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I hereby declare that this project report entitled “ANALYTICAL STUDY OF MUTUAL FUND MARKETS AND
DISTRIBUTION CHANNELS OF BIRLA SUN LIFE AMC“
submitted in partial fulfillment of the MBA program of ICFAI Business School is my original work and the project is not submitted as project previously to any institution for the award of any degree, associateship, fellowship or any other similar si milar titles.
Date: Place:
Signature of the Student
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This is to certify that the project work entitled “ANALYTICAL STUDY OF MUTUAL FUND MARKETS AND DISTRIBUTION CHANNELS OF BIRLA SUN LIFE AMC“ is a
bonafide project work carried out by mr. jigarkumar a. Kansagra mba student, ICFAI Business School, chandigarh during February-may 2010 in partial fulfillment of the requirements of the MBA program and that the project work has not formed the basis for the award previously of any degree, diploma, associateship, fellowship, or other similar titles.
Date: Place:
Signature of the Guide
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With regard to my project with mutual fund I would like to thank each and every one who offered help, guideline and support whenever required.
I am very thankful to entire team of Birla Sun Life Asset Management Co. Ltd. For their cooperation, without which completion of this project would not have been possible.
My first word of gratitude is due Mr. Manishkumar Joshi – Relationship Manager, Birla Sun Life AMC, My corporate guide, for his kind help and support and his valuable guidance throught my project.
I am highly thankful to Mr. Prakash Gandhi(Vice President), Mr Mitesh Maheshwari – RR Investors Capital Services Pvt. Ltd. for sharing with me all the details of the project and providing me with valuable insides about the project.
Finally, I would like to thank my internal faculty guide Prof. Mitali Saxena under whose able guidance this project work was carried out.
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I joined BIRLA SUN LIFE ASSET MANAGEMENT CO. LTD for internship program (as a part of MBA). I only had a theoritical knowledge of related subjects, thanks to my Faculty Guide and my Company Mentor for giving me an opportunity to implement my theoritical knowledge in practical aspect.
My company mentor Mr. Manishkumar Joshi has given me the project to analyze the mutual fund markets in India and distribution channels of Birla Sun Life AMC. I started this project by understanding the concept and technalities of mutual fund.
The project is about to micro analysis of mutual fund market in Indian contest which provides actual vision to the size of Indian mutual fund marketplace and other key addressability metrics. Understanding the proprietary analysis of the multiple distribution channels for mutual funds in India which includes independent financial advisors (IFAs), banks, and national and regional distribution firms. This report examines the multiple distribution channels for mutual funds in India with a specific focus on independent financial advisors (IFAs), national and regional distributors, banks etc.
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Declaration.........................................................................3 Certificate...........................................................................4 Acknowledgements............................................................5 Abstract..............................................................................6 Introduction.......................................................................8
Objective of the study......................................................8 Limitation of study..........................................................8 Scope of study.................................................................9 Methodology...................................................................9 Introduction to mutual fund and its various aspects.....11
Concept of mutual fund..................................................12 Types of mutual fund......................................................13 Advantages of mutual fund.............................................20 Disadvantages of mutual fund........................................21 Parties involved in mutual fund industry.......................22 Recent trend in mutual fund industry.............................24 Evolving distribution strategies.......................................26 Distribution of mutual funds...........................................28 Essentials of a good distribution system.........................29 Role of mutual fund distributors.....................................29 Role of various channels...................................................30 Retailization of the indian mutual fund industry...........38 Challenges and issues........................................................38 Future of mutual fund distribution in india...................39 Key findings.......................................................................42 Company profile................................................................44 Conclusion..........................................................................47 Questionnaire.....................................................................48 Recommendations & suggestions.....................................52 References...........................................................................53
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Objectives of the project To understand the future growth of mutual fund market in Indian contest To satisfy customer‘s needs by providing them saving solutions,
regular income solutions, tax saving solutions, and also wealth creation solutions To provide safe and tax efficient wealth building investments solutions to the customers in various open-ended and closed-ended mutual funds. The project will help the the mutual fund distributors to understand the competition and benchmark themselves against the industry standards. To find out the most preffered distribution channel.
Limitations of study Time Time constrain - As the mutual funds have covered giant market in last few decades, It is very difficult to analyze whole market Mutual fund concepts are new as compared to bank FD and postal deposits so it is somehow arduous to change customers‘
perceptions and beliefs Studies of mutual fund are confined to the Indian markets only.
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The data which will be collected from the customers is through the questionnaires and is subject to response errors.
Scope of study The primary beneficiaries of this anlytical study are asset management firms with an interest in either understanding the distribution dynamics of india‘s mutual fund marketplace, or those
firms already present in india and wishing to benchmark their performance against the industry standard.This report is to provide indepth analysis on all banking and non banking distribution channels in india
Methodology The study was exploratory in nature and aimed at exploring the factors, which formed the basis for selection of different types of investments by individuals.The research was carried out by collecting primary data for the study through a self-developed, non-disguised questionnaire for the customers of various AMCs This report is based on primary as well as secondary data, however primary data collection was given more importance since it is overhearing factor in attitude studies. Anlysis of distribution channels of mutual funds in india is ongoing analyses of mutual fund industries throughout the various regions.
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Consultative qualitative information designed to help clients deside how best to plan their mutual fund distribution strategies for indian asset management marketplece. India is blessed with multiple distribution channels, but this also complicates the issues of how best to access both retail and institutional investors, and how to find the most effective way to build distribution capacity. Granular quantitative information that provides a better picture of the true current and potential opportunities in asset management marketplace, as well as the most effective approach to distribution. This quantitative information aims to reduce uncertainty regarding metrics such as marketshare, distribution dynamics, and the product developement demand. Data sources
Research is totally based on primary data. Secondary data can be used only for the reference. Research has been done by primary data collection. The primary data has been collected interectiong with the people. A predefined questions have been prepared regarding customer‘s views in investments especially mutual fund markets. The
secondary data has been collected sources like journals, fact sheets, annual reports.
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A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments and other securities. There are various investment avenues available to an investor such as real estate, bank deposits, post office deposits, shares, debentures, bonds etc. A mutual fund is one more type of Investment Avenue available to investors.
Mutual funds have a fund manager who invests the money on behalf of the investors by buying / selling stocks, bonds etc. The fund‘s assets are owned by the investors in the same proportion as
their contribution bears to the total contributions of all investors put together. When one invests in a mutual fund, he is buying shares (or portions) of the mutual fund and becoming a shareholder of the fund. 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.
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By Structure ○ Open - Ended Schemes ○ Close - Ended Schemes ○ Interval Schemes
By Investment Objective ○ Growth Schemes ○ Income Schemes ○ Balanced Schemes ○ Debt Schemes ○ Money Market Schemes
Other Schemes ○ Tax Saving Schemes ○ Load & No Load Schemes ○ Special Schemes Index Schemes Sector Gilt
Specific Scheme
Funds
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By Structure
1. Open - Ended Schemes:
An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. 2. Close - Ended Schemes:
These schemes have a pre-specified maturity period. One can invest directly in the scheme at the time of the initial issue. Depending on the structure of the scheme there are two exit options available to an investor after the initial offer period closes. Investors can transact (buy or sell) the units of the scheme on the stock exchanges where they are listed. 3. Interval Schemes:
Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.
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By Nature
1. Equity fund:
These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund manager‘s outlook on different stocks. The
Equity Funds are sub-classified depending upon their investment objective, as follows: Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS) 2. Debt funds:
The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as: Gilt
Funds:
Invest their corpus in securities issued by
Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers
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backed by Government. Income Funds: Invest a major portion into various debt
instruments such as bonds, corporate debentures and Government securities. MIPs: Invests maximum of their total corpus in debt instruments
while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes. Short Term Plans (STPs): Meant for investment horizon for three
to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures. Liquid Funds: Also known as Money Market Schemes, These
funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, interbank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.
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3. Balanced funds:
As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns.
By investment objective: Growth Schemes: Growth Schemes are also known as equity
schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation. Income Schemes : Income Schemes are also known as debt
schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. li mited. Balanced Schemes: Balanced Schemes aim to provide both
growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in
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their offer documents (normally 50:50). Money Market Schemes: Money Market Schemes aim to provide
easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and interbank call money. Other Schemes Tax Saving Schemes:
Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate. Index Schemes:
Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.
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Sector Specific Schemes:
These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.
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Professional Management: The Mutual Funds are professionally
managed. The experienced Fund Managers pertaining to the Mutual Funds examine all options based on research and experience. Diversification: The risk pertaining to the Mutual Funds is quite
low as the total investment is distributed in several industries and different stocks. Flexibility: The investments pertaining to the Mutual Fund offers
the public a lot of flexibility by means of dividend reinvestment, systematic investment plans and systematic withdrawal plans. Affordability: The Mutual funds are available in units. Hence they
are highly affordable and due to the very large principal sum, even the small investors are benefited by the investment scheme. Liquidity: In case of Open Ended Mutual Fund schemes, the
investors have the option of redeeming or withdrawing money at any point of time at the current rate of net value asset. Potential of return: The Fund Managers of the Mutual Funds
gather data from leading economists and financial analysts. So they are in a better position to analyze the scopes of lucrative return from the investments. Low Costs: The fees pertaining to the custodial, brokerage, and
others are very low.
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The Drawbacks of Mutual Funds are the major obstacles for the growth of the same. Management risks, trading limitations and absence of taxes are some of the major drawbacks of mutual funds. Fees and commissions: The Mutual funds charge administrative
fees to meet the daily expenses. Many funds charge brokerage or 'loads' to pay financial planners or financial consultants, brokers. In case a shareholder does not use the services of financial adviser, he still has to pay a sales commission. co mmission. No Guarantees: All investments bear risk factors. The Mutual
Funds are no different. It depends on the stock market. A fall in the stock market would trigger a fall in the value of the mutual fund shares. Although the risk factor pertaining to Mutual funds are much lower compared to Mutual Funds. Inefficiency of Cash Reserves: The Mutual Funds maintain big
cash reserves, for situations such as a number of large withdrawals. The investors are provided with liquidity, and a major portion of the financial resources is maintained as cash, and it is not invested in some assets. Management risk: The investment pertaining to the Mutual Funds
depends on the fund manager and his selection of the mutual fund portfolio, which is based on speculation. If things do not go as expected, the investments may not earn enough money.
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Taxes: The proceeds from the sale of mutual funds are taxable,
even if the same is reinvested in mutual funds. No Insurance: The Mutual funds are regulated by the central
government. However mutual funds are still not insured against losses. Trading Limitations: The Mutual Funds usually have high
liquidity, but most of the mutual funds, such as open-ended funds, are bought or sold at the end of the day Loss of Control: In case, if the mutual funds are managed by the
investor himself, the portfolio management may go bad and have an adverse effect on the earnings from the investment.
INVESTORS Investors are the people who actually invest their money into the market. Every investor, given his financial position and personal disposition, has a certain inclination to take risk. The hypothesis is that by taking an incremental risk, it would be possible for the investor to earn an incremental return. Mutual Fund is a kind of solution for investors who lack the time, the inclination or the skills to actively manage their investment risk in individual securities.
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TRUSTEES Trustees are the people within a mutual fund organization who are responsible for ensuring that investors‘ interests in a scheme are properly taken care of. In return for their services, they are paid trustee fees, which are normally nor mally charged to the scheme.
ASSET MANAGEMENT COMPANY AMCs manage the investment portfolios of schemes. An AMC‘s
income comes from the management fees it charges the schemes it manages. The management fee is calculated as a percentage of net assets managed. An AMC has naturally to employ people and bear all the establishment costs that are related to its activity out of its management fee earned.
DISTRIBUTORS Distributors earn a commission for bringing investors into the schemes of a mutual fund. This commission is an expense for the scheme, although there are occasions when an AMC may choose to bear the cost, wholly or partly. Depending on the financial and physical resources at their disposal, the distributor could be; who have their own or franchised network reaching out to investors all across the country; distributors who are generally regional players with some reach within their region; distributors who are small and marginal players with limited reach.
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The Indian mutual fund industry has evolved from a single player monopoly in 1964 to a fast growing, competitive market on the back of the strong regulatory framework. The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players.
Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations.
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AUM Growth
Growth in AUM in the Indian Mutual Fund Industry (Average AUM in INR Billion) 8000 7000 6000 5000 4000
Growth in AUM in the Indian Mutual Fund Industry (Average AUM in INR Billion)
3000 2000 1000 0 200 5
2 0 06
2 007
20 0 8
200 9
20 1 0
The asset under Management(AUM) have grown at a rapid pace over the past few years, at a CAGR of 35 percent for the sixyear period from 31 march 2005 to 31 march 2010. Over the 10-year period from 1999 to 2009 encompassing varied economic cycles, the industry grew at 22 percent CAGR. This growth was despite two falls in the AUM – the first being after the year 2001 due to dotcom bubble burst, and the second in 2008 consequent to the global economic crisis.
India has been amongst the fastest growing markets for the mutual funds since 2004, in the seven year period from 2004-2010 the Indian mutual fund grew at 35 percent CAGR as against the global average of 7 percent.
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The Indian mutual fund industry has been growing at a rapid pace. Particularly over the last 4 four years the growth has been phenomenal, thanks to a booming capital market and favorable tax regime. This era of exponential growth has seen changes, refinements, innovations etc in products, practices and channel development of the AMCs. The ultimate beneficiary has been the growing and prospering investors.
In the past 25 years, there have been dramatic changes in how mutual funds are sold to the investing public. Before 1980, all funds had a single share class, and shares of a given fund were offered to all investors. Most funds were sold through a broker, who provided advice, assistance, and ongoing service to the fund buyer. The shareholder paid for these distribution services through a frontend sales charge when he or she bought the fund. Other funds sold shares directly to investors without a sales charge. Investors in these funds either did not receive advice and assistance or obtained and paid for these services separately. Funds sold through financial professionals such as brokers have since adopted alternatives to the front-end sales charge. In addition, the range of venues (or distribution channels) through which an investor can purchase fund shares has expanded
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since 1980, and each distribution channel may offer different services. With the expansion in distribution channels, many fund sponsors
have
abandoned
earlier,
single-channel
distribution
strategies in favor of multi-channel distribution. As a result, mutual fund sponsors that once marketed exclusively through a single, traditional distribution channel — sales force or directly to investors — often now compete head-to-head in the same distribution
channels. The purpose of this report is to describe the current structure of the distribution system for mutual funds and to analyze trends and developments in distribution cost incurred by mutual fund investors since 1980.
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There have been dramatic changes in the manner in which mutual funds are sold abroad. Before 1980, most funds were vended through a broker, who provided advice, assistance and ongoing service to the buyer. The unit holder paid for these distribution services through a front-end sales charge when he bought the fund. Funds sold through finance professionals such as brokers have since adopted alternatives to the front-end sales charge. The alternative payment methods typically include a fee based on assets that may also be in combination with a front-end or back-end sales charge. In many cases, funds offer several different share classes, all of which invest in the same underlying portfolio of assets, but each share class may offer shareholders different methods of paying for broker services. With the expansion in distribution channels, many fund sponsors have moved from single-channel distribution strategies in favor of multi-channel distribution. The changes in fund distribution have been accompanied by a significant decrease in the average cost of distribution services incurred by mutual fund buyers. The decline in distribution costs reflects a variety of developments, including competition between funds, expansion of the 401(k) plan market and other markets with low distribution costs, and increased availability of lower-cost advice to investors.
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Distribution success for mutual funds or any financial product is dependent on certain key elements. These are: • Careful product selection • A careful selection of internal sales staff (who will sell) • Right targeting of customers - a properly graded geographical
strategy based on a demographic study will propel a smooth, seamless customer penetration and sales volumes • Proper training - Training is the axle on which the entire
distribution revolves. Continuous training of the sales force is essential in this dynamic environment • Educating / counseling the customer about products, keeping in
mind rising customer expectations and increasing buyer expertise • After sales servicing
A mutual fund distributor is an entity responsible for marketing and and selling the shares of a mutual fund company. These mutual fund distributors are also known as underwriters for the fund. The distributor is responsible for the following: Creating prospectus for the mutual fund Develop extensive marketing campaigns (TV, internet, magazine)
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Sell the shares directly to the public Provide a wholesale market to reach a larger number of investors Portfolio Advisory Timely delivery of A/c Statements & Valuations Regularly updating about markets
All distribution channels have played a pivotal role in increasing Mutual Fund penetration • Banks • IFAs • National Distributors
Direct Selling: Direct selling is the least significant element today. Normally, only very big ticket items are done through this. Alternatively, it derives its inflows mainly from online sales. However, recent changes in regulation are all set to give this channel a fillip. MFs are gearing up by opening their own offices in more places. Also R&T Agents are expanding their infrastructure to facilitate this.
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Organized distributors: Organized distributors are the backbone of MF distribution. They have infrastructure and flexibility to adapt to the need of the hour. They too have realized the importance of going to smaller centre and are establishing offices in urban and semi-urban locations. This is the sector which needs to be nurtured to expand.
Banks as distributors: Mutual fund distribution by banks is emerging a key element. Banks have huge potential to build and improve the retail segment, which needs to become as strong as its institutional counterpart. Even among banks there are two major types of distributors. There are those that handle wealth management of their clients and, on their behalf, manage portfolios wherein investment in mutual funds is one asset class. Such banks have sophisticated wealth management practices with qualified staff and well-heeled clients. MNC banks, private banks and a few f ew niche players (like HSBC, City, ICICI, HDFC, Kotak etc) are examples. Then there are banks that use their networks to sell MFs as just another financial service. Most of the PSBs and other commercial banks including large cooperative banks fall under this category. For the banks the existing customer base serves as a captive prospective investor base for marketing
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mutual funds. They have the advantage of having already won the trust of the customer. There is no other distribution channel that can have a more effective retail penetration across Tier-II and Tier-III cities as well as across rural India. This channel has slowly realized its own potential and is now emerging as a big player. Abroad banks are among the leading fund supermarkets. The Post Office too has been emerging as an effective channel. For all practical purposes, it can be clubbed with PSBs. Banks with post offices are likely to emerge as a very crucial channel for ―financial inclusion‖ in the MF arena. This combination along with the online
variants in the near future will dominate the distribution of mutual funds. Banks as a distribution channel have huge potential to build and improve the retail side of the investors' universe of MFs, which is skewed towards the institutional side now. There is no other distribution channel for MFs that can offer such a lucrative retail base on a platter by a tie-up. Trained frontline staff of the bank will serve as ready-made marketers for distribution. For the bank, a strike rate of even 10 per cent of the targeted customers will translate into huge volumes for the MFs to encase. In addition, the database can be used effectively for "Experience Marketing" of future products and "Product Co Creation" based on segments. The opportunity for the customers to avail of non-banking financial products with multiple return matrixes from their banking services providers without the strain of shopping in the market. Customers are offered a buffet of MF products with different themes and return
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expectations through the bank, based on their risk appetite. They are also offered counseling support from fro m the bank and the MF personnel. Over the last decade, commercial banks have augmented their traditional deposit and lending services with investment products, including mutual funds. Banks offer both proprietary mutual funds, managed and sold through the bank or an affiliate, and nonproprietary mutual funds, managed by an independent fund company but sold through the bank or an affiliate. Some bank proprietary mutual funds also are available to investors through other distribution channels, such as full-service brokers, financial planners, and insurance agents. To determine bank activity in the mutual fund market, the Institute has surveyed mutual funds annually since 1991 about new sales1 of long-term funds available through banks or their affiliates. This yearly survey is based on actual sales of both proprietary and nonproprietary long-term funds sold through banks.
Independent Financial Advisor:
Independent Financial Advisors Advisors or IFAs IFAs are professionals who offer independent advice on financial matters to their clients and recommend suitable financial products from the whole of the market.
Typically an Independent Financial Advisor will conduct a detailed survey of their client‘s financial position, preferences and
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objectives; this is sometimes known as a ‗fact find‘. They will then
advise appropriate action to meet the client's objectives; and if necessary recommend a suitable financial product to match the client‘s needs.
Presently the IFA is the friendly neighborhood guy – one who is very effective in selling the product. However, he has to manage his costs from the commission he gets. Advisory services are today given gratis. The scenario is changing and the space in advisory services will undergo a rapid change in the next few years. Financial Planning services will be much sought after and Certified Financial Planners will be in demand for their specialized services. Over the last couple of years the IFA channel has made remarkable Strides, not just in terms of growing its marketshare, but also in professionalizing itself. There is little doubt it will face very stiff competition from both the banks and the national and regional distributors — all all of which want to develop distribution strategies for the retail marketplace — but but early signs suggest the IFAs are going to be able to hold their own and carve out an important niche for themselves
Paying for Advice
Traditionally IFAs have relied upon commission paid by product providers to pay for their services. In recent years there has been a shift towards fee based advice as this is perceived as fairer toward the client. However, due to under-capitalization in the advice
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sector and consumer reluctance to pay for something they perceived as getting for free, the transition to fee based advice has been slow and concentrated in the 'high net worth sector.
Commission: Traditionally the most common way to pay for
advice is for the IFA to receive a commission from the product provider. The amount of commission must be disclosed, and some IFAs will rebate a portion of their commission, particularly in Execution-Only cases. The amount of commission and whether it is deducted from the amount you actually invest or is included in the cost of the investment varies from product to product. The client pays for commission from product charges so it does not represent 'free advice'. As well as the initial commission, the adviser is likely to be also paid an annual "trail" commission by the product provider. Not all products offer the same rate of trail commission and therefore a potential conflict of interest may arise. The products making the highest management charges usually offer the adviser the highest trail commission. Fees: Less common than commission, all IFAs must offer the
option of working for a fee. Depending on the size and type of the investment, and the complexity of the advice, this can work out cheaper than paying commission. Paying a fee for advice is the best way to ensure that the advice is impartial and there is no incentive for the IFA to recommend a product solution.
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Combination: It is also possible to pay a combination of fees and
commission. In this situation the IFA will rebate a proportion of the commission they would have been due in a commission-only scenario.
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Numb Numbe e r of Distributors Distributors by Cate gory Registe Regist e red Annu Annual ally ly by AMFI 25000 20000 15000 10000 5000
Corporates Corporate Employees Individuals
0
As of march 2009, the mutual fund industry had 92499 registered distributors as compared to approximately 2.5 million insurance agents. The Independent Financial Advisors (IFAs) or individual distributors, corporate employees and corporate comprised 7321and 6 percent respectively of the total distributor base. Banks in general, foreign banks and the leading new private sector banks in particular, dominate the mutual fund distribution with over 30 percent AUM share. Nation and Regional Distributors (including broker dealers) together with IFAs comprised 57 percent of total AUM as of 2007. The public sector banks are gradually enhancing focus on mutual fund distribution to boost their fee income.
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As already stated in brief, the retail push to MFs in India has been spearheaded by the big distribution houses, IFAs and banks, including PSBs. MFs are now expanding their own networks to this end. Online distribution, while catching up among the computersavvy segment of the public, will not be a very significant contributor, at least in the near future.
Low Levels of Customer Awareness Limited Focus on Increasing Retail Penetration Limited Focus Beyond the Top 20 Cities Limited Innovation in Product Offerings Limited Flexibility in Fees and Pricing Structures Limited Customer Engagement Limited Focus of the Public Sector Network on Distribution of Mutual Funds Multiple Regulatory Frameworks Governing Financial Services Sector ©
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Industry AUM is likely to continue to grow in the range of 15 to 25 percent from the period 2010 to 2015 resulting in AUM of INR 16,000 to 18,000 billion in 2015.
Projected Projected AUM AUM (Rs Billion) Growth from 20 10 to 201 5 20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 2009 Assum Assuming ing 22% CAGR CAGR
2012( P)
2015(P)
Assum Assuming ing 25% CAGR CAGR
Source: KPMG analysis
Key growth drivers for this scenario include:
• Increased retail investor participation with a Preference for mutual
funds over other asset Classes perceived to be more risky. • Innovations in distribution driven by increase in the Number of
certified IFAs and banks selling mutual funds focusing on Tier 2 and Tier 3 towns
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• Increase in institutional participation triggered by rising corporate
revenues with increased economic activity . Banks
• The public sector network of nationalized banks and post offices
likely to increase their focus on the distribution of mutual funds • Entry of public sector banks as mutual fund manufacturers expected
to increase their focus on mutual fund distribution • Private banks providing financial advice to HNIs expected to
marginally increase their market share.
IFAs
• IFAs expected to emerge as a dominant channel in a scenario of
robust stock market growth focusing on increasing penetration and will therefore have to focus on initiatives to develop and support this Channel
Source:BCG analysis
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The potential for MF industry to grow is huge. Currently 77% of the investments in mutual fund come from super metros and Tier I towns. The scenario is most likely to change with everyone expanding. The strategy, firstly, is to increase the penetration to cover Tier II-Tier III cities and rural areas. Secondly, complementary to the first idea, enhancing Investor education and awareness initiatives by the industry are getting high priority. Savvy fund houses are increasing appropriate technological infrastructure in rural areas and strengthening stre ngthening alternative distribution networks. Recent regulatory changes may have temporarily brought despondency to the distribution channels but in time suitable strategies (including fee for advisory) will restore balance. Investment is an area where consultation is very important; the direct route will be used by very few investors. The country is enjoying robust economic health. This is due to the efforts of all citizens including the farmers and small workers in the most rural of rural India. The capital market owes its rise to these humble workers as much as to any one else. Therefore, the India story cannot be called a success unless these people too can partake in the capital market boom. The only way to do this is through mutual funds and it is the distribution which has to deliver. This can happen only with the support of the regulator and the industry.
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Preffered Channels Channels for Investment Independent Financial Advisors Bokerage Houses 9% 13%
Local Chartered Accountant
24%
Internet 9%
14%
Direct Investment 12%
17%
2%
Public Sector Banks Foreign Banks Private Sector Banks
Source: CII-KPMG Survey in May 2009
Banks and IFAs are the preferred channel for investing in mutual funds. Customers expressed confidence in banks given the long standing relationship and the trust built with the banks over the years. Similarly the customers have become accustomed to dealing with IFAs to seek independent advice on a wide range of investment and financial planning issues.
Banks are key player in distribution and are likely to grow their market share, but they face competition from national and regional distribution firms and IFAs
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An Indian IFA firm could rival with a regional distributor with assets under administration and a private bank with service and delivery of advice. Two-thirds of asset manager survey respondents suggested that the IFA channel is a viable alternative to the national and regional distributors.
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The Aditya Birla Group
The Aditya Birla Group is one of India's largest business houses. A US $28 billion corporation with a market cap. of US $31.5 billion and in the League of Fortune 500, the Aditya Birla Group is anchored by an extraordinary force of 100,000 employees, belonging to 25 different nationalities. The Aditya Birla Group is a dominant player in all its areas of operations viz; Aluminum, Copper, Cement, Viscose Staple Fiber, Carbon Black, Viscose Filament Yarn, Fertilizers, Insulators, Sponge Iron, Chemicals, Branded Apparels, Insurance, Mutual Funds, Software and Telecom. The Group has strategic joint ventures with global majors such as Sun Life (Canada), AT&T (USA), the Tata Group and NGK Insulators (Japan), and has ventured into the BPO sector with the acquisition of TransWorks, a leading ITES/BPO company. co mpany.
Sun Life Financial
Sun Life Financial Inc is a leading international financial services organization providing a diverse range of wealth accumulation and
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protection products and services to individuals and corporate customers. Chartered in 1865, Sun Life Financial Inc and its partners today have operations in key markets worldwide, including Canada, the United States, the United Kingdom, Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda.
Birla Sun Life Asset Management Company Ltd. (BSLAMC)
Birla Sun Life Asset Management Company Ltd. (BSLAMC), the investment managers of Birla Sun Life Mutual Fund, is a joint venture between the Aditya Birla Group and the Sun Life Financial Services Inc. of Canada. Established in 1994, Birla Sun Life Mutual fund has emerged as one of India's leading flagships of Mutual Funds business managing assets of a large investor base. The fund offers a range of investment options, which include diversified and sector specific equity schemes, fund of fund schemes, hybrid and monthly income funds, a wide range of debt and treasury products and offshore funds. Birla Sun Life Asset Management Company has one of the largest team of research analysts in the industry, dedicated to tracking down the best companies to invest in.
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Board of Directors
Mr. Prafull Anubhai (Independent Director) Mr. Gurcharan Das (Independent Director) Dr. V.Arunachalam (Independent Director) Mr. Suresh Talwar (Associate Director) Mr. B.N.Puranmalka (Associate Director) Mr. Kumar Mangalam Birla (Associate Director & Chairman) Mr. Ajay Srinivasan (Associate Director) Mr. Ashok Goenka (Independent Director) Mr. S.S. Raman (Independent (I ndependent Director) Mr. Donald Stewart (Associate Director) Mr. N.N.Jambusaria (Independent Director) Mr. N.C.Singhal (Independent Director) Mr. Stephan Rajotte (Associate Director) Mr. Venkatesh Mysore (Associate Director) Mr. Ravindra Chandra Bhargava (Independent Director) Mr. R Vaidyanathan (Independent Director) Mr. Pankaj Razdan (Associate Director)
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The changes in the distribution of mutual funds during the past two decades have allowed investors to choose from a wider range of services and have provided greater access to mutual funds than was available in 1980. Companies sponsoring mutual funds are able to tailor funds and share classes to provide packages of services and means of paying for those services that better meet investor needs.
The wider availability of Mutual funds through new distribution channels, investors‘ increased reliance on no-load mutual fund share classes, and competition between loads and no-load fund sponsors has sharply reduced the distribution costs paid by mutual fund shareholders.
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SURVEY ON ATTITUDE MEASUREMENT OF INVESTORS PERCEPTION FOR INVESTMENT IN MUTUAL FUNDS 1. Your age is: 30
and under 31 to 40 41 to 55 56 to 65 Over 65 2. Your average household tax annual a nnual income from all sources (e.g., employment, investments, etc) is:
Under Rs 100000. Rs.100001 to Rs.300,000. Rs.300,001 to Rs.600,000. Rs.600,001 to Rs.1000,000. Over Rs.1000,000.
3. You regularly save the following percentage of your income for special expenditures, such as education, edu cation, mortgage lump sum repayments, retirement, etc.
0%
5% 10% 15% 20%
or more
4. You expect your current income level (at a minimum) to continue for the:
next 3 years. next 6 years. next 10 years. next 15 years. next 15 years or more.
5. You can't invest more than you have, so you should invest accordingly. For example, a sharp decline in your current income in the near future would probably call for a portfolio with lower risk. You would describe your financial Situation as being:
Very unstable. Somewhat unstable. Moderately stable. Stable.
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Very stable.
6. Investment objective: What is your primary objective for your yo ur investment?
Preservation of Principal Current Income Growth and Income Conservative Growth Aggressive Growth
7. You would describe your knowledge about investments as being:
Very little knowledge Some knowledge Moderate amount of knowledge Good working knowledge. Expert in investing
8. In the past, you have invested mostly in:
Savings accounts and PIOs Mutual funds investing in bonds Balanced mutual funds Mutual funds investing in stocks Individual stocks and bonds Many different financial instruments, including stocks, bonds, real estate, and higher risk investments (e.g., commodities, Options, futures, etc.).
9. You would prefer to have: Minor
fluctuations in the value of your account, but consistently earn a lower return on your investments. Some fluctuations in the value of your account, but earn a modest return. Noticeable monthly fluctuations in the value of your account, but earn a higher return. ea rn the Noticeable daily fluctuations in the value of your account, but earn highest possible return. 10. How long you stay invested?
Less than 1 year 3-5 years
1-3 year More than 5 years
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11. How many instrument of investment are there in your portfolio?
Equity______% Option______% Government sec. /fixed income______% Mutual fund_____% Gold, silver_____% Other_________________%
Future &
Insurance______% Real estate______%
12. According to you what criteria criteria differentiate mutual mutual fund from other instruments? Expert & active fund management Higher return in long term Liquidity
Diversification in portfolio Transparency of portfolio Tax efficiency
13. Which type of fund you prefer in MF?
Equity_______% balanced_____% MIP_____% fund)_____% other_____%
debt_______% money market_____% offshore fund (foreign
14. Which kind of criteria you prefer for investment in mutual fund?
Return Risk diversification Suitability of fund
tax
rebate brand name other__________
15. In which category of mutual funds you have invested? Saving
Solutions Regular Income Solutions Tax Saving Solutions Wealth Creation Solutions 16. In which major mutual funds has you invested?
Reliance SBI Kotak TATA
DSP Black Rock ICICI Prudential UTI Birla Sun Life
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HDFC
17. What kind of return do you yo u expect from the mutual fund as compared with risk? Between
12 to 20% Between 20 to 30%
Between
30 to 50% Above 50%
18. How you manage your investment portfolio: Service
of financial advisor News from print media/TV Agent of post or insurance Self
Advice
from relatives or friends financial Web Sites Brokers
NAME: _____________________________________________________________________ ADDRESS: _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ CONTACT NO: (R)_______________________ (R)________________________ _ (M)______________________ (M)_________________________________ ______________ ___ E-MAIL Id: ____________________________________________________________________
References: Name of Trainee: _______________________________________________________________ Date: __/__/____ Place: ______________________________
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There should be given more time & concentration on the Tier-3 distributors. The resolution of the queries should be fast enough to satisfy the distributors. Time to time presentation/training classes about the products should be there. There should be more number of relationship managers in different regions because one RM can handle a maximum of 125 distributors efficiently and also to cover untapped market. Regular activities like canopy should be done so as to get more interaction with the distributors.
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From the internet resources www.birlasunlife.com www.mutualfund.birlasunlife.com www.nseindia.com www.sebi.gov.in www.mutualfundindia.com www.amfi.com www.scribd.com www.valueresearch.com www.moneycontrol.com www.cii.com
From the news papers and magazines The economic times, Business standard, The financial times, Business today
From the print materials Birla Sun Life Mutual Fund fact sheets
From the books Marketing Financial Products (ICMR)
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