In a Dividend Reinvestment, the amount is reinvested in the same scheme and additional units

are allotted to the investor.

In a Growth Option, the NAV would therefore capture the full value of portfolio gains.

Direct Option can be chosen to deal directly with AMC without intermediaries and have no entry

load.Regular option is an option to invest through intermediaries and any further updations are

assisted by intermediaries for a nominal fee as entry fee.

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OTHER OPTIONS AVAILABLE TO INVESTORS

The investor also has an option to opt for one time investment or systematic Investment plan,

known as SIP is an approach where the investor invests constant amounts at regular intervals.

SIP:-Mutual funds also offer facilities that help investor invest amounts regularly through a

Systematic Investment Plan (SIP).

SWP:-Withdraw amounts regularly through a Systematic Withdrawal Plan (SWP)

STP:-Move moneys between different kinds of schemes through a Systematic Transfer Plan

(STP).

Such systematic approaches like SIP and STP promote an Systematic Approach to Investments

investment discipline, which is useful in long-term wealth creation and protection. SWPs allow

the investor to structure a regular cash flow from the investment account.

Actively Managed Funds and Passive Funds

Actively managed funds are funds where the fund manager has the flexibility to choose the

investment portfolio, within the broad parameters of the investment objective of the

scheme. Since this increases the role of the fund manager, the expenses for running the

fund turn out to be higher. Investors expect actively managed funds to perform better than

the market.

Passive funds invest on the basis of a specified index, whose performance it seeks to track.

Thus, a passive fund tracking the BSE Sensex would buy only the shares that are part of the

composition of the BSE Sensex. The proportion of each share in the schemes portfolio

would also be the same as the weightage assigned to the share in the computation of the

BSE Sensex. Thus, the performance of these funds tends to mirror the concerned index.

They are not designed to perform better than the market.

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Types of Mutual Funds and SBI Funds in each category

There are six basic asset classes, which SBI manage, and variations of these six asset classes

form various products:

Equity Schemes

The primary objective of the equity asset class is to provide capital growth / appreciation by

investing in the equity and equity related instruments of companies over medium to long term.

Equity/ Growth Funds

SBI Magnum Equity Fund

SBI Magnum Global Fund

SBI BlueChip Fund

SBI Magnum Multicap Fund

SBI Magnum Multiplier Plus 1993

SBI Magnum Midcap Fund

Sectoral Funds

SBI Emerging Businesses Fund

SBI Contra Fund

SBI FMCG Fund

SBI IT Fund

SBI Pharma Fund

Thematic Funds

SBI Magnum COMMA Fund

SBI Infrastructure Fund

SBI PSU Fund

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ELSS Funds

SBI Magnum Taxgain Scheme 1993

SBI Tax Advantage Fund - Series I

SBI Tax Advantage Fund - Series II

Index Funds

SBI Nifty Index Fund

Market Neutral Strategy

SBI Arbitrage Opportunities Fund

Hybrid Schemes

These schemes invest in a mixture of debt and equity securities in different proportions as

prescribed in the Scheme Information Document.

SBI EDGE Fund

SBI Magnum Balanced Fund

SBI Regular Savings Fund

SBI Magnum Monthly Income Plan

SBI Magnum Monthly Income Plan Floater

SBI Capital Protection Oriented Fund - Series II

SBI Capital Protection Oriented Fund - Series III

Debt / Income Schemes

The schemes in this asset class generally invest in fixed income securities such as bonds,

corporate debentures, government securities (gilts), money market instruments, etc. and provide

regular and steady income to investors.

SBI Magnum Children's Benefit Plan

SBI Magnum Income Fund Floating Rate Plan - Savings Plus Bond Plan

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SBI Magnum Income Fund Floating Rate Plan - Long Term

SBI Magnum Income Fund

SBI Dynamic Bond Fund

SBI Magnum Gilt Fund - Short Term Plan

SBI Magnum Gilt Fund - Long Term Plan

SBI Short Term Debt Fund

SBI Ultra Short Term Debt Fund

Fixed Maturity Plans

These are closed ended debt schemes with a fixed maturity date and they invest in debt & money

market instruments maturing on or before the date of the maturity of the scheme.

SBI Debt Fund Series 13 MONTHS 14












SBI Debt Fund Series 366 DAYS 4






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Liquid Schemes

The strategy for liquid funds include investments in short investment horizon, which includes

'cash' assets such as treasury bills, certificates of deposit and commercial paper.

SBI Magnum InstaCash Fund

SBI Magnum InstaCash Fund - Liquid Floater

SBI Premier Liquid Fund

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Exchange Traded Schemes

Exchange Traded Funds/ Schemes (ETFs) are a basket of securities that are traded on the stock

exchange.

SBI Gold Exchange Traded Scheme

SBI SENSEX ETF

Fund of Funds Schemes

A "Fund of Funds Scheme" means a mutual fund scheme that invests primarily in other schemes

of the same mutual fund or other mutual funds.

SBI Gold Fund

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RISK PROFILE OF FUNDS

High Risk Sector Funds Diversification within the fund

Risk according to sector

Thematic Funds Diversification according to theme of the fund

Risk according to Theme

Diversified equity funds Investment in all types of equity class

Index funds Passive funds

Track a particular index

Hybrid funds Combination of debt and equity

Different asset allocation according to objective

Debt Funds Investment in all type of Debt securities

Default and interest rate risk

Gilt Funds Investment in government securities

No default risk

Liquid funds Investment in money market securities

Low risk High liquidity-Low return-low risk

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CHAPTER-4

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DATA ANALYSIS AND INTERPRETATION

Frequencies

1.AGE Table 1:- Age

Figure 1:Age

Interpretation:-

The sample of respondents collected consisted of different age groups in proportionate number.

Age group Frequency Percent

18-25 25 25.0

26-30 25 25.0

31-45 25 25.0

>45 25 25.0

Total 100 100.0

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2.Gender

Table 2:Gender

Gender Frequency Percent

male 64 64.0

Female 36 36.0

Total 100 100.0

Figure 2 : Gender

Interpretatio

Study on Factors Influencing Investment Decision on Mutual Funds

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