Chapter-1 Introduction
1
1.1 PURPOSE OF THE STUDY 1.To choose best company for mutual investment between Reliance and HDFC. 2.To know the risk and return associated with the mutual fund.
1.2 SCOPE OF THE STUDY 1.To make people aware about concept of mutual fund. 2. To advice where to invest or not to invest. 3. To provide information regarding types of mutual fund & which is beneficial for whom.
1.3 RESEARCH RESEARCH OBJECTIVE OF THE STUDY 1. To make a comparative analysis of equity based mutual fund in India. 2. To analyse the performance of private sector Mutual Funds: Reliance Equity fund along with HDFC Equity fund. 3. To analyse which provide better b etter returns. 4. To analyse concept and parameters of mutual funds. 5. To know how many people are satisfied satisfied by their investment(in investment(in reliance or hdfc). 6. To know People behaviour regarding risk factor involved in mutual fund.
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1.4 RESEARCH METHODOLOGY OF THE STUDY
TYPE OF RESEARCH
Explortory Reserch
Descriptive Reserch
1.4.1 RESEARCH DESIGN
Sample Size – 100
Sampling unit – The target population for the research research consists of the people who are in the age group of 25 to 40. This group of population was targeted because these populations are the potential customers of Mutul Funds.
Area Covering – Delhi and NCR.
Sampli Sampling ng Method Method – Non Probabl Probablity ity Sampli Sampling ng Method Method(Ju (Judge dgemen mental tal and convenience sampling)
1.4.2 SOURCES OF DATA COLLECTION Both primary and secondary data have been collected to meet our objectives. The research research would be conducted from the source of primary primary data collection. collection. Secondary Secondary data would help us in knowing the trends prevailing in the Mutul Fund market and would help us in analyzing and interpretation of the primary data.
Primary Data – Questionnaire.
Secondary Data – Internet , Newspaper , books and Business Magazines.
3
Instrument for data collection 1.4.3 Instrument
Questionnaire.
Survey.
1.4.4 LIMITATIONS
Howsoever impeccable a thing may seem to be there always dwell some possibilities of failure and incompleteness. The result of this work also subjects to some of limitations, which are as follows:
The study is confined only to a small segment of the entire population due to monetary and time constraints and hence the results are applicable only to Delhi and NCR.
Some respondents were not interested in giving answer and they appeared to be busy.
Lack of experience.
Company Officials did not revel any information , which my have affected my stud study y , as the the info inform rmat atio ion n that was requi require red d was intern internal to the company.
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Chapter-2 Review Of Literature
5
Jensen (1967) derived a risk-adjusted measure of portfolio performance (Jensen’s alpha) alpha) that that estima estimates tes how much much a manage manager’s r’s foreca forecasti sting ng abilit ability y contrib contribute utess to fund’s returns. Sharpe, William (1994) suggested the ‘Sharp- Ratio technique for the measurement for the performance measurement of the MF. Berkowitz et.al, (1997), supports the argument & states that, past fund performance influences individual investment decisions along with implying strong incentives for managers increase the performance of Mutual funds.
Mishra, Rehman (2000) measured MF performance using lower partial moment Risk from the lower partial moment is measured by taking into account only those states in which return is below a pre-specified “target rate” like risk-free rate. Brealey and Mayers (2002) supported Quality of Earnings as a key performance measure. Earnings can be manipulated by adopting different accounting policies. Further supported by Grahm et al. (2002), analyst rely on the primarily data, reported cash flows and the use of the accounting conservations in evaluating companies. Ramasamy et al, (2003), agreed that three elements consistent past performance, size of funds & cost of transaction effects the performance.
Roy & Deb (2003) used conditional performance evaluation on a sample of 89 Indian MF schemes measuring with both unconditional and conditional form of CAPM model. The results suggest that the use of conditioning lagged information variables improves the performance of mutual fund schemes, causing alphas to shift towards right and reducing the number of negative timing coefficients. Rao, Ravind Ravindran ran (2003) (2003) evaluat evaluated ed perfor performan mance ce in a bear bear market market through through Relati Relative ve Performance Management index & risk – return analysis.
Panwar et.al (2005) uses Residual Variance (RV) as the measure of MF portfolio divers diversifi ificat cation ion.. RV has a direct direct impact impact on shape shape fund fund perfor performan mance ce measur measure. e. Kacperczyk et.al (2005) demonstrated that unabsorbed information create values for some funds. Return gap helps to predict future fund performance & investors 6
should use additional measures to evaluate the performance.
Agrawal (2006) analyze the Indian Mutual Fund Industry pricing mechanism with empiri empirical cal studie studiess on its valuation valuation.. The study study revele reveled d that that the perfor performan mance ce is affected saving and investment habits of the people.
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Chapter-3 Company Profile
8
Reliance Mutual Fund
The Reliance Mutual Fund is one of the most popular and leading mutual fund in India. The Fund is owned by Anil Dhirubhai Ambani Group and with respect to net worth it ranks among the top three of all the private financial service providers in India. It is an ISO 9001:2000 certified company, which offers innovative mutual fund products to a wide pool of customers. The Reliance mutual fund products are available in hundred and fifteen cities across India. It is one of the fastest growing mutual fund in India and the main reason of its popularity is that it has a wide portf portfoli olio o of produ products cts that that meets meets the requi requirem rement entss of each each and every every type type of investors. The Reliance Mutual Fund is headed by Mr. Vikrant Gugnani - the CEO of the company. Details of Reliance Reliance Mutual Mutual Fund: •
The schemes of Reliance Mutual Fund are being managed by Reliance Capital Asset Management Ltd, which is a subsidiary of Reliance.
•
Reliance Capital Ltd holds 93.37% of the paid-up capital of the Reliance Capital Asset Management Ltd.
•
The value of the cumulative assets that are being managed (also called Assets Under Management (AUM)) amounted to Rs. 80,779 crores, as on Dec 31st 2007.
•
The investor base of Reliance Mutual Fund is over 43.67 lakh.
Equity/Growth Schemes:
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The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time. Reliance Equity Fund – Growth (3-Star Fund ICRA Online MF Rank3 Year-March 2009) FUND FACTS Objectives of the Fund
The primary investment objective of the scheme is to seek to generate capital appreciatio appreciation n & provide provide
long-term long-term
growth growth
opportuniti opportunities es
by
investing investing
in
a
portfolio constituted of equity & equity related securities of top 100 companies by market capitalization & of companies which are available in the derivatives segment from time to time and the secondary objective is to generate consistent returns by investing in debt and money market securities.
Fund features Type of Scheme
Open Ended
Fund Manager
Nature
Equity
SIP
Option
Growth
STP
Inception Date
Mar 28, 2006
SWP
Face Value (Rs/Unit) Fund Size in Rs. Cr.
10
Expense ratio(%)
Last Dividend Declared
2232.02 as on Jun 30, 2009
Sunil Singhania.
1.87
Portfolio Turnover 114 Ratio (%)
-NA-
10
Minimum Investment (Rs) Purchase Redemptions NAV Calculation Entry Load
Exit Load
380053 Daily Daily Amount Bet. 0 to 19999999 then Entry load is 2.25%. and Amount Bet. 20000000 to 49999999 then Entry load is 1.25%. and Amount greater than 50000000 then Entry load is 0%. If redeemed bet. 0 Year to 1 Year; and Amount Bet. 0 to 49999999 then Exit load is 1%. and Amount greater than 50000000 then Exit load is 0%.
Net Asset Value (NAV) Latest NAV Benchmark Index - S&P Nifty 52 - Week High 52 - Week Low
12.76 as on Jul 15, 2009 4,233.50 as on Jul 15, 2009 13.54 as on Jun 10, 2009 8.21 as on Mar 9, 2009
PORTFOLIO Attribute P/E P/B Dividend Yield Market Cap (Rs. in crores) Large Mid Small Top 5 Holding (%) No. of Stocks Expense Ratio (%)
21.90 as on Jun – 2009 3.74 as on Jun – 2009 1.16 as on Ju Jun – 2009 71,812.69 as on Jun – 2009 55.20 as on Jun – 2009 18.27 as on Jun – 2009 NA 27.60 as on May – 2009 21 1.87
Fig: STYLE BOX
Sector Allocation (%) Auto & Auto ancillaries Banks
3.89 10.75
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Computers - Software & Education Current Assets Diversified Entertainment Housing & Construction Metals Miscellaneous Oil & Gas, Petroleum & Refinery Pharmaceuticals Power Generation, Transmission & Equip Steel Telecom Textiles
10.11 24.33 1.20 3.72 4.70 1.45 2.20 9.88 8.81 4.85 2.96 9.52 1.63
Fig.: Sector wise allocation of Reliance Equity Growth Fund
Figure 5: Asset Allocation (%)
Asset Alocation
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24.33
Equity Debt Cash & Eq.
75.67
Asset Allocation (%) Equity 75.67
Debt 0.00
Cash & E quivalent quivalent 24.33
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HDFC Mutual Fund HDFC Mutual Fund is governed by HDFC Asset Management Company Limited (AMC). The HDFC mutual fund was approved by SEBI in June 2000. Equity Funds, Balanced Funds, and Debt Funds are the mutual fund schemes offered by HDFC Mutual Fund. An Overview of HDFC Mutual Fund-
HDFC Mutual Fund has witnessed significant growth in the past few years. It is regulated by HDFC Asset Management Company Limited (AMC) which works as an Asse Assett Mana Managem gement ent Comp Compan any y (AMC (AMC)) for for HDFC HDFC Mutu Mutual al Fund Fund.. HDFC HDFC Asse Assett Management Company Limited (AMC) is a Joint Venture concern between the largescale housing finance company HDFC and British investment firm Standard Life Investments Limited.
The HDFC Asset Management Company Limited conducts the activities carried out by the HDFC Mutual Fund and manages the assets of various mutual fund schemes. The August 2006 report states that the fund has assets of Rs. 25,892 crores under Asset Management Company (AMC).
HDFC Asset Management Company Limited (AMC) entered into an agreement with Zurich Insurance Company (ZIC) with the aim to develop the asset management business in India in the year 2003. Following to this, all the mutual fund schemes of Zurich Mutual Fund in India got transferred to HDFC Mutual Fund and gained the name of HDFC schemes. Details of HDFC Mutual Fund-
HDFC Asset Management Company Ltd (AMC) was set up on December 10, 1999 unde underr the the Comp Compan anie iess Act, Act, 1956 1956.. It got got the the appr approv oval al to func functi tion on as an Asse Assett Management Company for the HDFC Mutual Fund by SEBI on June 30, 2000. AMC was appointed in order manage the HDFC Mutual Fund. The registered office of HDFC Asset Management Company Limited (AMC) is located at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400 020. 14
Schemes of HDFC Mutual Fund•
HDFC Equity Fund
•
HDFC Prudence Fund
•
HDFC Capital Builder Fund
•
HDFC Tax Saver
•
HDFC Top 200 Fund
•
HDFC High Interest Fund
•
HDFC Cash Management Fund
•
HDFC Sovereign Gilt Fund
Equity Funds, Balanced Funds, and Debt Funds are the broad categories of mutual fund schemes offered by HDFC Mutual Fund.
HDFC EQUITY FUND – GROWTH (3-STAR FUND ICRA Online MF Rank3 Year-March 2009) FUND FACTS OBJECTIVE
Aims at providing capital appreciation through investments predominantly in equity oriented securities FUND FEATURES
Type of Scheme Nature Option Inception Date Face Value (Rs/Unit) Fund Size in Rs. Cr. Last Dividend
Open Ended Equity Growth Jan 1, 1995 10 3870.79 as on Jun 30, 2009
Fund Manager SIP STP SWP Expense ratio (%) Portfolio Turnover Ratio(%)
Anand Laddha
1.86 80.18
NA
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Declared Minimum Investment (Rs) Purchase Redemptions NAV Calculation Entry Load Exit Load
380053 Daily Daily Amount Bet. 0 to 49999999 then Entry load is 2.25%. and Amount greater than 50000000 then Entry load is 0%. If redeemed bet. 0 Month to 12 Mo nth; and Amount Bet. 0 to 49999999 then Exit load is 1%. and Amount greater than 50000000 then Exit load is 0%.
NET ASSET VALUE (NAV) Latest NAV
176.82 as on Jul 17, 2009
Benchmark Index - CNX500
3,542.20 as on Jul 17, 2009
52 - Week High
178.02 as on Jun 10, 2009
52 - Week Low
91.23 as on Mar 9, 2009
Portfolio Attributes
P/E P/B Dividend Yield Market Cap (Rs. in crores) Large Mid Small Top 5 Holding (%) No. of Stocks Expense Ratio (%)
21.00 as on Jun - 2009 3.90 as on Jun - 2009 1.57 as on Ju Jun - 2009 38,760.36 as on Jun - 2009 53.56 as on Jun - 2009 40.49 as on Jun - 2009 2.98 as on Jun - 2009 21.96 as on May - 2009 50 1.86
Fig: Style Box
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Auto & Auto ancillaries Banks Chemicals Computers - Software & Education Consumer Durables Current Assets Electricals & Electrical Equipments Engineering & Industrial Machinery Entertainment Fertilizers, Pesticides & Agrochemicals Finance Food & Dairy Products Housing & Construction Oil & Gas, Petroleum & Refinery Personal Care Pharmaceuticals Power Generation, Transmission & Equip Printing & Stationary Steel Telecom Textiles Transport & Travel
2.87 18.89 0.41 9.33 4.50 2.97 7.18 1.18 6.17 0.85 6.39 5.74 6.10 4.79 1.32 13.23 1.68 1.05 0.47 3.11 0.77 1.02
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Sector allocation ( %) Fig. : Sector wise allocatio n of HDFC Equity Growth Fund
Asset Allocation (%) Equity 97.03
Cash & Equivalent
Debt 0.00
2.97
Figure 7: Asset Allocation %
Asset Alocation 2.97
Equity Debt Cash & Eq.
97.03
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CHAPTER -4 About Topic
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INTRODUCTION
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments instruments such as shares, shares, debentures and other securities securities.. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a Mutual Fund.
A Mutual Fund is a body corporate registered with the Securities and Exchange Board of India (SEBI) that pools up the money from individual/corporate investors and invests the same on behalf of the investors/unit holders, in Equity shares, Government securities,
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Bonds, Call Money Markets etc, and distributes the profits. In the other words, a Mutual Fund allows investors to indirectly take a position in a basket of assets. Mutual Fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread among a wide cross-section of industries and sectors thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at same time. Investors of mutual funds are known as unit holders. The investors in proportion to their investments share the profits or losses. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A Mutual Fund is required to be registered with Securities Securities Exchange Board of India (SEBI) which regulates securities securities markets before it can collect funds from the public.
ORGANISATION OF A MUTUAL FUND:- There are many entities involved and the
diagram below illustrates the organizational set up of a Mutual Fund:
Mutual Funds diversify their risk by holding a portfolio of instead of only one asset. This is because by holding all your money in just one asset, the entire fortunes of your
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portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk is substa substanti ntiall ally y reduce reduced. d. Mutual Mutual Fund Fund invest investmen ments ts are not totall totally y risk risk free. free. In fact, fact, investing in Mutual Funds contains the same risk as investing in the markets, the only difference being that due to professional management of funds the controllable risks are substantially reduced. A very important risk involved in Mutual Fund investments is the mark market et risk risk.. Howev However er,, the the comp compan any y spec specif ific ic risk riskss are are larg largel ely y elim elimin inat ated ed due due to professional fund management.
CHARACTERISTICS OF A MUTUAL FUND:
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 Mutu Mutual al Fund Fund is mana manage ged d by inve invest stme ment nt prof profes essi siona onall and and othe otherr Serv Servic icee providers, who earns a fee for their services, from the funds.
The pool of Funds is invested in a portfolio of marketable investments.
The value of the portfolio is updated every day.
The investor’s share in the fund is denominated by “units”. The value of the units changes with change in the portfolio value, every day. The value of one unit of investment is called net asset value (NAV).
The investment portfolio of the mutual fund is created according to the stated Investment objectives of the Fund.
OBJECTIVES OF A MUTUAL FUND:-
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To Provide an opportunity for lower income groups to acquire without much difficulty, property in the form of shares.
To Cater mainly of the need of individual investors, whose means are small?
To Manage investors portfolio that provides regular income, growth, Safety, liquidity, tax advantage, professional management and diversification.
STRUCTURE OF A MUTUAL FUND:-
THE STRUCTURE STR UCTURE CONSIS C ONSISTS TS OF:SPONSOR : Sponsor is the person who acting alone or in combination with another
body corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the Investment managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Fund) Regulations, 1996. The sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund.
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constituted as a trust in accordance with the provisions of TRUST: The Mutual Fund is constituted the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.
TRUSTEE: Trustee is usually a company (corporate body) or a Board of Trustees (body
of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, 1996, the provisio provisions ns of the Trust Deed and the Offer Offer Docume Documents nts of the respecti respective ve Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manner.
ASSET MANAGEMENT COMPANY (AMC): The AMC is appointed by the Trustee
as the Investment Manager of the Mutual Fund. The AMC is required to be approved by the Securiti Securities es and Exchange Exchange Board Board of India India (SEBI (SEBI)) to act as an asset asset managem management ent company of the Mutual Fund. At least 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 cores at all times.
REGISTRAR AND TRANSFER AGENT: The AMC if so authorized by the Trust
Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records.
INVESTORS PROFILE: An investor normally prioritizes his investment needs before
undertaking an investment. So different goals will be allocated to different proportions of the total disposable amount. Investments for specific goals normally find their way into the debt market as risk reduction is of prime importance, this is the area for the riskaverse investors and here, Mutual Funds are generally the best option. One can avail of
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the benefits of better returns with added benefits of anytime liquidity by investing in open-ended debt funds at lower risk, this risk of default by any company that one has chosen to invest in, can be minimized by investing in Mutual Funds as the fund managers analyze the companies financials more minutely than an individual can do as they have the expertise to do so. Moving up the risk spectrum, there are people who would like to take some risk and invest in equity funds/capital market. However, since their appetite for risk is also limited, they would rather have some exposure to debt as well. For these investors, balanced funds provide an easy route of investment, armed with expertise of investment techniques, they can invest in equity as well as good quality debt thereby reducing risks and providing the investor with better returns than he could otherwise manage. Since they can reshuffle their portfolio as per market conditions, they are likely to generate moderate returns even in pessimistic market conditions.
Next comes the risk takers, risk takers by their nature, would not be averse to investing in high-risk avenues. Capital markets find their fancy more often than not, because they have historically generated better returns than any other avenue, provided, the money was judiciously invested. Though the risk associated is generally on the higher side of the spectrum, the return-potential compensates for the risk attached.
FACTORS IMPACTING THE INDUSTRY (PEST Analysis) : Political Factors: a) Government Regulation: SEBI regulates the industry and every decision taken by them impact the industry very quickly. b) Stable constituency: The mutual fund industry can take long term decision if the government is stable. c) Fiscal policy: tax structure plays a very important role in the g rowth of the industry .If the tax structure will be high than there will be less savings and investment. We have seen the interest rate reducing continuously which boost the industry to sell products which are better than the FDs, PF, NSC and KVPs.
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Economic factors: d) Market performance: The last five years witnessed a sharp rise in the markets. The mutual fund industry basically works parallel with the markets. Suppose, if the markets always be on downside, then the investors will not be so comfortable to invest. This will reduce the market size drastically.
e) Global Standards: As the industry will grow better, India being a global economy, the MF industry has to match to the global mature MF markets. They have to give due emphasis on product innovation, cost reduction and penetration. f) Inflation: price rise affects interest rate and reduces the chances of investment. Social factors: g) Consumer behaviour: this is very unpredictable and based on sentiments gets changed very frequently, which sometimes makes selling of products difficult.
h) Income: The rich people are in bigger cities, so the mutual fund industry is much more concentrated there. Technological factors: This is the era of information technology and due to net banking, on line transaction, online RTGS, clearing system helps the industry a lot.
BENEFITS OF MUTUAL FUND
There are numerous benefits of investing in mutual funds and one of the key reasons for its phenomenal success in the developed markets like US and UK is the range of benefits they offer, which are unmatched by most other investment avenues. We have explained the key benefits in this section. The benefits have been broadly split into universal
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benefits, applicable to all schemes and benefits applicable specifically to open-ended schemes.
CATEGORIES OF MUTUAL FUNDS:
Mutual Fund can be classified as follows:Based on the Structure:1. OPEN-ENDED MUTUAL FUNDS:
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The holders of the shares in the Fund can resell them to the issuing Mutual Fund company at the time. They receive in turn the net assets value (NAV) of the shares at the time time of re-s re-sal ale. e. Such Such Mutu Mutual al Fund Fund Comp Compan anie iess plac placee thei theirr funds funds in the the seco seconda ndary ry securities market. They do not participate in new issue market as do pension funds or life insurance companies. Thus they influence market price of corporate securities. Open-end investment companies can sell an unlimited number of Shares and thus keep going larger. The open-end Mutual Fund Company Buys or sells their shares. These companies sell new shares NAV plus a Loading or management fees and redeem shares at NAV.In other words, the target amount and the period both are indefinite in such funds.
2. CLOSED-ENDED MUTUAL FUNDS:-
A closed–end Fund is open for sale to investors for a specific period, after which further sales are closed. Any further transaction for buying the units or repurchasing them, Happen in the secondary markets, where closed end Funds are listed. Therefore new investors buy from the existing investors, and existing investors can liquidate their units by selling them to other willing buyers. In a closed end Funds, thus the pool of funds can technically be kept constant.
The The asse assett manag managem ement ent comp compan any y (AMC (AMC)) howe howeve ver, r, can buy buy out out the the units units from from the the investors, in the secondary markets, thus reducing the amount of funds held by outside investors. The price at which units can be sold or redeemed Depends on the market price prices, s, which which are fundam fundament entall ally y linked linked to the NAV. NAV. Invest Investors ors in closed closed end Funds Funds receive either certificates or Depository receipts, for their holdings in a closed end mutual Fund.
Based on their investment objective:
1)EQUITY FUNDS :-
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These funds invest in equities and equity related instruments. With fluctuating share pric prices es,, such such fund fundss show show vola volati tile le perfo perform rman ance ce,, even even loss losses es.. Howe Howeve ver, r, shor shortt term 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. 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 yield dividends. 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.
2. BALANCED FUNDS:
Their investment investment portfolio portfolio includes includes both debt and equity. equity. As a result, result, on the risk-retur risk-return n 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 deb t.
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3. DEBT FUND:
They invest only in debt instruments, and are a good option for investors averse to idea of taking risk associated with equities. Therefore, they invest exclusively in fixed-income instruments like bonds, debentures, Government of India securities; and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. Put your money into any of these debt funds depending on your investment horizon and needs.
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. Invest in shortshort-ter term m debt debt papers. papers. Float Floaters ers invest invest in debt debt iii) iii) Float Floating ing rate rate fund fundss - Invest instruments which have variable coupon rate. arbitrage opportunities opportunities due to misiv) Arbitrage fund- They generate income through arbitrage pricing between cash market and derivatives market. Funds are allocated to equities, deriva derivati tives ves and money money market markets. s. Higher Higher propor proporti tion on (aroun (around d 75%) 75%) is put in money money markets, in the absence of arbitrage opportunities. v) Gilt Gilt fund fundss LT LT-- They They invest invest 100% of their their portfo portfoli lio o in long-t long-term erm governm government ent
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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THE WAY TO INVEST IN MUTUAL FUND
Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Forms can be deposited with mutual funds through the agents and distr distribu ibutor torss who provid providee such such servic services. es. Now days, days, the post post office officess and banks banks also also distribute the units of mutual funds. However, the investors may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given by them. The only role of banks and post offices is to help in. distribution of mutual funds schemes to the investors. Investors should not be carried away by commission/gifts given by agents/distributors for investing in a particular scheme. particular scheme. On the other hand they must consider the track record of the mutual fund and should take objective decision.
LEGAL FRAME WORK OF SEBI & AMFI
REGULATORY ASPECTS OF MUTUAL FUNDS: In the year 1992, Securities and
exchange Board of India (SEBI) Act was passed. The objectives of SEBI are – to protect the interest of investors in securities and to promote the development of and to regulate the securities market. SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. GUIDELINES OF SEBI & AMFI Mutual funds are regulated by the SEBI (mutual Fund) Regulations, 1 996.
SEBI is the regulator of all funds, except offshore funds.
Bank-sponsored Bank-sponsored
mutual funds are jointly regulated by SEBI and RBI.
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The The
bank-sponsored fund cannot provide a guarantee without RBI Permission.
RBI RBI
regulates money and government securities markets, in which mutual Funds are
invested. Listed Listed
mutual funds are subject to the listing regulations of stock exchange.
Since Since
the AMC and Trustee Company are companies, the Department of Company
affairs regulate them. They have to send periodic reports to the ROC (Register of Companies) and the CLB (Company Law Board) is the appellate authority. Investors I nvestors
cannot sue the trust, as they are the same as the trust and can’t sue
themselves. UTI UTI
does not have a separate sponsor and AMC.
UTI UTI
is governed by the UTI Act, 1963 and is voluntarily under SEBI Regulations.
UTI UTI
can borrow as well as lend also engage in other financial services activities.
Only Only AMFI certified agents can sell Mutual Fund units. Mutual Funds Company is required to update the NAV of the scheme on the AMFI
website on a daily basis in case of open-ended scheme.
MUTUAL FUNDS IN INDIA AT A GLANCE The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct phases :First Phase – 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the
32
Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.
Second Phase – 1987-1993 (Entry of Public Sector Funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.
Third Phase – 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more compr compreh ehens ensiv ivee and and revi revise sed d Mutu Mutual al Fund Fund Regu Regula lati tions ons in 1996. 1996. The The indu indust stry ry now now functions functions under the SEBI (Mutual Fund) Regulations Regulations 1996. The number of mutual mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.
Fourth Phase – since February 2003
33
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, repres represent enting ing broadl broadly, y, the assets assets of US 64 scheme scheme,, assure assured d return return and certai certain n other other scheme schemes. s. The Specif Specified ied Undert Undertaki aking ng of Unit Unit Trust Trust of India, India, functi functioni oning ng under under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulation Regulations. s. The second is the UTI Mutual Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.
The graph indicates the growth of assets over the years.
34
Note Note - Erst Erstwh whil ilee UTI UTI was was bifu bifurc rcat ated ed into into UTI UTI Mutu Mutual al fund fund and and the the Spec Specif ifie ied d
Undertaking of the Unit Trust of India effective from February 2003. The Assets under management of the Specified Undertaking of the Unit Trust of India has thereof been executed from the total assets of the industry as a whole from February 2003 onwards.
35
CHAPTER -5 Analysis
36
1 Do you know, what is mutual fund? Yes
95
No
5
5%
Yes No
95%
From the above Pie Chart, it is clear that everyone is not aware about mutual fund . 95% people known what is mutual fund because they aware about share market.
2 Is Mutual fund always risk free?
Yes
60
No
35
37
37% Yes No
63%
We know that mutual fund is not always risk free. According to the customers customers who know what is mutual fund, they also know it is not always risk free. Problem has that some people are not aware about mutual fund.37% people don’t know it is risk free or not.
3 Do you want to invest your money into the mutual fund?
Yes
78
No
17
38
ChartTitle tle 100 80
Yes, 78
60 40 20
No, 17
0 0
0.5
1
1.5
2
2.5
As shown above chart 82% people want to invest money into the mutual fund because because they have interest interest in mutual mutual fund, fund, maximum maximum customers customers want to invest their money into the mutual fund because their interest decreased in equity market as they know that in this field, risk is low compare to share market.
4 . If yes, Which AMC (asset Management Company) will you prefer?
Reliance Mutual fund
42
HDFC Mutual fund
25
Others
11
39
14% Reliance Reliance Mutual fund 54%
32%
HDFC Mutual fund fund Others
From the above Pie chart, which is according to the primary data collected, clearly shows that “Preference of investors are based on high return, liquidity and growth of fund”i.e. investors give their preferences to that fund which gives them high return. 54% customers like to the Reliance mutual fund. 32% customer’s belief HDFC mutual fund & other’s mutual fund having 14% preferred.
5 among the following which mutual fund house is the better fund house in the
terms of products?
Reliance Mutual fund
43
HDFC Mutual fund
27
Others
8
40
10%
Reliance Reliance Mutual fund HDFC Mutual fund fund 35%
55%
Others
55% people think that reliance mutul fund is the best option when it comes to the diversified products , followed by 35% for HDFC & 1 0% others.
6 Which fund house is better in terms of fund performance in long and short run?
Reliance Mutual fund
41
HDFC Mutual fund
26
Others
11
41
14%
Reliance Reliance Mutual fund 53%
HDFC Mutual fund fund Others
33%
53% people think that reliance mutul fund provides best return in short % Long run period , followed by 33% for HDFC & 14% others.
7 How many AMC’s mutual fund do you have?
One
42
Two
25
More Than Two
11
42
14%
One 54%
Two More Than Two
32%
investors have more than two types mutual fund, it is 14%. They want earn maximum profit from mutual fund. These customer want to increase number of units and also invest other plan like saving plan.
8 Which AMC provides better service?
Reliance Mutual fund
44
HDFC Mutual fund
26
Others
8
43
10% Reliance Reliance Mutual fund
33%
57%
HDFC Mutual fund fund Others
57% respondents feels that Reliance Provides better services as compared to others.
9 Do you have Reliance Mutual fund?
Yes
45
No
38
44
46% 54%
Yes No
45 respondents owns Reliance Mutul fund(54%). 10 Are you satisfied by the services provided by reliance mutual fund?
Yes
43
No
2
45
4%
Yes No 96%
96% 96 % cust custom omer ers s of reli relian ance ce are are sati satisf sfie ied d with with the the serv servic ices es prov provid ided ed by Reliance Mutual fund and the rest 4% are not satisfied. Customers of today are are
bett better er
educ educat ated ed,,
bett better er
info inform rmed ed
,
more more
discr iscrim imin inat atin ing, g,
more more
sophisticated and are more individualistic. What they value in a mutual fund transaction has dramatically changed.
46
CHAPTER-6 Findings
47
1)A lot of people know about mutual fund as they take it as Equities in stock market.
2) Some of the Respondent Respondentss are not willing willing to invest invest their their money money in mutual mutual funds , because because they don’t know the the difference difference between between horizon of risk in share share market and mutual funds.
3) Most of Respondents are willing to Invest their funds in mutual funds because they know that Mutual funds are less risky as compared to equities.
4)Most of respondents buy Mutual Funds of those companies which provide them better returns, products , flexibility flexibility and Liquidity. This shows that todays buyers buyers are rationale buyers.
5) Most of respondents respondents believe that Reliance Mutual fund’s performance performance is much better better as compared to other players in market in both long and short run.
48
CHAPTER-7 Suggestion
49
SUGGESTIONS TO RELIA RELIANCE MUTUA MUTUAL FUND:-
1.An aggres aggressiv sivee advert advertisi ising ng campai campaigni gning ng should should be there there to encour encourage age more people to invest.
2. As some of the people think that mutual fund is risky so the company should show people the advantages of the mutual fund and how it is better than the other investment avenues.
3.There is a great potential for the mutual fund because the people are ready to invest in the mutual fund as there is a positive responses.
4.Now a days people are investing in more of an equity fund because it gives high return as compare to other mutual fund schemes.
5.People are preferred to invest in the long term savings when only they have enough of surplus. They are least concerned about the other’s advice. 6.Reliance MF is doing comparatively very less marketing in MF industry in compa compare re to other other play player ers. s. Due Due to this this other other play player er are are getti getting ng the the advantage. Thus it should try to increase the marketing and advertising related activities time to time or at least at the time of new NFO’s, at the time when they are declaring dividends or at the peak time (i.e. January Marc March) h) last last quar quarte terr of fina financ ncia iall year year when when peopl peoplee are are sear searchi ching ng for for investing instruments. 7.A very small part market has been cover by Reliance MF. It can increase the circle of its business in small and rural areas of every state and cities of India where they an find a huge business. 8.To 8.To uproot uproot the the inve invest stme ment nt level level the the compan company y shou should ld give give trai traini ning ng pro progr gram amme me to fina financ ncia iall agen agents ts who who appr approa oach ch the the inve invest stor or for for the the investments. And they should be aware of all the benefits of the mutual
50
Funds.
9.Company should undertake the Campaign, Road shows, Advertisement and other type of Publicity for the effective awareness of different schemes that are available in the market.
10.The company should arrange seminars and presentations, giving detail idea about securities and benefits of investment in mutual fund.
51
CHAPTER-8 Conclusion
52
Relia Reliance nce Equi Equity ty Fund Fund has a abil abilit ity y to spot spot the the sect sector or trend trendss & it has has delive delivered red handsom handsomely ely.. In Curren Currentt status status it emerge emerged d as the third third bestbest performing diversified equity fund.
53
REFERENCES AND BIBLIOGRAPHY
54
Books:-
C.R Kothari,Research Methodology.New Delhi,Vikas Publishing House pvt. Ltd.2009.
Websites:-
•
www.mutualfundsindia.com
•
www.valueresearchonline.com
•
www.amfi.com
•
www.hdfcfund.com
•
www.reliancefund.com
55
ANNEXURE
56
QUESTIONNAIRE 1. Do you you know, know, what what is is mutu mutual al fund fund??
Yes
No
2. Do you you want want to invest your money into the mutual mutual fund?
Yes
No
3.
Is Mutual Mutual fund fund alway alwayss risk risk free? free?
Yes
No
I don’t know
4. If yes, Which AMC (asset Management Company) will you prefer? a)
Reliance mutual fund
b)
HDFC mutual fund
c) other
57
5. among the following which mutual fund house is the better fund house in the terms of products?
c)
Reliance mutual fund
d)
HDFC mutual fund
e)
Others
6. Which fund house is better in terms of fund performance in long and short run?
a) Reli Relianc ance e mut mutual ual fund fund
b) HDFC HDFC mutu mutual al fund fund
c) other
7. How many AMC’s mutual fund do you have?
a) One
b) Two
c) More More than two two
d) None
8. Which AMC provides better service?
a) Reliance Mutual Fund
b) HDFC Mutual Fund
58
c) Others
9. Do you hve Relince Mutul fund?
a) Yes
b) No
10. Are you satisfied by the services provided by reliance mutual fund?
a) Yes
b) No
11. What is your view about reliance mutual fund?
________________________________________________________________ ___
_________________________________________________________.
Signature__________________
59
