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A REPORT
ON
MUTUAL FUND INVESTORS-THEIR
EXPECTATIONS & STRATEGIES INCHANGING SCENARIO
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Topic Page No.
Acknowledgement 4
Abstract .... 5
Introduction
About the project.. 6
Indian mutual fund industry. 7
About the organization. 10
Mutual funds
Concept. 12,13
Characteristics.. 14
Advantages 14
Disadvantages. 16
Types of mutual funds. 17
Constitution of mutual funds 23
Net asset value. 26
Nature of income distribution.. 27
Why an investor leaves a fund.. 29
Latest AUM .. 30
Study
Scope of the study. 38
Objective of the study 38
Methodology used.. 39
Limitations . 40
Findings of the study.. 41
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Comparative analysis of mutual funds... 57
Scope of SCB investment products 61
Recommendations made to SCB 65
References.. 68
ABSTRACT
Mutual funds have been one of the most preferred investment instruments. They are looked upon by
individual investors as financial intermediaries/ portfolio managers who process information, identify
investment opportunities, formulate investment strategies, invest funds and monitor progress at a very
low cost. Thus the success of mutual funds is essentially the result of the combined efforts of
competent fund managers and alert investors. A competent fund manager should analyze investor
behavior and understand their needs and expectations, to gear up the performance in order to meet
investors requirements. The project Mutual fund investors expectations & strategies in changing
scenariois to understand the changing sentiments, expectations & strategies of the investor.
The volatility of stock market has affected the mutual funds sales. There has been a plunge in the sales
of mutual funds. The expectations & strategies of the investors have changed. This has become a
challenge for fund houses. Investors preference has changed. Now they are not sure about what the
investors want. This project aims at understanding their behavior & thus giving recommendations to
SCB for meeting these challenges. Thus, to analyze the difference between investors expectations &
investment managers approach.
The project will seek to cover all the fundamental aspects related to mutual funds & investment in
mutual funds. The project will also cover the various problems of the global scenario that has affected
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There will also be a comparative analysis of some of the star ranked mutual funds as per the
expectations of the investors, so as to understand whether the star ranked mutual funds are catering to
the requirements & expectations of the investors or not.
Basically, the project is to understand the investors, behavior & to give recommendations to Standard
Chartered Bank on how to meet these changing expectations of the investors & offer the productaccordingly. There are many other investment products offered by Standard Chartered. This project
also covers that what are the opportunities for such investment products.
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INTRODUCTION
The growth and maturation of mutual fund industry is the greatest investment story of
the twentieth century. With the introduction of innovative products, the world of
mutual funds nowadays has a lot to offer to its investors. With the introduction ofdiverse options, investors need to choose a mutual fund that meets his risk acceptance,
his risk capacity levels and has similar investment objectives as the investor. There are
a large number of schemes available in the market to cater to the different needs of the
investor. As on 29th Feb, 2008, there were 5343 mutual fund schemes in the market.
The market has been bullish in past few months & has given huge returns. Even the
retail investors started investing in a big way expecting the rally to continue. But with
change in the global scenario, there has been a sudden & unexpected downfall in the
market which sunk the investors expectations, creating a negative sentiment in the
market. This has also affected the mutual fund investments.
Since Indian economy is no more a closed market, and has started integrating with the
world markets, external factors which are complex in nature are also affecting us.
Factors such as Sub-prime problem, expected US recession, an increase in short-
term US interest rates, the hike in crude prices and many other factors have made
Indian market volatile. The market has shown a downfall of --% in past 3 months.
There has been sharp fall in the sales of mutual funds in past 2 months, since January.
The average asset under management (AUM) of the mutual fund industry has declined
sharply by 6.62% in March 2008, according to data released by Association of Mutual
Funds in India (AMFI). This shows that there has been a change in the investors
sentiments & expectations.
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INDIAN MUTUAL FUND INDUSTRY
The Indian mutual fund industry is dominated by the Unit Trust of India which has a total corpus of
Rs700bn collected from more than 20 million investors. The UTI has many funds/schemes in all
categories i.e. equity, balanced, income etc with some being open-ended and some being closed-
ended. The Unit Scheme 1964 commonly referred to as US 64, which is a balanced fund, is the
biggest scheme with a corpus of about Rs200bn. UTI was floated by financial institutions and is
governed by a special act of Parliament. Most of its investors believe that the UTI is government
owned and controlled, which, while legally incorrect, is true for all practical purposes.
The second largest category of mutual funds is the ones floated by nationalized banks. Canbank Asset
Management floated by Canara Bank and SBI Funds Management floated by the State Bank of India
are the largest of these. GIC AMC floated by General Insurance Corporation and Jeevan Bima
Sahayog AMC floated by the LIC are some of the other prominent ones. The aggregate corpus of
funds managed by this category of AMCs is about Rs150bn.
The third largest categories of mutual funds are the ones floated by the private sector and by foreign
asset management companies. The largest of these are Prudential ICICI AMC and Birla Sun Life
AMC. The aggregate corpus of assets managed by this category of AMCs is in excess of Rs250bn
The growth and development of Indian Mutual Fund Industry can be broadly divided into four
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.
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Second Phase (1987-1993)
Highlight of phase was entry of Public Sector Funds. In 1987 marked the entry of non- UTI, public
sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) in
June 1989 and General Insurance Corporation of India (GIC) In Dec. 1990.
Public Sector Bank also established their own Mutual Funds:-
SBI Mutual Fund (June 1987)
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).
By the end of 1993, the mutual fund industry had assets under management of Rs. 47,004 crores.
Third Phase (1993 2003)
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 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
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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
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. 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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MUTUAL FUNDS
Concept
A mutual fund is a pool of money, collected from investors, & is invested according to certain
investment objectives.
A mutual fund is created when investors put their money together. It is therefore a pool of the
investors funds. The most important characteristic of a mutual fund is that the contributors & the
beneficiaries of the fund are the same class of people, namely the investors. The term mutual means
that investors contribute to the pool, & also benefit from the pool. There are no other claimants to the
funds. The pool of funds held mutually by investors is the mutual fund.
A mutual funds business is to invest the funds thus collected, according to the wishes of the investors
who created the pool. In many market these wishes are articulated as investment mandates. Usually,
the investors appoint professional investment managers, to manage their funds. The same objective is
achieved when professional investment managers create a product, and offer it for investment to the
investors. This product represents a share in the pool, & pre-states investment objectives.
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CONCEPT OF MUTUAL FUNDS
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Characteristics of Mutual Funds
A mutual fund actually belongs to the investors who have pooled their funds. The ownership
of the mutual fund is in the hands of the investors.
A mutual fund is managed by the investment professionals & other service providers, who
earn a fee for their services, from the fund.
The pool of funds is invested in a portfolio of marketable investments. The value of the
portfolio is updated every day.
The investors share in the fund is denominated by units the value of the units change with
the change in the portfolios value, everyday. The value of one unit of investment is called as
the Net Asset Value or NAV.
The investment portfolio of the mutual fund is created according to the stated investment
objective of the fund.
Advantages of Mutual Funds
Portfolio Diversification
By offering readymade diversified portfolios, mutual funds enable investors to hold diversified
portfolio. Though investors can create their own diversified portfolios, the costs of creating
and monitoring such portfolios can be high, apart from the fact that investors may lack the
professional expertise to manage sucha portfolio
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Professional Management
Mutual fund are managed by investment managers(AMCs) who are appointed by
trustees & bound by the investment management agreement, on the hows & whys of
their investment management functions.
AMCs are also required to be adequately capitalized, & are closely regulated by SEBI.
AMCs competing for funds under management therefore bring in significant
professional expertise & are bound by regulatory & trustee supervision.
Investment managers & funds are also bound by the AMFI code of ethics, which foster
professional standards in the industry.
Reduction in risk
Mutual funds invest in a portfolio of securities. This means that all the funds are not invested
in the same investment avenue. It is well known that risk & returns of various investment
options do not move uniformly or in sympathy with one another. Therefore, holding a
portfolio that is diversified across investment avenues is a wise way to manage risk. When
such a portfolio is liquid & marked to market, it enables investors to continuously evaluate the
portfolio & manage their risks more efficiently.
Reduces Transaction cost
Mutual funds provide the investors the benefit of economies of scale, by virtue of their size.Though the individual investors contribution may be small, the mutual fund is large enough
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Liquidity
Most of the funds being sold today are open-ended. That is, investors can sell their
existing units, or buy new units, at any point of time, at prices that are related to the
NAV of the fund on the date of the transaction. This enables investors to enjoy a high
level of liquidity on their investments.
Since investors continuously enter & exit funds, funds are actually able to provide
liquidity to investors, even if the underlying markets, in which the portfolio is invested,
may not have the liquidity that the investor seeks.
Disadvantages
No control over cost
Since investors do not directly monitor the funds operations they cannot control the costs
effectively. Regulators therefore usually limit the expenses of mutual funds.
No tailor-made portfolio
Mutual fund portfolios are created and marketed by AMCs, into which investors invest. They
cannot create tailor made portfolios.
M i f li f f d
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As the number of mutual fund increase, in order to tailor a portfolio for himself, an investor
may be holding a portfolio of funds, with the costs of monitoring them & using them, being
incurred by him.
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TYPES OF MUTUAL FUNDS
There are various types of mutual fund schemes available in the market. Currently there are 5373
mutual funds schemes available in the Indian market.
Broadly the various
types of mutual funds are differentiated on the basis of:
On the basis ofSTRUCTURE, mutual funds can be divided into 3 types:
a) Open Ended Schemes
It is the pool of fund which is open for sales & repurchases. An open-end fund is one tha
available for subscription all through the year. These do not have a fixed maturity. Invest
can conveniently buy and sell units at NAV related prices. Therefore both the amount of
funds that the mutual fund manages & the number of units vary everyday. The key featur
open-end schemes is liquidity.
Open-ended funds have to balance the interests of investors who come in, investors who
out & investors who stay invested. Open-ended funds are offered for sale at a pre-specifi
price, in the initial offer period. After a pre-specified period, the fund is declared open fo
further sales & repurchases. These transactions happen at the computed NAV related pric
b) Closed Ended Schemes
A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15
years. The fund is open for subscription only during a specified period. Investors can inv
the scheme at the time of the initial public issue and thereafter they can buy or sell the un
the scheme on the stock exchanges where they are listed. Therefore new investors buy fr
the existing investors, & existing investors can liquidate their units by selling them to oth
willing buyers. In a closed end funds, thus, the pool of funds can technically be kept cons
The price at which units can be sold or redeemed depends on the market prices, which is
fundamentally linked to the NAV
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In order to provide an exit route to the investors, some close-ended funds give an option
selling back the units to the Mutual Fund through periodic repurchase at NAV related pri
SEBI Regulations stipulate that at least one of the two exit routes is provided to the inves
c) Interval schemes
Interval Schemes are that scheme, which combines the features of open-ended and close-
ended schemes. The units may be traded on the stock exchange or may be open for sale o
redemption during pre-determined intervals at NAV related prices.
On the basis ofINVESTMENT OBJECTIVE, mutual funds can be divided into 4 types:
a) Growth Option
Growth Schemes are also known as equity schemes. The aim of these schemes is to
provide capital appreciation over medium to long term. These schemes normally inve
major part of their fund in equities and are willing to bear short-term decline in value
possible future appreciation.
In it incomes earned are retained in the investment portfolio, & allowed to grow, rathe
than being distributed to the investors.
The return to the investors is at the rate at which his initial investment has grown over
period for which he was invested in fund. The NAV will vary with the value of the
investment portfolio while the number of unit held will remain constant.
b) Income Scheme
Income Schemes are also known as debt schemes. The aim of these schemes is to pro
regular and steady income to investors. These schemes generally invest in fixed incom
securities such as bonds and corporate debentures. Capital appreciation in such schem
may be limited.
c) Balanced Funds
Funds that invest both in debt & equity markets are called balanced funds. Balanced
Schemes aim to provide both growth and income by periodically distributing a part of
income and capital gains they earn. A typical balanced fund would be almost equally
invested in both the markets. A balanced fund also tends to provide investors exposur
both equity & debt markets in one product. Therefore the benefits of diversification gfurther enhanced, as equity & debt markets have different risk and return profiles.
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d) Money Market Schemes
Money Market Schemes aim to provide easy liquidity, preservation of capital and
moderate income .These debt funds invest only in instruments with a maturity less tha
year. The investment portfolio is very liquid, & enables investors to hold their investm
for very short horizons of a day or more. These schemes generally invest in safer, sho
term instruments, such as treasury bills, certificates of deposit, commercial paper andinter-bank call money.
On the basis ofNATURE, mutual funds can be of 3 types:
a) Equity Funds
These funds invest a maximum part of their corpus into equities holdings. The structu
the fund may vary different for different schemes and the fund managers outlook on
different stocks. Equity funds can be further divided into 4 types:
Simple equity funds
These funds invest a pre-dominant portion of the funds mobilized in equity & equi
related products. In most cases about 80-90% of their investments are in equity sha
These funds have the freedom to invest both in primary & secondary markets for
equity.
Sector Specific funds
These funds choose to invest in one or more chosen sectors of the equity markets.
These sectors could vary depending on the investor preference & the return-risk
attributes of the sector. Sector specific funds are not as well diversified as simple e
funds, as they tend to focus on fewer sectors in the equity funds, as they tend to fo
on fewer sectors in the equity markets. They can exhibit very volatile returns.
Ta Sa ing F nds(ELSS)
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One variation of the simple equity fund is the ELSS (Equity Linked Saving Schem
These funds, named variously in the mutual fund industry, are equity funds formed
under a special scheme notified by the Government of India in 1990. According to
provisions of this notification, investment in a specially formed mutual fund produ
that invest at least 90% of its funds in equity & equity-linked investments is eligib
a tax rebate, up to a maximum investment of Rs. 10,000, under section88 of the In
Tax Act. Investors have to hold their units for a minimum lock-in period of 3 year
order to avail of the tax rebate.
Primary market funds
These funds invest in equity shares, but do so only when a primary market offeringavailable. The focus is on capturing the opportunity to buy those companies which
issue their equity in primary markets, either through a public offer or through priva
placements.
Index funds
It is an alternative approach to creating an equity portfolio for investors, is to avoid
taking views on the performance of companies, & instead focus on creating a
diversified portfolio, that simply replicates an existing market index. In order to tra
the return performance of markets, market indices of a sub-set of trading stocks is
created.
This strategy is also called passive fund management. The costs of this strategy ar
lower, & the fund performance virtually tracks the market index. An index fund
provides an ideal exposure to equity markets, without the investors having to bear
risks & costs arising from the market views that a fund manager may take.
Other equity funds
Equity funds can also be created to invest in equity shares of companies with spec
attributes. For Example, there are small stock funds, which invest only in equity sh
of small companies; there are PSU funds which specialize in investing only in PSU
stocks; there is a top 200 fund, which invests in companies within the universe of t
top 200 equity stocks; there is a select equity fund, which invests from the universstocks comprising the A group companies of the Bombay Stock Exchange; & ther
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products try to define a subset of the equity market, in terms of size &other attribu
& tend to focus on that segment.
b) Debt Funds
Debt funds are those that pre-dominantly invest in debt securities. Since most debt
securities pay periodic interest to investors, these funds are also known as income fun
However, investing in debt products can also offer a growth option to their investors.
universe of debt securities comprises of long term instruments such as bond issues by
central & state governments, public sector organizations, public financial institutions
private sector companies; and short term instruments such as call money lending,
commercial papers, certificates of deposit; & treasury bills. Debt funds tend to create
variety of options for investors by choosing one or more of these segments of the deb
markets in their investment portfolio. Debt funds can be further divided into 5 types:
Gilt Funds
A gilt fund invests only in securities that are issued by the government, & therefor
does not carry any credit risk. These funds invest in short & long-term securities is
by the government. These funds are preferred by institutional investors who have t
invest only in government paper. These funds also enable retail investors to partici
in the market for government securities, which is otherwise a large-ticket wholesal
market.
Income Funds
These funds invest a major portion into various debt instruments such as bonds,
corporate debentures and Government securities
MIPs
These funds invest maximum of their total corpus in debt instruments while they ta
minimum exposure in equities It gets benefit of both equity and debt market Thes
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scheme ranks slightly high on the risk-return matrix when compared with other de
schemes.
Short Term Plans(STPs)
These funds are meant for investment horizon for three to six months. These fundsprimarily invest in short term papers like Certificate of Deposits (CDs) and
Commercial Papers (CPs). Some portion of the corpus is also invested in corporate
debentures.
Liquid funds
These funds are also known as Money Market Schemes, These funds provide easy
liquidity and preservation of capital. These schemes invest in short-term instrumen
like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are m
for short-term cash management of corporate houses and are meant for an investm
horizon of 1day to 3 months. These schemes rank low on risk-return matrix and ar
considered to be the safest amongst all categories of mutual funds.
c) Balanced Funds
As the name suggest they, are a mix of both equity and debt funds. They invest in
both equities and fixed income securities, which are in line with pre-defined
investment objective of the scheme. These schemes aim to provide investors with
the best of both the worlds. Equity part provides growth and the debt part provides
stability in returns. The benefits of diversification get further enhanced, as equity &
debt markets have different risk &return profiles.
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CONSTITUTION OF A MUTUAL FUND
The structure of mutual funds in India is governed by the SEBI (mutual fund)
Regulations, 1996. These regulations make it mandatory for mutual funds to have a
three-tier structure of Sponsor-Trustee-Asset Management Company (AMC). The
sponsor is the promoter of the mutual fund, & appoints the Trustees. The trustees are
responsible to the investors in the mutual fund, & appoint the AMC for managing theinvestment portfolio. The AMC is the business face of the mutual fund, as it manages
all the affairs of the mutual fund. The mutual fund & the AMC have to be registered
with SEBI.
SEBI regulations also provide for who can be a sponsor, trustee & AMC, & specify
the format of agreements between these entities. These agreements provide for the
rights, duties & obligations of these three entities. These agreements provide for the
rights, duties & obligations of these three entities.
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.
Sponsor
The sponsor is the promoter of the mutual fund. The sponsor establishes the mutual fund
registers the same with SEBI.
Sponsor appoints the trustees, custodians & the AMC with prior approval of
SEBI, & in accordance with SEBI Regulations.
Sponsor must have at least 5-year track record of business interest in the
financial markets.
Sponsor must have been profit making in at least 3 of the above 5 years.
Sponsor must contribute at least 40% of the capital of the AMC.
Trustee
The mutual fund, which is a trust, is managed either by a Trust company or a board of
Trustees. It is the responsibility of the trustees to protect the interest of investors, whose
is managed by the AMC. The AMC & other functionaries are functionally accountable to
trustees.
Asset Management Company (AMC)
The mutual fund is operated by a separately established asset management company (AM
It manages the funds of the various schemes. It is entrusted with the specific task of
mobilizing funds under the scheme.
The trustee, on the advice of the sponsor, usually appoints the AMC. The trust deed
authorizes the trustee to appoint the AMC. The AMC is usually a private limited compan
which the sponsors & their associates or joint venture partners are shareholders. The AM
has to be SBI registered entity, & should have a minimum net worth of Rs. 10 crores.
Following are the various types of AMCs we have in India
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AMCs owned by financial institutions
AMCs owned by the Indian private sector company
AMCs owned by foreign institutional investors
AMCs owned jointly by Indian & foreign sponsors.
Custodian
Custodians are responsible for the securities held in mutual funds portfolio. They discha
an important back-office function, by ensuring that securities that are bought, delivered &
transferred to the books of the mutual funds, & those funds are paid out when a mutual fubuys securities. They keep the investment account of the mutual fund, & also collect the
dividends and interest payments due on the mutual fund investments. Custodians also tra
corporate actions like bonus issues, right offers, offer for sale, buy back & open offers fo
acquisition.
Registrars & Transfer
Agents (R & T Agents)
The R & T agents are responsible for the investor servicing functions, as they maintain th
records of investors in mutual funds.
They process investor
applications.
Record details provided
the investors on application forms.
Send out to investor deta
regarding their investments in mutual fund.
Send out periodical
information on the performance of mutual funds.
Process dividend payout
investors
Incorporate changes ininformation as communicated by investors.
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Keep the investment reco
up to date, by recording new investors & removing investors who have withdrawn t
money.
NET ASSET VALUE (NAV)
NAV represents the actual value of per unit of a fund. It is calculated as:
(Market value of all investments + Income + Profit Loss - Expenses)
Number of units in the mutual fund
The above components stand for:
Market value of all the investments
Every security in the funds portfolio has a market value. The value of the entire portfolio
calculated to reach this figure. It is here that any capital appreciation or depreciation of th
portfolio is reflected.
Income
This is the interest income earned by debt securities or dividend income earned by stocks
the portfolio.
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Profit
This is the capital gain realized by selling a security (debt or equity) at a price higher than
purchase price.
Loss
This is the capital loss suffered by selling a security (debt or Equity) at a lower price than
purchase price.
Expenses
This is the actual expenses incurred by the fund. For example, fees paid to AMC, custodi
registrars etc., SEBI restricts the expenses that can be paid by the fund.
2 facts emerge from the above:
All the income, expenses , profits & losses of a mutual fund are reflected in one sin
number its value, i.e. its NAV
Market Value of investments is a major determinant of NAV. Thus, a mutual funwill reflect market conditions.
NATURE OF INCOME DISTRIBUTION TO INVESTORS
Mutual fund offers a variety of options to investors, in the manner in which the returns
from their investments are structured. At a broad level, the investors have 3 optionswhich are:
Dividend Option
Investors, who choose a dividend option on their investments, will receive
dividends from the mutual funds, as & when dividends are declared. Dividends
are paid in the form of warrants, or are directly credited to investors bank
account.
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Investors who do not require periodic income distributions can choose the
growth option, where the income earned are retained in the investment portfolio,
& allowed to grow, rather than being distributed to the investors. Investors with
longer-term investment horizons, & limited requirements for income, choose this
option. The return to the investors is at the rate at which his initial investment
has grown over the period for which he was invested in the fund. The NAV of
the investor choosing this option will vary with the value of the investment
portfolio, while the number of units held will remain constant.
Re-investment Option
Investors re-invest the dividends that are declared by the mutual fund, back into
the fund itself, at NAV that is prevalent at the time of re-investment. In this
option, the number of units held by the investor will change with every re-investment. The value of the units will be similar to that under the dividend
option.
SELECTION OF FUNDS
Following are the steps recommended by John Bogle, former chairman of Vanguard
Group of Funds in United States:
For Equity funds
Classify the equity funds into broad categories that signify their return &
risk characteristics.
Classify funds further on the basis of fund manager style. Investors may
want to choose between value & growth styles, depending on their risk &
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Evaluate the performance of the schemes. This is done both within the
peer group, & comparison with the bench mark
Under the structural characteristics of the scheme like Size of the fund,
fund age, portfolio managers experience, and costs of investing.
Understanding the portfolio characteristics of the scheme like percentageof cash in portfolio, market capitalization of the fund, portfolio turnover,
portfolio risk, and statistics-ex marks of the portfolio, beta, and gross
dividend yield.
The performing fund will have higher ex marks, lower beta, & higher gross
dividend yield.
For Debt/Bond funds
Fund age & size Newer & smaller fund may not be risky to the investors.
Relative Yield the total return on the fund may not be risky to the investors.
Costs expenses ratio in a bond fund is very important, higher loads &
expenses could lead to a yield sacrifice.
Quality of the portfolio Better the rating of the bonds in the portfolio,
better the fund.
Average maturity the duration of the portfolio, and therefore is related to
the average maturity. Higher the average maturity means higher interest rate
risk in the fund.
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WHY AN INVESTOR LEAVES A FUND
Change in a Fund's Manager
When investors put their money into a fund, they are putting a certain amount oftrust into the fund manager's expertise and knowledge, which they hope willlead to an outstanding return on an investment that suits their investment goals.
Thus, fund manager plays an important role when investors put in their moneyin mutual funds.
Change in Strategy
If investors research their fund before investing in it, they most likely investedin a fund that accurately reflects their financial goals. If their fund managersuddenly starts to invest in financial instruments that do not reflect the mutualfund's original goals, they may want to re-evaluate the fund you are holding. Forexample, if a small-cap fund starts investing in a few medium orlarge-cap
stocks, the riskand direction of the fund may change.
Consistent Underperformance
This can be tricky since the definition of "underperformance" differs frominvestor to investor. If the mutual fund returns have been poor over a period ofless than a year, then investors may not liquidate, thinking that liquidating theirholdings in the portfolio may not be the best idea since the mutual fund maysimply be experiencing some short-term fluctuations. However, if they havenoticed significantly poor performance over the last two or more years, theymay liquidate their holdings.
The Fund Becomes Too Big
In many cases a fund's quick growth can hinder performance. The bigger thefund, the harder it is for a portfolio to move assets effectively. Fund size usuallybecomes more of an issue forfocused funds or small-cap funds, which eitherdeal with a smaller number of shares or invest in stock that has low volume andliquidity.
http://www.investopedia.com/terms/s/small-cap.asphttp://www.investopedia.com/terms/l/large-cap.asphttp://www.investopedia.com/terms/r/risk.asphttp://www.investopedia.com/terms/f/focusedfund.asphttp://www.investopedia.com/terms/v/volume.asphttp://www.investopedia.com/terms/l/large-cap.asphttp://www.investopedia.com/terms/r/risk.asphttp://www.investopedia.com/terms/f/focusedfund.asphttp://www.investopedia.com/terms/v/volume.asphttp://www.investopedia.com/terms/s/small-cap.asp8/8/2019 Mutual Fund Investors-Their Expectations & Strategies in Changing Scenario
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Latest Asset under Management for all Mutual Fund Houses
Amount in
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MUTUAL FUND
NAME
NO. OF
SCHE-
MES
ASSET UNDER MANAGEMENT
As on Mar
31,2008
As on Feb
29,2008
Net Inc/Dec as
on Mar 31,2008
ABN AMRO MutualFunds
325 6675.73 6813.54 -137.81
AIG Global InvestmentGroup Mutual Fund
54 3,148.63 3,303.49 -154.86
Benchmark MutualFund
12 5611.00 4,954.72 656.28
BIRLA Mutual Funds 330 34750.00 36,391.00 -1641
BOB Mutual Funds 22 70.34 79.69 -9.35
Canara Robeco MutualFund
54 2484.28 3,146.58 -662.3
DBS Chola Mutual
Fund
80 1,963.92 2,953.32 -989.4
Deutsche Mutual Fund 176 11996.00 14,404.85 -2408.85
DSP Merrill LynchMutual Fund
207 19136.00 19,940.40 -804.4
Escorts Mutual Funds 26 175.8 146.93 28.87
Fidelity Mutual Funds 39 8294.05 9,487.17 -1193.12
Franklin TempletonInvestments
225 29604.33 29,424.58 179.75
HDFC Mutual Funds 351 43762.7 46,291.97 -2529.27
HSBC Mutual Funds 212 13953.08 15,530.08 -1577ICICI Prudential
Mutual Fund416 51810.85 62,008.95 -10198.1
ING Mutual Funds 251 9844.71 9,844.71 00.00
JM Financial MutualFund
171 11,032.93 12,559.79 -1526.853
JPMorgan MutualFunds
9 2081.42 2,481.12 -399.7
Kotak MahindraMutual Fund
178 16135.52 19,367.84 -3232.32
LIC Mutual Funds 112 13387.40 15,103.00 -1715.6
Lotus India MutualFunds
212 10057.10 9,763.88 293.22
Morgan Stanley MutualFunds
3 3172.00 3,599.49 -427.49
PRINCIPAL MutualFunds
151 11,780.02 13,318.69 -1538.67
Quantum Mutual Funds 6 64.22 65.38 -1.16Reliance Mutual Funds 331 77210.04 93,531.68 -16321.64
h l d
http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM042http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM042http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM044http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM010http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM010http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM019http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM019http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM042http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM042http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM044http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM010http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM010http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM019http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM019http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM0338/8/2019 Mutual Fund Investors-Their Expectations & Strategies in Changing Scenario
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As per the graph, we can see there has been a sharp increase in the sales of mutual
funds in the month of January. The volatility of the market started in January. When the
market decreased in January, investors thought that it is correction and they put in
money so as to buy mutual funds at lower NAV. But after the market crashed on 21st
January, investors began to panic. In the month of February there has been a sharp
decrease in the sales of mutual funds. This is because of downward motion of market in
February. In March there has been a slight recovery in the sales.
Balanced funds sales showed the same trend. There had been a sudden increase in the
sales of balanced funds. As balanced funds is the combination of both equity & debt.
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February there has been a sharp decline in the sales of balanced funds & same
continued in the month of March.
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Income funds basically invest in debts. There had been a sharp increase in the sales in
month of January. But a slight decrease in the month of February. There has been
increase in the sales of such funds in March. It is because of their returns are assured &
they are less risk averse.
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After the volatility of market, investors have developed a negative sentiment. And it is
visible from the sharp increase in the sales of gilt funds. They do not have credit risk.
And they invest in government securities only. Therefore, investors invested more in
the gilt funds. There has been a sharp increase in the month of February, in spite of thedecrease in the mutual funds sales. There has just been a slight decrease in the month of
March. But overall the sales of gilt funds have increased to a very large extend.
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Sales of gold funds have increased many folds because people are moving towards
commodities to hedge against inflation or market fall & gold ETF offer theadvantage of not holding physical gold as well as flexibility to sell at any time &turn to equity or debt because selling instrument is easier rather than physicalquantity & procuring gold is not an easy task plus flexibility is another reason whygold ETF is preferred against gold
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These funds basically aim at liquidity. They invest in short term bonds & securities.
These funds also followed the trend. There has been increase in the sales in the month
of January but a slight decrease in the month of February. Again these funds sales
increased in the month of March.
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METHODOLOGY USED
Primary data is collected through a questionnaire & collecting answers from
investors to understand the investors needs, choice & strategies under various
conditions. The questionnaire is aimed at gathering firsthand knowledge of investors
point of view.
Sample design
Random sampling method is used for collection of data and necessary information for
which sample size of 100 respondents in Jaipur city have been taken for study.
Analysis & Interpretation
The study mainly deals with changed strategies and expectations of IndividualInvestors towards Mutual funds in Jaipur city due to the volatility of the market.
Respondents were screened and inclusion was purely on the basis of their knowledgeabout Financial Markets, MFs in particular. This was necessary, because thequestionnaire presumed awareness of some basic terminology about Mutual Funds. Thepurpose of the survey was to understand mainly their fund selection behavior, variousfactors influencing this behavior, their investment objectives, changing strategies inchanging scenario and also the conceptual awareness level among individual investors.The survey was conducted during Mar-Apr 2008, among 100 educated, geographicallydispersed individual investors of Jaipur city. Sample of the Questionnaire is given inAnnex I 1. The unit of observation and analysis of survey is only among Individual
Investors whose definition is An Individual who has currently invested in any MutualFunds. Since it is an exploratory study no specific hypothesis is formulated.
Since the study is entirely based on the personal opinion of the respondents, the
collected data is presented in tabular form .Pie charts and diagrams are also used as a
presenting tool for the effective presentation. Percentage and majority method has been
used to analyze the responses given by the respondents. For most important questions
the responses have been accepted according to the most frequently similar responses
given by the respondents of one similar group and after that the whole responses of all
respondents were compiled in order to get a clear snap shot of the investment behavior.
So primarily the direct responses according to majority of sample has been accepted
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Secondary data will be collected through internet, magazines. Various journals,
books, various AMCs Fund Fact sheets and Standard Chartered Bank study material
so as to collect information about mutual fund market, stock exchange and about
wealth management.
LIMITATIONS OF THE STUDY
1) Geographical constraint - Sample size is limited to 100 educated individualinvestors in the city of Jaipur. The sample size may not adequately represent thenational market.
2) Sampling constraints - Simple Random and judgment sampling techniques isdue to time and financial constraints.
3) Time constraint - This study has not been conducted over an extended period of
time having both ups and downs of stock market conditions which a significant
influence on investor s buying pattern and preferences.
FINDINGS OF THE STUDY
1) PERSONAL INFORMATION ABOUT INVESTORS
Under this category investors were asked 5 questions:
(a) What is your age?
Basically this question is being asked to study a trend of investment
according to the age of an investor Age plays an important role in the
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invest more in equity as he can have higher risk appetite. A person who is in
middle age may prefer to invest in balanced funds. A person who is aged
may prefer to invest in debt funds as his risk appetite will be the lowest. He
would not be looking towards long term investments but he must be looking
towards constant returns, so may want to invest in debt funds.
CATEGORY NO. OF RESPONDENTS
20-30 YRS 30
31-40YRS 30
41-50 YRS 25
550 ABOVE 15
(b) Which investment tool, generally you choose for your investmentpurpose.
INVESTMENT TOOL NO. OF RESPONDENTS
Bonds 7
Equity 23
Fixed Deposits 4
Gold 25Mutual funds 40
Others 1
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Analysis:
Around 11% investors want to invest in secured instruments like bonds &
FDs
Around 23% are high risk takers. They invest in equity.
Around 25% people invest in gold. It is the second most popular investment
tool. As it has given huge returns in past few months.
Around 40% invests in mutual funds, which shows that they want to balance
between risk and returns.
(c) What is your investment expenditure ratio?
INVESTMENT-EXPENDITURE RATIO NO. OF RESPONDENTS
Less than 20% 24
20-80% 36
30-70% 15
40-60% 25
50-50% 0
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Analysis:
Around 25% of the investors invest less than 20% of their income. This is
a huge potential base.
The major part lies in the bracket 20-80% ratio.
25% investors invest in the ratio of 40-60% which is less.
(d) How stable is your income source?
STABILITY OF INCOME NO. OF RESPONDENTS
Stable 60
Unstable 5Moderate 25
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Analysis:
As 60% investors have a stable income source. Earlier they had apsychology of investing in stable investment instruments like bonds & fixeddeposits rather than investing in equity market where returns can be muchhigher than present investments but they are showing risk aversion becauseof the equity markets volatility. Based on this it can be said that they do notbelieve in the economical condition of the country and market stability. Butno conditions have changed. People with stable income are also ready totake risk
25% has moderate income
10% has fluctuating. This basically comprises of business men
Only 5% state their income to be unstable
d) Which bank/organization is providing you the investment services?
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Analysis:
Only 30% of the investors invest through banks/financial institutes
Out of 100 investors, who invest in mutual funds, 70% do not take
investment services from the bank or any other institute.
There are still large part investors who invest on their own.
2) HOW INVESTORS TAKE INVESTMENT DECISION?
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Under this there were 3 different questions asked to the respondents:
(a) Before making an investment decision, how do you conclude that
for which investment instrument you should go for?
REASON FOR INVESTMENT NO. OF RESPONDENTS
According to return analysis 50
According to esteemed group 5
After consultation with financial advisor 15
According to market trend 30
Analysis:
As the data show that only 25% respondents of the total populationchoose their investment medium after consultation or according to theirpeer group. They are not anymore dependent on what others have to say.They decide for their own money. 75% of respondents follow the return analysis & market trendmethod for arriving at an investment decision. This shows that peoplehave become educated. They know where there money should go. Whatare their requirements?
(b)Do you generally invest in popular mutual funds or analyze the funds &performance before investment decisions?
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REASON FOR CHOOSING MUTUAL
FUND
NO. OF RESPONDENTS
Follow the popularity 5
Follow the esteemed group 15
Careful analysis of the fund 50
After consultation with financial advisor 30
Analysis
Around 50% of people still choose mutual funds after consultation.
These shows that people believe more on what other advisors has to say
rather than making their own decisions
Another 50% do the return analysis & other analysis of the funds todecide on which fund to invest in
(c)What factors do you keep in mind before investing in mutual
funds?
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Brand Name 20
Product features 5
Quality of service 5
Transparency 5
Past performance 65
Analysis:
While choosing a fund the most important thing that matters to investors is
past performance of the mutual funds
Next is the brand name. This shows the brand name inculcates trust and
investors want to invest where they feel that their money is safe.
Other factors like product features & quality services & transparency are
not that important to investors
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Simply as the topic may seem, but the investment objective of an investor
forms the base for his investment foray. Investment objective refers to the
expectations & requirements that an investor desires his investment to live
up to. Every investment is followed by an investors attempt to attain
some gain out of it. But the GAIN is just not the capital appreciation thatsatisfies an investor, its timely attainment is as mandatory as the
realization of gain itself.
The various schemes in the mutual fund industry are designed to suit the
particular investment purpose of the investors. The idea of customization
has penetrated into this industry as well & with the growing diversified
needs of the investors, several schemes are formulated that help the
customer achieving his goal & making his investment valuable.
This customization is the key reason for the spurt in the investment
avenue. Other than this, at times it may be identified that investors may
hold more than one expectation. In such a case he tries to create a portfolio
for himself that lives up to all his expectations. There are many counselors
who provide counseling in the same avenue basing & researching their
decisions on certain parameters which are small things but could have the
biggest of impact on ones investments.
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Age also plays an important role in the investment objective. The model
portfolio that has been recommended for investors by Jacobs for investors
according to their life cycle stages is
INVESTORS RECOMMENDED MODEL PORTFOLIO
Young
unmarried
professional
50% in aggressive equity funds
25% in high yield bond funds, growth & income funds
25% in conservative money market funds
Young couplewith 2 income
& 2 children
10% in money market funds30% in aggressive equity funds
25% in high yield bond funds & long term growth funds
35% in municipal bond funds
Older couple
single income
30% in short term municipal funds
35% in long term municipal funds
25% in moderately aggressive equity
10% emerging growth equity
Recently
retired couple
35% in conservative equity funds for capital
preservation/income25% in moderately aggressive equity for modest capitalgrowth
40% in money market funds
Under this category there were 4 questions asked:
(a) If you have to invest Rs. 100, how will you divide it in the
following categories?
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INVESTMENT OBJECTIVE NO. OF RESPONDENTS
Long term(5-6years)/ Capital appreciation
Mid -term(2-3years)/growth appreciation
Short term(monthly)/ Liquidity
Analysis:
Around 64% investors are interested in long term investments. They
look at both growth & capital appreciation
Around 25% interested in mid- term returns within the span of 2 to
3 years
Most of the investors look for growth so there are less people who
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(b) What is your investment objective, while investing in mutual funds?
INVESTMENT OBJECTIVE NO. OF RESPONDENTS
Growth 45Liquidity 5
Income 25
Balanced 25
Others
Analysis:
As the data show that 45% investors have opted for growth, 25 %income or the liquidity & 30 % for balanced. Here the liquidity andbalanced can be taken as same because they both show short term objectinstead of long term object. We can conclude that a majority of investorsshow a short term object nearly about 80 % means they are not investing
in the market with a broader horizon of stability of the economy or themarket. The result also describes that they are not investing in stockmarket; they are going for the debt market as they opt for the liquidity orthe balanced returns. A lower proportionate of the growth option show thatthey do not want to invest for long term means they may have a view thatthe stock market will not be able to perform well in long time. The bullride of the
economy is short in nature according to their response. Because forobtaining growth in future they need to invest for long term in stockmarket So a lower response regarding investment in favor of the growth
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(c) What is your investment strategy?
INVESTMENT STRATEGY NO. OF RESPONDENTS
Low risk, low return 15Mid risk, mid return 55
High risk, high return 30
Analysis:
Around 30% investors can take high risk. That shows that they want
high returns
Most of the investors are risk averse i.e. they want medium risk.
They want to strike a balance between risk and return
This category is of low risk appetite people who basically invests in
gilts & bonds and have lowest returns
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4) CURRENT SENTIMENTS
Under this category there are 3 questions asked to the customers:
(a) What is your view about stock market?
VIEW ABOUT STOCK MARKET NO. OF RESPONDENTS
It will decrease further 25
This is the bottom 5
Will decrease further but then recover 40
Will recover now 30
Analysis:
Majority of investors think that market will recover. They think that
it will recover back to its bullish walk
Only 5% thinks that market will stagnate here.
There is another major part of investors that thinks that market will
decrease further. This shows a negative sentiment of the investors & thusimpacts the sale of mutual funds
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Another 30% thinks that market will now recover, it will not fall
further.
(b) With current scenario, how risky do you find investing in mutual funds?
RISK IN INVESTING IN MUTUAL FUND NO. OF RESPONDENTS
Low risk 20
Medium risk 45
High risk 30
Very high risk 5
Analysis:
5% investors think that investing in mutual funds is of high risk
low
20%
medium
45%
high
30%
very high
5%
Mutual Fund Risk
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30% think that it is high risk to invest in mutual funds
45% think that investing in mutual fund is of medium risk and this truly
stands in context of mutual funds because mutual funds diversify the risk
to a large extend as compared to equity.
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(c) As the market is going down, what is your investment strategy?
CHANGED INVESTMENT STRATEGY NO. OF RESPONDENTS
Selling off existing funds 10
Wait & watch 60
Buying more as the NAV is low 30
Analysis:
10% people have negative sentiments. They want to sell of their
existing investments.
60% people say that their strategy is to wait and watch. They wantto give market more time to recover.
30% people take it as an opportunity. They think that market will
recover. This is the time to buy because they are getting a good deal at
very low prices.
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COMPARATIVE ANALYSIS OF MUTUAL FUNDS
There are around 5343 mutual fund schemes currently in market. It is difficult for an
investor to choose from them. That is where wealth management comes into play.
There are certain mutual funds that are star ranked by the wealth managers.
So these mutual funds are analyzed on the basis of the parameters as per the investorsand to observe the following:
1) Difference between the parameters of the investors & investment managers.
2) Currently star ranked funds catering to the needs of investors
3) Funds
4) Difference between the output of current star ranked funds & expectations of
investors
5) Need for changing the investment strategies.
EQUITY ELSS
Recommendation Recommendation by SCB Recommendation byMarket
Name of the fund Principal Personal Tax Saver Tata tax Advantage fund 1
Last 1 year % 30.3 20.46
Last 3 years % 31.2 28
Since Inception % 31.7 35.1
Total Equity % 121.6 93Expense Ratio % 2.5 2.22
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Inception Date 1-Jan-96 10-Apr-99
EQUITY INDEX
Recommendation Recommendation by SCB Recommendation by
Market
Name of the fund ICICI Prudential Index Fund LIC MF Index Fund -
Sensex Plan - Growth
Last 1 year % 26.2 18.1
Last 3 years % 34.9 34.01
Since Inception % 27.1 26.69
Expense Ratio % 1.25 2.05Corpus (crs.) 37 44.23
Inception date 25-Feb-2002 28-Nov-2002
Sharpe .25 .21
Beta 1 .92
Treynor .89 .77
EQUITY LARGE CAP DIVERSIFIED
Recommendation Recommended by SCB Recommended by Market
Name of the fund DSP Merill Lynch Top 100
Equity Fund
Templeton India Growth
Fund- Dividend
Last 1 year % 28.1 33.4
Last 3 years % 37.6 31.8
http://www.mutualfundsindia.com/fundfactsheet1.asp?sname=LC044http://www.mutualfundsindia.com/fundfactsheet1.asp?sname=LC044http://www.mutualfundsindia.com/fundfactsheet1.asp?sname=LC044http://www.mutualfundsindia.com/fundfactsheet1.asp?sname=LC0448/8/2019 Mutual Fund Investors-Their Expectations & Strategies in Changing Scenario
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Total Equity % 85 96.8
Expense Ratio % 2.3 2.32
Corpus (crs.) 802 320
EQUITY SECTOR CONCENTRATED
Recommendation Recommended by SCB Recommended by Market
Name of the fund Kotak Oppportunity Fund DSP Merrill Lynch IndiaTiger Fund
Last 1 year % 33.7 29.7
Last 3 years % 42.1 42.8
Since Inception % 44.9 45.1
Total Equity % 89.1 90.2
Expense Ratio % 2.29 1.91
Corpus (crs.) 700 3831
BALANCED FUNDS
Recommendation Recommended by SCB Recommended by Market
Name of the fund HDFC Balanced Fund Benchmark Split capital fund
Last 1 year % 13.18 Na
Last 3 years % 21.11 Na
Since Inception % 18.06 14.28
Expense Ratio % 2.21 0
Sharpe .20 .19
Beta .82 .87Treynor .52 .44
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FIXED INCOME GILT LONG TERM
Recommendation Recommended by SCB Recommended by Market
Name of the fund ICICI Prudential Gilt Fund
Investment Plan
HDFC Gilt Fund Long Term
Plan-growth
Last 1 year % 8.2 6.96
Last 3 years % 6.3 4.17
Since Inception % 10.8 7.88
Expense Ratio % 1.15 1.48
Sharpe .12 .05
Beta .80 .77
Treynor .07 .03
LIQUID FUNDS
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INVESTMENT PRODUCTS OFFERED BY SCB
Standard Chartered Bank offers other investment products under wealth management
& SCB is a pioneer in them. These can be other products that can be offered to
investors but many investors are not aware of them. These products include:
Unit linked insurance plan (ULIP)
A unit linked insurance policy is one in which the customer is provided with a life insurance
cover and the premium paid is invested in either debt or equity products or a combination of
the two. In other words, it enables the buyer to secure some protection for his family in the
event of his untimely death and at the same time provides him an opportunity to earn a return
on his premium paid. In the event of the insured person's untimely death, his nominees would
normally receive an amount that is the higher of the sum assured (insurance cover) or the
value of the units (investments).However, there are some schemes in which the policyholder
receives the sum assured plus the value of the investments.
Every insurance company has four to five ULIPs with varying investment options, charges and
conditions for withdrawals and surrender. Moreover, schemes have been tailored to suit
different customer profiles and in that sense offer a great deal of choice The advantage of
Recommendation Recommended by SCB Recommended by Market
Name of the fund HDFC Cash Management
Fund- Saving Plan
Principal Money Manager
Fund-Regular-growth
Last 1 year % 8.2 Na
Last 3 years % 7.0 Na
Since Inception % 6.5 7.78
Expense Ratio % 0.58 Na
Sharpe 2.24 Na
Beta .15 Na
Treynor .3 Na
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return are high. Just as in the case of mutual funds, buyers who are risk averse can buy into
debt schemes while those who have an appetite for risk can opt for balanced or equity
schemes. However, the charges paid in these schemes in terms of the entry load,
administrative fees, underwriting fees, buying and selling charges and asset management
charges are fairly high and vary from insurer to insurer in the quantum as also in the manner in
which they are charged.
Structured notes
A debt obligation that also contains an embedded derivative component with
characteristics that adjust the security's risk/return profile. The return
performance of a structured note will track that of the underlying debt obligation
and the derivative embedded within it. A structured note is a hybrid security that
attempts to change its profile by including additional modifying structures. A
simple example would be a five-year bond tied together with an option contract
for increasing the returns.
Arbitrage funds
Arbitrage is a strategy, which involves simultaneous purchase and sale ofidentical or equivalent instruments in two or more markets in order to benefit
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market volatility as the buying and selling transactions offset each other. In anarbitrage transaction, returns are calculated as the difference between the futuresprice and cash price at the time of the transaction. Ideally the positions are heldtill the expiry of the futures contract when the offsetting positions cancel eachother and initial price difference is realized. This arbitrage strategy makes thefund immune to market volatility i.e. the fund will not be affected by market
fluctuations. Since the portfolio of arbitrage funds is completely hedged at alltimes to lower the risk of loss/erosion of gains, it also in turn caps the returns thatthe fund could have clocked if the portfolio was not hedged i.e. these funds havea limited upside.
Despite the fact that arbitrage funds offer investors the opportunity to benefitfrom investments in equities by making use of derivatives, the fund cannot becompared to conventional diversified equity funds, especially on the returnsparameter. The returns from arbitrage funds would typically be much lower thanthose of equity funds. That could be one reason why despite their equity
holdings, arbitrage funds are benchmarked against indices like CRISIL LiquidFund Index for want of a more appropriate index.
Fixed income funds
An investment that provides a return in the form of fixed periodic payments and
the eventual return of principal at maturity. Unlike a variable-income fund,
where payments change based on some underlying measure such as short-terminterest rates, the payments of a fixed-income security are known in advance. An
example of a fixed-income security would be a 5% fixed-rate government bond
where a $1,000 investment would result in an annual $50 payment until maturity
when the investor would receive the $1,000 back. Generally, these types of
assets offer a lower return on investment because they guarantee income.
Portfolio management services(PMS)
Professional Investment Management Services are no longer the privilege of only large
institutional investors. Portfolio Management Services (PMS) is one such service that is fast
gaining eminence as an investment avenue of choice for High Net worth Investors l. PMS is a
sophisticated investment vehicle that offers a range of specialized investment strategies to
capitalize on opportunities in the market. The Portfolio Management Service combined with
competent fund management, dedicated research and technology, ensures a rewarding
experience for its clients.
Most portfolio managers allow you to choose between a fixed and a performance-linked
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performance-linked fee differs across players; usually, this includes a flat fee of 0.5-1.5 percent. The portfolio manager also gets to share a percentage of your profit usually 15-20 percent earned over and above a threshold level, which may range between 8 per cent and 15per cent. Apart from management fees, separate charges will be levied towards brokerage,custodial services and towards meeting tax payments.
However, a PMS may only add significant value in the following cases:
Equity bias: Portfolio management services may be ideal for a person who seeks a
substantial investment in the stock markets. An equity portfolio also offers greater scope for a
manager to add value than does a debt portfolio. Several of the established players in the PMS
business focus on equity investments, though some also offer hybrid products.
Large surplus to invest: The minimum portfolio size that portfolio managers accept for a
customized portfolio ranges from Rs 25 lakh to Rs 5 crore.
Real estate Funds
An REMF is like a mutual fund for real estate assets. In other words the assetmanagement company (AMC) invests in a range of real estate assets around the
country and creates a fund based on those assets. Investors can buy shares inthose funds which are traded on a daily basis on stock exchanges. The value ofthe shares depends on the value of the underlying real estate assets.
REMFs have many advantages over direct investment in real estate.
It allows investors to invest according to their income and financialcircumstances.
The portfolio of real estate assets will be a lot more diversified than a
single home with assets ranging from office space to residential propertiesall around the country as well as securities based on the real estate sector.
Investors don't have to deal with the legal and maintenance hassles ofowning property and can instead rely on the professional expertise of theAMCs. Finally if they need quick money, these funds are liquid assetswhich can be sold conveniently and rapidly.
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RECOMMENDATIONS
Savings Objective of Individual InvestorsSavings Objective of the majority of Individual Investors is to invest in moderate risk, thus throwing light on the nature of risk averse investors. AMC can attract a pool ofinvestors by designing products for Risk-Averse investors.But there is also a pool of investors that are ready to take high risk. Nearly 30% of theinvestors are ready to take high risk as they want high returns. These investors can beof high potential for equity based funds.
Savings instrument preference among individual investorsNow only 11% investors invest in secured investments like bond & fixed deposits.Now they prefer mutual funds over other investments. Around 23% of investors investin equity. This group shows the highest risk appetite and thus shows a huge potentialAround 25% of the investors invest in gold. This is the second most preferredinvestment tool next to mutual funds. It also shows a huge potential as now gold ETFare available. And the increase in gold price & thus increase in gold ETF is very muchevident.
Investment expenditure RatioMaximum investors show their expenditure ratio of 20-80%. But still around 25% ofinvestors have income-expenditure ratio of less than 20%. Thus it shows that still manyinvestors are not investing properly & thus they need professional investment services.
Stability of incomeAround 60% investors have a stable income source. Earlier they had a psychology ofinvesting in stable investment instruments like bonds & fixed deposits rather than
investing in equity market where returns can be much higher than present investmentsbut they use to show risk aversion because of the equity markets volatility. Based onthis it can be said that they did not believe in the economical condition of the country
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also ready to take risk. More people are ready to explore new investment avenues.They are ready to invest in various types of investment.
Investment adviceAround 70% of the investors do not take investment advice. They do investments ontheir own. This shows that investors have become more educated. They have moreknow- how of the market. But this can also be taken as a potential. Because, still thereare investors who need advice. Standard Chartered Bank should target such investors.Around 25% of the investors make investments after consultation with their peer groupor financial advisors. Still around 75% of the investors make investment decisions on
their own by making return analysis or market research.
Preferential Feature in mutual funds among individual investorsThe study shows the investors need for Good Return is highest among features,followed by Safety, Liquidity, Tax Benefit, Capital Appreciation, ProfessionalManagement and Diversification Benefits.
Reason for choosing a mutual fundThe most preferred reason for choosing the mutual fund is the past returns. Around
65% of the investors choose a mutual fund on the basis of past performance. Thus SCBshould offer more of those mutual funds that have good track record. Next mostpreferred feature is the brand name. In case of an NFO brand name plays an importantrole.
Investment strategyAround 64% of the investors have long term investment strategy. They want to investfor longer period. For such investors SCB can offer more of equity funds. As thoughthe market is volatile now but it is going to give huge returns in 3 to 4 years. As theseinvestors are ready to wait they can be of huge potential.
Preference of Mutual Fund Investing Over Equity InvestingThe emergence of an array of savings and investment options and the dramatic increasein the popularity of Mutual Funds, in the recent years in India, has opened up anentirely new area for value creation and management. A house-holder investor withfew rupees left over after paying for housing and two wheeler installments, is puzzledas to where he must park his funds safely, given the volatility of the market. Thiscategory may include people who either have a low awareness level about MF industryor still do not completely believe that MFs can get the same return like that of Equity
shares. Around 75% of the investors say that investing in mutual funds, risk rangesfrom low to medium. This shows that sentiments of investors have changed towards
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Sentiments towards marketAround 75% of investors believe that the market will recovers again. This shows apositive sign for mutual funds. So investors can be offered long term investments
which can give returns.Around 25% of investors believe that market wont recover. For such investors giltfunds and money market funds can be offered
Future strategy of investorsAround 60% of investors want to play safe. With current market volatility they want towait and watch. Around 30% of the investors are looking at this as an opportunity toinvest more in mutual funds as mutual funds are available at lower NAVs. This canprove to be a good potential customer base for SCB
REFERENCES
www.mutualfundsindia.com
http://www.mutualfundsindia.com/http://www.mutualfundsindia.com/8/8/2019 Mutual Fund Investors-Their Expectations & Strategies in Changing Scenario
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www.amfiindia.com
www.nseindia.com
www.wikipedia.com
The Economics Times
Study materials of NCFM
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CATEGORIES OF MUTUAL FUNDS
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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.
Based on their investment objective:
Equity funds: These funds invest in equities and equity relatedinstruments. 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. Hence,
investment in equity funds should be considered for a period of at
least 3-5 years. It can be further classified as :
i) Index funds- In this case a key stock market index, like BSE Sensex or
Nifty is tracked. Their portfolio mirrors the benchmark index both in terms
of composition and individual stock weightages
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ii) Equity diversified funds- 100% of the capital is invested in equities
spreading across different sectors and stocks.
iii|) Dividend yield funds- it is similar to the equity diversified funds
except that they invest in companies offering high dividend yields.
iv) Thematic funds- Invest 100% of the assets in sectors which are
related through some theme.
e.g. -An infrastructure fund invests in power, construction, cements sectors
etc.
v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A
banking sector fund will invest in banking stocks.
vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the
investors.
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:
i) Debt-oriented funds -Investment below 65% in equities.
ii) Equity-oriented funds -Invest at least 65% in equities, remaining in
debt.
Debt fund:They invest only in debt instruments, and are a good optionfor 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
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call money. Put your money into any of these debt funds depending on your
investment horizon and needs.
i) Liquid funds-These funds invest 100% in money market instruments, a
large portion being invested in call money market.
ii) Gilt funds ST- They invest 100% of their portfolio in government
securities of and T-bills.
iii) Floating rate funds - Invest in short-term debt papers. Floaters invest
in debt instruments which have variable coupon rate.
iv) 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.
v) Gilt funds LT- They invest 100% of their portfolio in long-term
government securities.
vi) Income funds LT- Typically, such funds invest a major portion of the
portfolio in long-term debt papers.
vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt
and an exposure of 10%-30% to equities.
viii) FMPs- Fixed monthly plans invest in debt papers whose maturity is in
line with that of the fund.
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