A Summer Internship Project Submitted to Utkal University in Partial Fulfilment of the Master of Finance and Control Degree
Submitted By: Sandeep Kumar Mahasuar Under the able guidance of:
Shri C Vasudevan
Prof Jayanta Parida
Senior General Manager
P.G.Dept. of Commerce
IPF - Secretariat
Utkal University
BSE Limited
Bhubaneswar
1
DECLARATION I do hereby declare that the project entitled “Why Mutual Fund is the better Investment plan” submitted in partial
fulfillment of the requirement of the degree of Master of Finance
and
Control ,
Utkal
University
in
the
course
curriculum for the third semester is an original piece of work done by me under the guidance and supervision of Mr. C Vasudevan
(Senior
General
Manager,
IPF – Secretariat,
Bombay Stock Exchange limited) and Prof Jayanta Parida (Faculty,
P.G.
Dept.
of
Commerce,
UtkalUniversity,
Bhubaneswar) . This has not been submitted for the award of any degree elsewhere in part or in full. This project report is not an exhaustive study of the topic undertaken.
Date: Place:
Signature
2
Acknowledgement I do hereby acknowledge that this Summer Internship Project is a genuine work undertaken and successfully completed by me. I would also like to acknowledge the fact that I would not have been able to complete my my project without the due permission of the SGM Shri C Vasudevan Sir for allowing me to work here as a Summer Intern, the AGM Shri Nilkanth P. Pandya Sir, for paying his due attention and imparting some valuable knowledge on the topic. It would have been impossible for me to complete the project without the constant counseling and guidance of my mentor, Dr. V. Aditya Srinivas Sir. I would also like to acknowledge my thankfulness to Mr. Shashank Chaturvedi Sir for divulging some precious time out of their hectic work schedule to guide me in my project. I would also like to express my gratitude towards my faculties, family and friends who have directly or indirectly helped me in the successful completion of my project
Date: Place:
Signature
3
Content Chapter 1: INTRODUCTION 1.1 1.2 1.3 1.4 1.5 1.6
Mutual Fund History of Mutual Fund Emerging Issues and Present Position Investment Strategies Advantages and dis-advantages Classification of Mutual Fund
Chapter 2: COMPANY PROFILE 2.1 History 2.2 Prominent Position 2.3 A Pioneer 2.4 Awards 2.5 BSE SWOT Chapter 3: THEORETICAL CONCEPT 3.1 Concept and working of Mutual Fund 3.2 Mutual Fund Risk 3.3 Measuring and evaluating mutual fund performance Chapter 4: OBJECTIVES AND SCOPE OF STUDY Chapter 5: RESEARCH METHODOLOGY 5.1 Research design 5.2 Sample design Chapter 6: DATA ANALYSIS AND INTERPRETATION Chapter 7: FINDINGS AND CONCLUSION Chapter 8: RECOMMENDATION AND SUGGESTION Bibliography 4
CHAPTER 1 INTRODUCTION
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INTRODUCTION TO MUTUAL FUNDS AND ITS VARIOUS ASPECTS 1.1 MUTUAL FUNDS
Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. This pool of money is invested in accordance with a stated objective. The joint ownership of the fund is thus ―Mutual‖, i.e. the fund belongs to all investors. 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 appreciations realized are shared by its unit holders in proportion 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. A Mutual Fund is an investment tool that allows small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The fund‘s Net Asset value (NAV) is determined each day. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders. Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns.
1.2 HISTORY OF MUTUAL FUNDS In 1774, a Dutch merchant invited subscriptions from investors to set up an investment trust by the name of Eendragt Maakt Magt (translated into English, it means, Unity Creates Strength‗), with the objective of providing diversification at low cost to small investors. Its success caught on, and more investment trust was 6
launched, with verbose and quirky names that when translated read profitable and prudent or small maters grow by consent. The foreign and colonial Govt. trust formed in London in 1868, promised start the investor of modest means the same advantages as the large capitalist by spreading the investment over a number of stocks. When three Boston securities executives pooled their money together in 1924 to create the first mutual fund, they had no idea how popular mutual funds would become. The idea of pooling money together for investing investing purposes started in Europe in the mid-1800s. The first pooled fund in the U.S. was created in 1893 for the faculty and staff of Harvard University. On March 21st, 1924 the first official mutual fund was born. It was called the Massachusetts Investors Trust. After one year, the Massachusetts Investors Trust grew from $50,000 in assets in 1924 to $392,000 in assets (with around 200 shareholders). In contrast, there are over 10,000 mutual funds in the U.S. today totaling around $7 trillion (with approximately 83 million individual investors) according to the Investment Company Institute.
THE EVOLUTION The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in the year 1963. The primary objective at that time was to attract the small investors and it was made possible through the collective efforts of the Government of India and the Reserve Bank of India. The history of mutual fund industry in India can be better understood divided into following phases:
Phase I. Establishment and Growth of Unit Trust of India (1964-87) Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate under the regulatory regulatory control of the RBI until the two were delinked in 1978 and the entire control was transferred in the hands of Industrial Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of investors in any single investment scheme over the years. UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in 1971, six more schemes between 1981-84, Children's Gift 7
Growth Fund and India Fund (India's first offshore fund) in 1986, Mastershare (India‘s first equity diversified scheme) in 1987 and Monthly Income Schemes (offering assured returns) during 1990s. By the end of 1987, UTI's assets under management grew ten times to Rs 6700 crores.
Phase II. Entry of Public Sector Funds (1987-1993): The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Can bank Mutual fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under management of the industry increased seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about 80% market share.
Mobilization 199293
Amount Mobilized
Assets
as % of
Under
Gross
Management
Domestic Savings
UTI Public Sector
Total
11,057
38,247
5.2%
1,964
8,757
0.9%
13,021
47,004
6.1%
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Phase III. Emergence of Private Sector Funds (1993-96): The permission given to private sector funds including foreign fund management companies (most of them entering through joint ventures with Indian promoters) to enter the mutual fund industry in 1993, provided a wide range of choice to investors and more competition in the industry. Private funds introduced innovative products, investment techniques and investor-servicing technology. By 1994-95, about 11 private sector funds had launched their schemes.
Phase IV. Growth and SEBI Regulation (1996-2004):
The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996. The mobilization of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Investors' interests were safeguarded by SEBI and the Government offered tax benefits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of investors from income tax. Various Investor Awareness Programmes were launched during this phase, both by SEBI and AMFI, with an objective to educate investors and make them informed about the mutual fund industry. In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective behind this this was to bring all mutual fund fund players players on the same level. UTI was re-organized into two parts: 1. The Specified Undertaking, 2. The UTI Mutual Fund Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past schemes (like US-64, Assured Return Schemes) are being gradually wound up. However, UTI Mutual Fund is still the largest player in the industry. In 1999, there was a significant significant 9
Phase V. Growth and Consolidation - 2004 Onwards: The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutual fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players
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1.3 Emerging Issues of the Mutual Fund Industry in India: By end of 2012, Indian mutual fund industry reached more than Rs. 8 trillion which is a very smart turnover. 100% growth in last 8 years Number of foreign AMC's are in the queue to enter the Indian markets Our saving rate is over 34%, highest in the world. Only channelizing these savings in mutual funds sector is required. We have approximately 45 mutual funds which are much less than US having more than 800. There is a big scope for expansion 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities. Mutual fund can penetrate rural like the Indian insurance industry with simple and limited products. SEBI allowing the MF's to launch commodity mutual funds. Emphasis on better corporate governance. Trying to curb the late trading practices.
PRESENT POSITION Mutual funds play vital role in resource mobilization and their efficient allocation in a transitional economy like India. Economic transition is usually marked by changes in the financial mechanism, institutional institutional integration i ntegration,, market regulation, re-allocation of savings and investments, and changes in the intersector relationships. These changes often imply negativity which shakes investor‗s confidence in the capital market. Mutual funds perform a crucial task as efficient alligators of resources in such a transitional transitional period. Throughout the world, mutual funds have worked as reliable instruments of change in financial intermediation, development of the capital market, and growth of the corporate sector. The active involvement of mutual funds in promoting promoting economic development can also be seen in their dominant dominant presence in the money and capital markets. Mutual funds make a significant contribution in vibrating both the markets. 11
The spread of equity cult has further increased reliance of the corporate sector on equity financing. The role of mutual funds in the financing of corporate has substantially increased after the SEBI allowed the corporate sector to reserve 20% of their public issues for Indian mutual funds. The percentage share of corporate equity and debentures in the household investors, together with UTI units, have increased from 3.7% in 1980-81 to 17.2% in 1992-93, while the share of less liquid assets like LIC, PF, and pension have shown a marginal increase from 25.1% to 27.2% during the same period. Mutual Mutual funds funds have been the the fastest growing growing institution institution during this this period period in the household savings sector. Growing market complications and investment risk in the stock market with high inflation have pushed households further towards mutual funds.
INVESTMENT STRATEGIES
Systematic Investment Plan: under this a fixed sum is invested each month on a fixed date of a month. Payment is made through post dated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA) Systematic Transfer Plan: under this an investor invest in debt oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he can withdraw a fixed amount each month.
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1.4 Advantages of Investing Mutual Funds: 1. Professional Management - The basic advantage of funds is that, they are professional professional managed, by managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. portfolio. A mutual fund is considered considered to be relatively less expensive expensive way to make and monitor their investments. 2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. 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. 3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors. 4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want. 5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.
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1.5 Disadvantages of Investing Mutual Funds :
1. Professional Management - Some funds doesn ‘t performs in neither the market, as their management their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor himself, for picking up stocks. 2. Costs - The biggest source of AMC income is generally from the entry & exit load which they charge from investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon. 3. Dilution - Because funds have small holdings across 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. 4. Taxes - when making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.
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1.6 CLASSIFICATION OF MUTUAL FUNDS
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OPEN-ENDED FUNDS
Investor Enter or Exit at Anytime. Existing Investors buy additional Units or new investors buy new units, which is referred as purchase transaction. It happens at NAV. Return of any units to the scheme and getting back their equivalent values is called a Re-purchase transaction. Repurchase price is also linked to NAV. Some unit-holders may exit from the scheme, wholly or partly, the scheme continues operation with remaining investors. The scheme does not have a definite time-frame. The on-going entry and exit of investor implies that the unit capital in an Open-Ended fund would keep changing on a regular basis.
CLOSE-ENDED FUNDS
Investor can buy units from funds only during its NFO. Units are traded, post-NFO in a stock exchange. This is done through listing of the scheme in a stock exchange, such listing is compulsory for Close-Ended funds. Since post-NFO, sale and purchase of units happen to or from a counter party in stock exchange and not to or the mutual fund, the unit capital ca pital of the scheme remains stable.
INTERVAL FUNDS
Combine features of both the Open-Ended and Close-Ended schemes. They are largely Close-Ended, but become Open-Ended at pre-specified intervals. Interval funds can be bought/sold to the mutual fund (not completely dependent on stock exchanges). Compulsorily listed on stock exchanges. Minimum duration of interval – 15 15 days. No Redemption/Repurchase Redemption/Repurchase of units is allowed except during specified transaction period. The specified transaction period will be minimum 2 days.
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AGGRESSIVELY/ACTIVELY MANAGED FUNDS
Fund manager has flexibility to choose the investment portfolio, within the broader parameters of the objective of the scheme. Increase role of the fund manager, increase in running cost of the fund. Investors expect actively managed funds to perform better than the market.
PASSIVE FUNDS
Tracks specified index. Mirrors the concerned index. Not designed designed to perform perform better than the market. market. Also called as ―INDEX SCHEMES‖. Fund managers have a little role to play, so running cost of the fund is also low.
EQUITY FUNDS
Largely invest in equity shares and equity related investments like convertible convertible debentures. Objective of the fund is growth. High risk profile.
DEBT FUNDS
Mostly invest in debt securities like bonds, debentures, T Bills, government government securities. Aims at regular income. Low risk profile.
HYBRID FUNDS
Invest in both equity as well as debt securities. Also invest in gold along with either equity or debt or both. Mostly aims at a balanced portfolio. Income as well as capital appreciation.
GILT FUNDS
Invest only on T bills and Government securities. Mostly suits T risk – adverse adverse investors as the risk profile is very low here. 17
DIVERSIFIED DEBT FUNDS
Invests both in Government and Non-Government securities.
JUNK BOND SCHEMES
High yield bond scheme. Invest in company that are having a poor credit quality. High risk – High High return.
FIXED MATURITY PLANS
Investment portfolio is closely aligned to maturity of the scheme. AMC structures the scheme around Pre-specified investment. Close-Ended schemes, do not accept money post-NFO.
FLOATING RATE FUNDS
Invests largely in floating rate debt securities. The NAVs fluctuate lesser than debt funds that invest more in debt securities offering a mixed rate of interest.
LIQUID SCHEMES
Invests only in debt securities where the money will be repaid within 61 days. Also called as MONEY MARKET SCHEMES. Lowest risk.
SECTORAL FUNDS
Invests only in specific sectors. Example: Banking sector funds invest only in banking companies. Gold sectoral companies will invest only in gold related funds.
DIVERSIFIED EQUITY FUNDS
Invest in a mix of securities that cut across sectors. Low risk, as a mix of compensate the others loss. Example : Investment in gold, equity shares, debt, e.g.
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EQUITY LINKED SAVING SCHEMES (ELSS)
Offers tax benefits. A lock in period of 3 years.
EQUITY INCOME/DIVIDEND YIELD SCHEMES
Invests in shares whose price fluctuate less and dividend represents a larger proportion of returns on those shares. NAV fluctuates fluctuates less.
ARBITRAGE FUNDS
Take contrary positions in different markets/securities, such that the risk is neutralized, but a return is earned. Most arbitrage funds take contrary positions between the equity market and the futures and options market. Expected returns are in line with liquid funds.
THEMATIC FUNDS
Invests in line with an investment theme. Example: Infrastructure thematic fund invest in shares of companies that are into infrastructure toll collection, cement, steel, telecom, power e.g. Investment is thus more broad based than the sector fund; but narrower than a diversified equity fund.
GOLD FUNDS
Invests in gold and gold related securities. Gold – ETFs: ETFs: o An index that invests in gold o NAV moves in line with with gold prices prices in market. market. Gold – Sector Sector Funds: o Invests in companies engaged in gold mining and processing. o Though gold prices influence these shares, the price of this shares are more closely linked to profitability and gold reserves of the companies. not closely mirror mirror gold prices. o NAV do not
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MONTHLY INCOME PLANS
Declare a dividend every month. Invests largely in debt securities; a small percentage is invested in equity shares to improve the scheme‘s yield.
BALANCED FUND
Type of hybrid fund. Provides exposure to both equity and debt simultaneously in one portfolio. portfolio. Objective is to provide both growth and stability.
CAPITAL PROTECTED SCHEMES
Close-Ended schemes. Structured to ensure that investors get their principal back irrespective of what happens in market. Achieves objective by investing in Zero Coupon Government securities whose maturity is aligned to scheme‘s maturity.
CAPITAL PROTECTION ORIENTED SCHEMES
Invests in good quality debt securities issued by companies, rather than government government securities. Some of these funds are also launched as asset allocation funds.
REAL ESTATE FUNDS
Exposure to Real Estate. Helps small investors to take exposure exposure to real estate as asset class. Although permitted by law, Real Estate mutual funds are yet to hit the market in India.
COMMODITY FUNDS
Exposure in commodities. Investment objective would specify the commodity which proposes to invest in. Such funds can be structured as commodity ETFs or commodity sector funds. 20
INTERNATIONAL FUNDS
Invest outside the country. One way for the fund to manage investment is to hire the requisite people, since their salaries would add to fixed costs, a large corpus is needed. The alternative route would be to tie up with a foreign fund (called as HOST FUND). Feeder Feeder fund. o Domestic fund – Host Host fund. o International fund – o By feeder fund money is collected and invested in host fund.
FUND OF FUNDS
Fund invested in various other funds. Pre-specify the mutual funds whose schemes the fund will invest. Designed to help investor to get over the trouble of choosing between multiple schemes and their varieties in the market.
EXCHANGE TRADED FUNDS
Open-Ended funds, funds, whose units are traded in a stock exchange, Mirrors – An An index/equity/debt/commodity/gold. Market makers are appointed. appointed.
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CHAPTER 2 COMPANY PROFILE
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2.1 COMPANY PROFILE
Bombay Stock Exchange Limited is the oldest stock exchange of Asia and one of the oldest in World with a rich heritage. As the first stock exchange in India, the Bombay Stock Exchange Limited is considered to have played a very important role in the development of county ‘s capital market. The BSE is the largest stock exchange of 24 exchanges in India, with over 6000 listed companies. It is also the fifth largest exchange in the world with a market capitalization of $466 billion. The Bombay Stock Exchange Limited uses BSE SENSEX, an index of 30 large, developed developed BSE stocks. This This index gives a measure measure of overall performance of BSE and is tracked worldwide. In addition to individual stocks the Bombay Stock Exchange Limited also a market for derivatives, which was first introduced in India. Listed derivatives on the exchange include stock futures and options, Index futures and options and weekly options. The Bombay Stock exchange is also actively involved debt market. with the development of retail debt
The Exchange has a nationwide reach with its presence in 417 cities and towns of India. The systems and processes of the exchange are designed to safeguard safeguard market market integrity integrity and enhance enhance transparency in the operati oper ations ons.. The Exchange provides an efficient and transparent market for trading in equity, debt and derivative instruments. The BSE provides online trading with the BSE‘s Online trading System (BOLT), which is a proprietary system of the exchange and is BS 7799-2-2002 certified. The Surveillance and Clearing Settlement function of the Exchange are ISO 9001:2000 certified.
VIS ION
―Emerge as the premier Indian stock exchange by establishing global benchmark‖
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2.2 HISTOR Y
One of the oldest stock exchanges exchanges of the world and the first in the country to be granted permanent recognition under the Securities Contract (Regulation) Act, 1956, Bombay Stock Exchange Limited has had an interesting rise to prominence over the past 133 years. years. The Bombay Stock Exchange Limited traces its history to the 1850s, when four Gujarati and one Parsi stock broker would gather under the banyan tree in front of the Town Hall, where the Horniman Circle is now situated. A decade later, the brokers moved their venue to another set of foliage, this time under banyan trees at the junction of Meadows Street and Mahatma Gandhi Road. As the number of brokers increased, they had to shift from place to place and wherever they went, through sheer habit, they overflowed to the streets. At last, in 1874, found a permanent place. The new place was, aptly, called Dalal Street. This group of brokers in 1875 formed an official organization known as ―The Native Share and Stock Brokers Brokers Association ‖. In 1956, BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contract (Regulation) Act, 1956. In 1979, BSE introduced its Index SENSEX and from that time it achieved many milestones in the capital market. In 2002, the name ―The Exchange, Mumbai‖ was changed to Bombay Bomb ay Stock Excha Exc hange nge.. Subsequently Subsequently on August 5, 2005, the exchange turned into a corporate entity from an Association of Persons (AOP), under the provision of Companies Act, 1956, pursuant To BSE (Corporatization and Demutualization) Scheme, 2005 notified by Securities and Exchange Exchange Board of India (SEBI). Then it is renamed as the ―Bombay Stock Exchange Limited‖.
2.3 PROMINENT POSITION
The journey of BSE is as eventful and interesting as the history of securities markets of India. India. Indi a‘s biggest bourse, in terms of listed companies and market capitalization, BSE has played a pioneering role in Indian securities market. Much before the actual legislations were enacted, BSE had formulated 24
comprehensive set of rules and regulations for Indian capital markets. It also laid down best practices adopted by Indian capital market after India gained its independence. Perhaps, there would not be any leading corporate in India, which has not sourced BSE‘s services in resource mobilization. 2.4 A PIONEER
BSE as brand is synonymous with the capital markets in India. The BSE SENSEX is the benchmark equity index that reflects the robustness of the economy and finance. At par with international standards, BSE has been a pioneer in several areas. It has has a several firsts to its credit,
First in India to introduce Equity Derivatives. First in India to launch a Free Float Index. First in India to launch US$ version of BSE SENSEX. First in India to launch Exchange Enable Internet Trading Platform. First in India to obtain ISO certification for Surveillance, Clearing and Settlement. First to have exclusive facility for financial training. ―BSE On-Line Trading System‖ (BOLT) has awarded with the global recognized Information Security Management System Standard BS77992-2002. Moved from Open Outcry to Electronic Trading within just 50 days.
An equal important accomplishment of BSE is the launch of a nationwide investor awareness campaign – Safe Investing in the Stock Market – under which nationwide awareness campaigns and dissemination of information through print and electronic medium was undertaken. BSE also actively promoted the securities market awareness campaign of the Securities and Exchange Board of India (SEBI).
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DS 2.5 A WA R DS
Bombay Stock Exchange Limited has many awards to its name for its excellence in several fields, these are
The World Council of Corporate Governance has awarded the Golden Peacock Global CSR Award for BSE‘s initiatives in Corporate Social Responsibility Responsibility (CSR). The Annual Reports and Accounts of BSE for the year ended March 31, 2006 and March 31, 2007 have been awarded the ICAI Awards for excellence in financial reporting. reporting. The Human Resource Management at BSE has won the Asia – Pacific HRM Award for its efforts in employer branding through talent management at work, health management at work and excellence in HR through technology.
2.6 BSE
SWOT
ST R ENG T HS :
BSE has inherent advantages: its history, larger scrip base and a stronger brand.
The SENSEX (BSE‘s 30-share sensitive index) is one of the most recognized indexes and tracked worldwide.
Apart from lager base of listed companies, BSE also has a historical perspective.
Its online trending system (BOLT) has awarded with the global recognized Information Security Management System Standard BS7799-2-2002.
It got the ISO certification for its surveillance and clearing and settlement.
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WEAKNESS
The BSE SENSEX, which delivers inferior hedging effectiveness and higher impact impact cost. At present BSE has fewer than 12% share across the cash and derivative market of equity markets.
O PPORTUN IT IES
Corporatization will improve internal management systems and investor relations, and benefit companies that are listed on BSE. Derivatives market is growing at exponential rate and BSE with its large infrastructure infrastructure and long presence in the capital market has the capability to expand its market market share in this this segment. segment. If large a private sector bank picks up a strategic stake in BSE, it could give the exchange access to a large distribution network and promote new ne w products like derivatives. derivatives. The strategic investor could also be a market maker (providing buy and sell quotes at any given time). 30 to 40 percent of the income of exchange like NASDAQ and NYSE is from vending data. For BSE, it‘s measly 4 percent. The potential for growth then, is immense. immense.
T HR EATS
Aggressive Aggressive competitor like NSE poses major threat to BS E‘s future. NSE‘s top 100 stocks alone account for nearly 80 percent of its cash segment‘s turnover, indicating that NSE is clearly the preferred destination for trading in the top stocks .
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CHAPTER 3 THEORETICAL CONCEPT
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3.1 WORKING OF MUTUAL FUND
A Mutual Fund is a collection of stocks, bonds, or other securities owned by a group of Investors and managed by a professional investment company . For an individual investor to have a diversified portfolio is difficult. But he can approach to such company and can invest into shares. Mutual funds have become very popular since they make individual individual investors investors to invest in equity and debt securities easy. When investors invest a particular amount in mutual funds, he becomes the unit holder of corresponding units. In turn, mutual funds invest unit holder‘s money in stocks, bonds or other securities that earn interest or dividend. This money is distributed to unit holders. If the fund gets money by selling some stocks at higher price the unit holders also are liable to get capital gain.
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MUTUAL FUND OPERATION FLOWCHART
30
When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder. Any change in the value of the investments made into capital market instruments instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme scheme is calculated by dividing dividing the market market value of scheme's assets by the total total number of units issued to the investors. investors.
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3.2 HOW RISKY YOUR MUTUAL FUND IS Investors always judge a fund by the return it gives, never by the risk it took. In any historical analysis of a mutual fund, the return is remembered but the risk is quickly forgotten. So a fund manager may have used very high-risk strategies (that are bound to fail disastrously in the long run), hoping that his wins will be remembered (as they often are), but the risk he took will soon be forgotten.
WHAT IS RISK? Risk can be defined as the potential for harm. But when anyone analyzing mutual funds uses this term, what is actually being talked about is volatility. Volatility is nothing is nothing but the fluctuation of the Net Asset Value (price of a unit of a fund). The higher the volatility, the greater the fluctuations of the NAV. Generally, past volatility is taken as an indicator of future risk and for the task of evaluating mutual fund; this is an adequate (even if not ideal) approximation.
Defining Mutual fund risk:
Mutual funds face risks based on the investments they hold. For example, a bond fund faces interest rate risk and income risk. Bond values are inversely related to interest rates. If interest rates go up, bond values will go down and vice versa. Bond income is also affected by the change in interest rates. Bond yields are directly related to interest rates falling as interest rates fall and rising as interest rise. Income risk is greater for a short-term bond fund than for a longterm bond fund. Similarly, a sector stock fund (which invests in a single industry, such as telecommunications) is at risk that its price will decline due to developments in its industry. A stock fund that invests across many industries is more sheltered from this risk defined as industry risk.
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Following is a glossary of some risks to consider when investing in mutual funds:
CALL RISK:The possibility that falling interest rates will cause a bond issuer to redeem or call its high-yielding high-yielding bond before the bond's maturity date.
COUNTRY RISK:The possibility that political events (a war, national elections), financial problems (rising inflation, government government default), or natural disasters (an earthquake, a poor harvest) will weaken a country's economy and cause investments in that country to decline. CREDIT RISK:The possibility that a bond issuer will fail to repay interest and principal in a timely manner. Also called default risk. CURRENCY RISK:The possibility that returns could be reduced for Americans investing in foreign securities because of a rise in the value of the U.S. dollar against foreign currencies. Also called exchange-rate risk. INCOME RISK:The possibility that a fixed-income fund's dividends will decline as a result of falling overall interest rates. INDUSTRY RISK:The possibility that a group of stocks in a single industry will decline in price due to developments in that industry. INFLATION RISK:The possibility that increases in the cost of living will reduce or eliminate a fund's real inflation-adjusted returns.
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INTEREST RATE RISK:The possibility that a bond fund will decline in value because of an increase in interest rates. MANAGER RISK:The possibility that an actively managed mutual fund's investment adviser will fail to execute the fund's investment strategy effectively resulting in the failure of stated objectives. MARKET RISK:The possibility that stock fund or bond fund prices overall will decline over short or even extended periods. Stock and bond markets tend to move in cycles, with periods when prices rise and other periods when prices fall. PRINCIPAL RISK:The possibility that an investment will go down in value, or "lose money," from the original or invested amount.
HOW RISK IS MEASURED:There are two ways in which you can determine how risky a fund is. STANDARD DEVIATION:-
Standard Deviation is a measure of how much the actual performance of a fund over a period of time deviates from the average performance. “Since Standard D eviati on i s a meas measur ur e of r i sk, a l ow Standard Standard D eviati on i s good.”
SHARPE RATIO:-
This ratio looks at both, returns and risk, and delivers a single measure that is proportional proportional to the risk adjusted returns. “Since Sharpe Ratio is a measure of r i sk-adjuste k-adj usted d retur ns, ns, a hi gh Shar Shar pe r atio i s good. good.”
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HOW TO CHECK THE FUND’S RISK
So how would you figure out how risky a mutual fund is? Value Research a mutual fund research outfit, carries out a rating every month which is also carried on rediff.com. If you would like to take a look at the latest ratings, click on the relevant month viz March, March, April, May. In this rating, each fund is given a star. The funds with a 5-star 5 -star are the best. Those with a 1-star 1 -star ( ) rating are the worst.
rating
This star rating is based on risk-adjusted return. In a very simple way, it gives investors an understanding of whether a fund is taking an acceptable amount of risk in generating the kind of returns it is doing.
3.3 Distribution channels: Mutual funds posses a very strong distribution channel so that the ultimate customers doesn‘t face any difficulty in the final procurement. The various parties involved involved in distribution distribution of mutual funds funds are: 1. Direct marketing by the AMCs: the forms could be obtained from the AMCs directly. The investors can approach to the AMCs for the forms. some of the top AMCs of India are; Reliance ,Birla Sunlife, Tata, SBI magnum, Kotak Mahindra, HDFC, Sundaram, ICICI, Mirae Assets, Canara Robeco, Lotus India, LIC, UTI etc. whereas foreign AMCs include: Standard Chartered, Franklin Templeton, Fidelity, JP Morgan, HSBC, DSP Merill Lynch, etc. 2. Broker/ sub broker arrangements: the AMCs can simultaneously go for broker/sub-broker broker/sub-broker to popularize their funds. AMCs can enjoy the advantage of large network of these brokers and sub brokers.eg: SBI being the top financial intermediary of India has the greatest network. So the AMCs dealing through SBI has access to most of the investors. 3. Individual agents, Banks, NBFC: investors can procure the funds through individual agents, independent brokers, banks and several non- banking financial corporations‘ too, whichever he finds convenient for him. 35
3.4 Costs associated: Expenses:
AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries, advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges Rs1.50 for every Rs100 in assets under management. A fund's expense ratio is typically to the size of the funds under management and not to the returns earned. Normally, the costs of running a fund grow slower than the growth in the fund size - so, the more assets in the fund, the lower should be its expense ratio Loads: Entry Load/Front-End Load (0-2.25 %) - It‘s the commission charged at the time of buying the fund to cover the cost of selling, processing etc. Exit Load/Back- End Load (0.25-2.25%) - It is the commission or charged paid when an investor exits from a mutual fund; it is imposed to discourage withdrawals. It may reduce to zero ze ro with increase in holding period.
3.5 Measuring and evaluating mutual funds performance: Every investor investing in the mutual funds is driven by the motto of either wealth creation or wealth increment or both. Therefore it‘s very necessary to continuously evaluate the fund‘s performance with the help of factsheets and newsletters, websites, newspapers and professional advisors like SBI mutual fund services. If the investors ignore the evaluation of fund‘s performance then he can lose hold of it any time. In this ever-changing industry, he can face any of the following problems: 1. Variation in the funds‘ performance due to change in its management/ objective. 2. The fund‘s performance can slip in comparison to similar funds. 3. There may be an increase in the various costs associated with the fund 4. Beta, a technical measure of the risk associated may also surge. 5. The fund‘s ratings may go down in the various lists published by independent rating agencies. 6. Can merge into another fund or could be acquired by another fund house. 36
Performance Performance measures: Equity funds : the performance of equity funds can be measured on the basis of: NAV Growth, Total Return; Total Return with Reinvestment at NAV, Annualized Returns and Distributions, Computing Total Return (Per Share Income and Expenses, Per Share Capital Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio Turnover Rate, Fund Size, Transaction Costs, Cash Flow, Leverage. Debt fund : likewise the performance of debt funds can be measured on the basis of: Peer Group Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs, besides NAV Growth, Total Return and Expense Ratio. Liquid funds: the performance of the highly volatile liquid funds can be measured on the basis of: Fund Yield, besides NAV Growth, Total Return and Expense Ratio.
Concept of benchmarking for performance evaluation: Every fund sets its benchmark according to its investment objective. The fund‘s performance is measured in comparison with the benchmark. If the fund generates a greater return than the benchmark then it is said that the fund has outperformed benchmark , if it is equal to benchmark then the correlation between them is is exactly 1. And And if in case the the return is lower lower than the benchmark then the fund is said to be underperformed.
Some of the benchmarks are : 1. Equity funds: market indices such as BSE100, BSE200, BSE-PSU, BSE 500 index, BSE bankex, and other sectoral indices. 2. Debt funds: Interest Rates on Alternative Investments as Benchmarks, IBex Total Return Index, JPM T-Bill Index Post-Tax Returns on Bank Deposits versus Debt Funds. 3. Liquid funds: Short Term Government Instruments‘ Interest Rates as Benchmarks, JPM T-Bill India.
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To measure the fund’s performance, the comparisons are usually done with: i) With a market index. ii) Funds from the same peer group. iii) Other similar products in which investors invest their funds. Financial planning for investors (ref. to mutual funds):
Investors are required to go for financial planning before making investments in any mutual fund. The objective of financial planning is to ensure that the right amount of money is available at the right time to the investor to be able to meet his financial goals. It is more than mere tax planning. Steps in financial planning are:
Asset allocation.
Selection of fund.
Studying the features of a scheme .
In case of mutual funds, financial planning is concerned only with broad asset allocation, leaving the actual allocation of securities and their management to fund managers. A fund manager has to closely follow the objectives stated in the offer document, because financial plans of users are chosen using these objectives.
3.6 Why has it become one of the largest financial instruments? instruments? If we take a look at the recent scenario in the Indian financial market then we can find the market flooded with a variety of investment options which includes mutual funds, equities, fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life insurance, gold, real estate etc. all these investment options could be judged on the basis of various parameters such asreturn, safety convenience, volatility and liquidity. Measuring these investment options on the basis of the mentioned parameters, we get this in a tabular form. 38
Return
Safety
Volatility
Liquidity
Convenienc
Equity
High
Low
High
High
e Moderate
Bonds
Moderate
High
Moderate
Moderate
High
Co.
Moderate
Moderate
Moderate
Low
Low
Debentures Co. FDs Moderate
Low
Low
Low
Moderate
Bank
Low
High
Low
High
High
Deposits PPF
Moderate
High
Low
Moderate
High
Life
Low
High
Low
Low
Moderate
Insurance Gold
Moderate
High
Moderate
Moderate
Gold
Real Estate High
Moderate
High
Low
Low
Mutual
High
Moderate
High
High
High
Funds
We can very well see that mutual funds outperform every other investment option. On three parameters it scores high whereas it‘s moderate at one. comparing it with the other options, we find that equities gives us high returns with high liquidity but its volatility too is high with low safety which doesn‘t makes it favourite among persons who have low risk- appetite. Even the convenience involved with investing in equities is just moderate.
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CHAPTER 4 OBJECTIVES AND SCOPE OF THE STUDY
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4.1 OBJECTIVES OF THE STUDY
To find out the preferences of the investors for Asset Management Company. To know the preferences for the portfolios. portfolios. To know the awareness of investors investors about BSE StAR MF. To find out the most preferred channel. To find out why investors mostly prefer to invest in mutual fund rather in equity derivative. To identify the consumer perception about mutual funds. To find out what should do to boost Mutual Fund Industry.
4.2 SCOPE OF THE STUDY
A big boom has been witnessed in Mutual Fund Industry in recent times. A large number of new players have entered the market and trying to gain market share in this rapidly improving market. The research was carried on in Mumbai. I had been sent to Bombay Stock Exchange, Mumbai where I completed my Project work. I surveyed on my Project Topic ―A study on why mutual fund is the better investment plan‖ by taking help of the investors and brokers working over there. The study will help to know the preferences of the customers, which company, portfolio, portfolio, mode of investment, investment, and option for getting return, and mainly why investors prefer to invest in mutual fund rather in equity derivatives and so on they prefer. This project report may help the company to make further planning and strategy.
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CHAPTER 5 RESEARCH METHODOLOGY
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INTRODUCTION
This report is based on primary as well secondary data, however primary data collection was given more importance since it is overhearing factor in attitude studies. One of the most important users of research methodology is that it helps in identifying the problem, collecting, analyzing the required information data and providing an alternative solution to the problem .It also helps in collecting the vital information that is required by the top management to assist them for the better decision making both day to day decision and critical ones.
Research is divided into two parts
Research design o Type of research o Research method o Collection of data Sample design
TYPE OF RESEARCH
It is a descriptive type of research, as the descriptive of the conditions exist presently. presently. It includes includes survey and fact-finding fact-finding enquiries enquiries of different different kinds. kinds.
RESEARCH METHOD
Research methods are understood as all those methods and techniques that are used for conduction of research. Research methods or techniques refer to methods the researchers use in performing research operation. In other words, all those methods which are used by the researchers during the course of studying his research problems are termed as research methods. Since the object of research, particularly the applied research, is to arrive at a solution for a given problem, the available data and the unknown aspects of the problem have to be related to each other to make a solution possible. Keeping this in view I took the following two methods: Analysis of documents Interview
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COLLECTION OF DATA
Primary data - This method was adopted because it helps to procuring data and detail information from the respondents. Here I collected data by filling questionnaires, directly talking to the respondents.
Secondary data - I have also used the secondary data which include various written documents and other related information about the mutual fund industry in India.
DURATION OF THE STUDY
The study was carried out for a period of two months, from 9 th May to 9 th July 2013.
SAMPLING PROCEDURE
The sample was selected out of some of the investors and brokers in BSE and nearby that area, irrespective of them being investors or not or availing the services or not. It was also collected through personal visits to persons, by formal and informal talks and through filling up the questionnaire prepared. The data has been analyzed by using mathematical/Statistical mathematical/Statistical tool .
SAMPLE SIZE
The sample size of my project is limited to 200 people only. Out of which only 120 people had invested in Mutual Fund. Other 80 people did not have invested in Mutual Fund. SAMPLE DESIGN
Data has been presented with the help of bar graph, pie charts, line graphs etc.
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5.3 LIMITATIONS
Some of the persons were not so responsive. Possibility of error in data collection because many of investors may have not given actual answers of my questionnaire. Sample size is limited to 200 numbers of investors & brokers, out of which 120 had invested in mutual fund. The sample size may not adequately represent the whole market. Some respondents were reluctant to divulge personal information which can affect the validity of all responses The research is confined to a certain part of Dalal Street or BSE.
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CHAPTER 6 DATA ANALYSIS AND INTERPRETATION
46
ANALYSIS AND INTERPRETATION OF DATA After a thorough study and analysis of the questionnaires of my consumer survey I have come across some important and useful findings. These findings have helped me in a great way to come to the conclusion part of my project work.
The following are the findings of my consumer survey at Bombay Stock Exchange: AGE BRACKET Age Group
<= 30
31-35
36-40
41-45
46-50
>50
No. of
12
18
30
24
20
16
Investors
Number of investors 35 30 25 20 Number of investors
15 10 5 0 <=30
3 1 -3 5
3 6 -4 0
4 1 -4 5
46 -50
>50
Interpretation:
According to this chart out of 120 Mutual Fund investors the most are in the age group of 36-40 yrs. i.e. 25%, the second most investors are in the age group of 41-45yrs i.e. 20% and the least investors are in the age group of below 30 yrs.
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EDUCATIONAL QUALIFICATION OF INVESTORS
Educational qualification Graduate/PG Under Graduate others Total
Number of investors
88 25 7 120
Number of investors
Graduate/PG Under Graduate Others
INTERPRETATION
Out of 120 Mutual Fund investors 71% of the investors are Graduate/Post Graduate, 23% are Under Graduate and 6% are others (under HSC).
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OCCUPATION OF INVESTORS Businessman 27
Serviceman 53
Professional 28
Number of investors
Businessman Serviceman Professional Others
MONTHLY FAMILY INCOME OF INVESTORS Income Group
Number of Investors
Upto Rs. 10000 Rs. 10001 to 20000 Rs. 20001 to 30000 Rs. 30001 to 50000 Rs. 50001 and above
5 12 28 43 32
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Others 12
Number of Investors 50 45 40 35 30 25 Number of Investors
20 15 10 5 0 upto rs. Rs. 10001 Rs. 20001 Rs. 30001 RS. 50001 10000 to 20000 to 30000 to 50000 and above
INTERPRETATION In the income group, out of 120 investors, 36% investors that is the maximum investors are in the monthly income group Rs. 30001 to 50000, Second one i.e. 27% investors are in the monthly income group of more than Rs. 50,000 and the minimum investors i.e. 4% are in the monthly income group of below Rs. 10,000. % of savings – savings – Average savings of all investors is 35% to 40%
Investor invested in different kinds of Investments Kind of Investments Saving Account Fixed Deposits Insurance Mutual Fund Post Office - NSC Shares/Debentures Gold/Silver Real Estate Others
Number of Investors 195 148 152 120 45 130 30 52 18
50
Number of Investors 200 180 160 140 120 100 80 60 40 20 0
Number of Investors
INTERPRETATION
From the above graph it can be inferred that out of 200 people, 97.5% people have invested in Saving A/c, 76% in Insurance, 74% in Fixed Deposits, 60% in Mutual Fund, 22.5% in Post Office, 65% in Shares or Debentures, 15% in Gold/Silver Gold/Silver and 26% in Real Estate, and 9% in others financial securities.
PREFERENCE OF FACTORS WHILE INVESTING
Number of Respondents Respondents 80 70 60 50 40 Number of Respondents
30 20 10 0 Liquidity Low Ri Risk
High return
Safety of Tax Capital Benefits
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INTERPRETATION
Out of 200 people, 38% People prefer to invest where there is High Return, 22% prefer to invest where there is Tax Benefits, 15% prefer Low risk and Safety of capital and 10% investor prefer easy Liquidity.
Awareness about Mutual Fund & its operations Response No of respondents respondents
YES 182
NO 18
Number of respondents respondents
Yes No
INTERPRETATION From the above chart it is inferred that 91% People are aware of Mutual Fund and its operations and only 9% are not aware of Mutual Fund and its operations.
Source of knowing Mutual Fund Source of information Advertisement Friends & Relatives Banks Financial advisors
No of respondent 24 34 40 84
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Number Of Respondents 90 80 70 60 50 40 30 20 10 0
Number Of Respondents
INTERPRETATION From the above chart it can be inferred that the Financial Advisor is the most important source of information about Mutual Fund. Out of 182 Respondents, 46% know about Mutual fund Through Financial Advisor, 22% through Bank, 19% through Peer Group and 13% through Advertisement.
Investors invested in Mutual Fund Response Yes No Total
No of Respondent 120 80 200
Number of Respondents Respondents
Yes NO
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Reason for not invested in Mutual Fund
Reason Not aware High risk Not any specific reason
No of Respondents 18 28 34
Channel Preferred by the Investors for Mutual Fund Investment Channel No of Respondents
Financial Advisor 58
Banks 20
AMCs 42
Number of Respondents Respondents 70 60 50 40 30
Number of Respondents
20 10 0 Financial Advisor
Banks
AMCs
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Awareness of BSE StAR MF
Number of Respondents Respondents 110 105 100 Number of Respondents
95 90 85 Yes
No
If yes, then are you aware of the benefits of BSE StAR MF
Number of Respondents Respondents 70 60 50 40 Number of Respondents
30 20 10 0 Yes
NO
55
Mode of Investment Preferred by the Investors Mode of Investment
One Time Investment
No of Respondents
68
Systematic Plan (SIP) 52
Number of Respondents Respondents 80 70 60 50 40 Number of Respondents
30 20 10 0 One Time Time Inves Investme tment nt
System Systematic atic Invest Investmen mentt Plan (SIP)
Preferred Portfolios by the Investors Portfolio Only Equity Only Debt Balanced
Number of Investors 56 20 44
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Investment Investment
Number of Investors
Only Equity Only Debt Balanced
INTERPRETATION
From the above graph, Out of the 120 Investors, 46% preferred Only Equity Portfolio, 37% preferred Balanced Portfolio of Equity and Debt, and 17% preferred Only Only Debt portfolio. portfolio.
Option for getting Return Preferred by the Investors Option
Dividend Payout
No of Respondents
25
Dividend investment 10
Re- Growth in NAV 85
Number of Respondents Respondents 90 80 70 60 50 40
Number of Respondents
30 20 10 0 Divid Dividen end d Payou Payoutt Divid Dividen end d Reinvestment
Growth in NAV
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Comparison of NAV of different Schemes of Mutual Fund Balanced Fund
NAVs 90 80 70 60 50 40
NAVs
30 20 10 0 HDFC
Reliance
UTI
ICICI
Baroda Pioneer
Equity Fund
NAVs 300 250 200 150 NAVs 100 50 0 HDFC
Reliance
Axis
ICICI
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Baroda Pioneer
Gilt Fund
NAVs 30 25 20 15 NAVs 10 5 0 HDFC
Edelweiss
Sahara
IDBI
Baroda Pioneer
Gold ETF
NAVs 2800 2750 2700 2650 NAVs
2600 2550 2500 2450 Axis
Kotak
Reliance
ICICI
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Birla Sun Life
Gold Fund
NAVs 14 12 10 8 NAVs
6 4 2 0 SB I
Kotak
Axis
HDFC
IDBI
Income Fund
NAVS 40 35 30 25 20
NAVS
15 10 5 0 Sahara
HDFC
Axis
ING
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JM
Chapter 7 FINDINGS AND CONCLUSION
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FINDINGS In my survey, out of 200 respondents those 120 mutual fund investors were more in numbers in the age bracket of (36-40 yrs), the second most Investors were in the age bracket of (41-45 yrs) and the least were in the age group of below 30 years. Out of total 200 respondents, 39% belong to the upper-lower and lowerupper social class. 43% belong to upper- middle social class and there were only 8.33% of the respondents who belong to upper social class. In my survey most of the Investors were Graduate or Post Graduate i.e. 71% , 23% are under graduate, and below HSC there were very few in numbers i.e. 6% Most of the surveyed respondents are service men. 44% of the total respondents belong to service class. 23.33% of the respondents are professionals, professionals, 22.5% of the respondents respondents belong to business business class and 10% of the respondents belong to the other category. This other category includes — unemployed, unemployed, housewives, students. In family monthly income group, most of the mutual fund investors are in the group of Rs.30000 to 50000 i.e. 36%, Second one i.e. 27% investors are in the monthly income group of more than Rs. 50,000 and the minimum investors i.e. 4% are in the monthly income group of below Rs. 10,000. Average savings of the people varies between 35& to 40%. This no doubt a good figure to take into account. out of 200 respondents, 97.5% people have invested in Saving A/c, 76% in Insurance, 74% in Fixed Deposits, 60% in Mutual Fund, 22.5% in Post Office, 65% in Shares or Debentures, 15% in Gold/Silver and 26% in Real Estate, and 9% in others financial securities.
Most of the respondents consider bank deposit as investment vehicle. They don‗t have clear cut idea about the difference between the savings and investment. 38% of Investor prefer to invest where there is High Return, 22% prefer to invest where there is Tax Benefits, 15% prefer Low risk and Safety of capital and 10% investor prefer easy Liquidity.
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As question comes to awareness, literacy of mutual fund percentage is 91% which is very good but this data will vary as the sample collected from the persons, investors and brokers in BSE. In 46% cases people came to know about Mutual fund Through Financial Advisor, 22% through Bank, 19% through Peer Group and 13% through Advertisement. So, Financial Advisor is the most important source of information about Mutual Fund. Out of 200 respondents, 60% are invested in mutual funds, those who are not invested the main reason is that they don‘t have any specific reason & high risk and 9% are not even aware of mutual fund.
36% of th e respondents want to invest in mutual funds. But they don‗t have enough knowledge where and when to invest in mutual funds. This means customer education is urgently required here. As when they are asked for BSE StAR MF & its benefits, 53.5% people are aware about that platform of trading mutual fund units, among that 53.5% people, 40% are aware of all its activities and benefits and rest 60% are only heard about it. 60% Investors preferred to Invest through Financial Advisors, 25% through AMC (means Direct Investment) and 15% through Bank. 56.67% preferred One Time Investment and 43.33% preferred SIP out of both type type of mode mode of investment. investment. Out of the 120 Investors, 46% preferred Only Equity Portfolio, 37% preferred Balanced Balanced Portfolio Portfolio of Equity and Debt, Debt, and 17% preferred Only Only Debt portfolio. Maximum Number of Investors Preferred Growth in NAV Option for returns i.e. 70.83%, the second most preferred Dividend Payout and then Dividend Reinvestment. st HDFC ranked 1 both in gilt fund and Equity fund in NAV, and in Gold ETF Birla sun life has the highest NAV, in Balanced fund UTI & in Gold fund kotak has the highest NAV.
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CONCLUSION We can infer from the analysis that the concept of mutual fund in Indian financial market is still in its growing phase. With the growing importance of mutual fund in other areas in the country, this place (indicating the people at BSE or nearby) is witnessing the same rate of growth in mutual funds. Apart from these facts the following are some other important facts which can easily be inferred from from the paper: paper:
Huge opportunities of Mutual funds exist in Indian market. In short the market in this city is a growing market. As because many companies exist in this market, competition is cut to throat. Mindsets of the investors are not towards mutual funds. They still think of investing in traditional investment alternatives. Customers are not properly educated about about the mutual mutual funds. Specialized agents of mutual funds are rarely seen. Financial advisors are not seen there who can educate the investors. Posters, banners or other promotional activities are rarely seen in this market. Mutual fund companies do not have aggressive strategies. Distribution channels are also important for the investment in mutual fund; Financial Advisors are the most preferred channel for the investment in mutual fund. They can change investors‘ mind from one investment option to others. Many of investors directly invest their money through AMC because they do not have to pay entry load. Only those people invest directly who know well about mutual fund and its operations and those have time Insurance products are and can be the main competitors of mutual funds Mutual fund investors are confined to the upper-middle and upper social class in this market. Upper-lower class and lower-upper class people are still untouched.
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More than half of the respondents have wrong perception about the mutual funds. They feel mutual funds are very risky investment alternative. Most of the respondents are satisfied with their current return from their investment. Most of the respondents do not want to take risk in investing their money in mutual funds. Now-a-days Now-a-days Gold ETF has a great demand as compared to other funds like Equity fund, Balanced fund, Income fund, e.t.c. AMC like Birla Sun Life & ICICI has a very good NAV in Gold ETF, and Kotak and many other AMCs are also performing very well like Reliance & Axis. These all conclusion is made out of only the Asset Under Management (AUM) & NAV.
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CHAPTER 8 RECOMMENDATIONS AND SUGGESTIONS
66
After a thorough study and analysis of the data and information, the following are the few recommendations and suggestions, if adopted, would definitely benefit the financial market, which is in its booming stage, in the short run and in the long run as well. Recommendations and suggestions are normally given when there are some problems or difficulties lying in the market. Here in this research report my recommendations and suggestions are totally based on the facts, reactions, attitudes, perceptions, and many other things of the respondents respondents which I have received from them during my research work. The recommendation part of this research work has three parts only, which I feel can push the mutual mutual fund fund market into into a higher level. The three parts are 1. Market Development. Development. 2. Marketing techniques. 3. Marketing plans.
Market development:
My Investors survey has revealed the fact that the market for mutual fund is still in its expansion stage. Hence the companies have to do a lot of things and activities to develop the market for mutual fund in this capital city. Market development means doing anything and everything for the growth of the mutual fund industry. Hence in the following ways the market of mutual fund can be developed more significantly:
Awareness Awareness of mutual fund products must be increased in this city. The awareness can be enhanced in the following ways:
Conference or seminars on mutual funds can be conducted on regular basis. This will no doubt increase the awareness of mutual fund in the minds of the investors. All the AMCs must join hands and work together for this. 67
Customer education As the awareness of mutual funds is still improving in this market, companies should give focus on customer education. For this purpose again the conference and seminars can be the best way towards educating the customers. Again free training programme to the agents can be fruitful.
Government intermediation Government must also work together with the mutual fund companies & take necessary steps in promoting the concept of mutual fund i.e. tax benefits, less less volatility, volatility, low risk, e.t.c
Confidence building activities People in this city are not confident in investing their money in mutual funds. Hence there is a need to do something which will build the confidence in the minds of the investors. Hence the confidence building activities must be carried out the mutual fund companies. Because most of the people think that investing in mutual funds is a very risky affair. In the following ways the confidence can be increased in the minds of the people:
As the common person has blind faith in all the government institutions, hence they have to come forward and convey the message that investing in mutual fund is not that risky. The present performance of the mutual funds is very good indeed. And the companies should cash in on this opportunity. The performance performance of the mutual funds can be published in the local and other newspapers and magazines, journals. This will no doubt induce the investors towards investing in mutual funds. Case study of the investors who have been benefited in investing in mutual funds can be published in the newspapers, magazines and journals.
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Marketing techniques
While the Mutual in India has seen dramatic improvements in quantity as well as quality of product and service offerings over the past decade. One of the primary reasons for this slow growth is the fact that mutual funds are a new concept in India, which needs to be still understood by large sections of Indian investors. In this scenario, the mutual fund companies have the onerous responsibility of not just selling mutual fund products, but marketing them properly. properly. Marketing plans
Booklets on mutual funds can be distributed at free of cost to the common people with the newspapers, magazines, journals. This will help in attitude formation of the investors. Companies must focus on tailored made mutual fund schemes rather than on the traditional products/ schemes. Unlike the case of insurance where there is a restriction on certain age of the investors to invest on insurance, there is no such restriction on investing in mutual fund. An investor of any age bracket can invest in any scheme of mutual fund. Hence the strong and efficient CRM can prove to be very fruitful. Selling of mutual funds only through agents and the branch will not serve the purpose. Distribution Distribution network should be increased. Here aggressive strategy must be taken by a company in selling mutual funds. This will only be possible when the investors are well familiar with the concept of mutual funds and its advantages and benefits. The following are some of the incentives:
Mutual fund companies must tie up with other financial institute like banks, post office for reaching to the mass people. Because these financial institutes have tremendous reach to the mass people in our country. As a result mutual fund companies can have easy access to the common people. The companies must go in for this kind of strategic alliance with other companies as well. Because strategic alliance not only benefit the companies companies but help in developing developing the market market also. 69
For opening of new savings bank account, the account holder should be given advice and knowledge of mutual fund and its schemes and how investment distinguish from saving. On buying of one or some life insurance policies, again certain units of mutual fund can be given at free of cost to the policy holders. These will ultimate lead to the mutual fund buying habit of the common people.
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BIBLIOGRAPHY BOOKS: Dr.
Prasanna Chandra : Portfolio Management C.R. Kothari : Research Methodology NEWSPAPERS:
Times of India The Economic Times
REFERENCES AMFI study material
Outlook Money - the layman‘s guide to mutual funds Brand reporter- Mutual Fund
WEBSITES www.bseindia.com
www.amfi.com www.mutualfundindia.com www.moneycontrol.com www.bloomberg.com
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