PROJECT REPORT

ON
“PENETRATION OF MUTUAL FUNDS
IN
RURAL AND URBAN MARKETS”

Research Project Report

The partial Fulfillment of the Requirements for the certificate of

POST GRADUATE DIPLOMA IN BUISNESS ADMINISTRATION

(FINANCE)

Research Supervisor Submitted By:

Name: Mr. Bal Krishan Goyal Name: Ritu Garg

Designation: Chief Manager Registration No.:200628131

Institution: State Bank of Patiala

Session: 2006-2007

SYMBIOSIS CENTRE FOR DISTANCE LEARNING (SCDL)

PUNE
ACKNOWLEDGEMENT

In preparation of this report by me, I feel great pleasure because it gives me extensive
practical knowledge in my career. I really want to thank Mr. Bal Krishan Goyal who is
a chief manager in SBOP for inspiration and guidance provided me through out the
course of this project.
I would like to take opportunity to express my gratitude towards my friend,
Miss. Isha Singla who helped me in this project all the time and all of them who have
contributed or indirectly in my project work.

Ritu Garg

2
CERTIFICATE

This is to certify that the Project entitled “PENETRATION OF MUTUAL

FUNDS IN RURAL AND URBAN MARKETS ” submitted for the certificate

of Post Graduate Diploma in Business Administration in the subject of Finance for the
Symbosis Center for Distance Learning, Pune, is a bonafide research work carried out
by Ritu Garg under my supervision and that no part of this Project has been submitted
for any other degree.

This assistance and help received during the course of investigation have been fully
acknowledged.

Date: - 20-03-2009 Project Advisor

Mr Bal Krishan Goyal
Chief Manager (SBOP)

3
INDEX

1. EXECUTIVE SUMMARY
2. INTRODUCTION ABOUT THE PROJECT
• PURPOSE/ OBJECTIVE
• RATIONALE OF THE STUDY
• SCOPE OF THE STUDY
• CONTRIBUTION FROM THE STUDY
• LIMITATIONS OF THE STUDY
• RESEARCH METHODOLOGY
3. INTRODUCTION TO MUTUAL FUNDS
• WHAT IS A MATUAL FUND
• HISTORY OF MUTUAL FUNDS
• ADVANTAGES OF MUTUAL FUNDS
• VARIOUS ORG. SELLING MF IN INDIA
• TYPES OF MF SCHEMES
• DISADVANTAGES OF MUTUAL FUNDS
4. INTRODUCTION TO SBI MF
5. AWARENESS ABOUT MF IN RURAL AND URBAN MARKETS
6. DIFFERENT INVESTMENT AVENUES AVAILABLE TO
INVESTORS
• COMPARISON OF INVESTMENT PRODUCTS
• MUTUAL FUNDS – THE BEST INVESTMENT OPTION
7. MARKETING STRATEGIES FOLLOWED BY SBI MF
8. GROWTH OF SBI MF
9. ANALYSIS OF PRIMARY DATA
• CONCLUSION
10. RECOMMENDATIONS
11. APPENDICES

4
 • QUESTIONNAIRE
• DAILY DIARY
13. BIBLIOGRAPHY

LIST OF TABLES

1. Table showing comparison of different investment options under return, safety,

volatility and liquidity.
2. Investor perspective: Funds vs. Other Products
3. Growth of SBIMF – Corpus and AUM

LIST OF FIGURES

1. Flow Chart showing operation of Mutual Funds

2. Graph showing growth in AUM in Mutual Funds industry.
3. Pie-Chart showing awareness of mutual funds in urban market.
4. Pie-Chart showing awareness of mutual funds in rural market.
5. Pie-Chart showing awareness about safety of MF in urban market.
6. Pie-Chart showing awareness about safety of MF in rural market.
7. Pie-Chart showing awareness about various MF schemes in urban market.
8. Pie-Chart showing awareness about various MF schemes in rural market.
9. Bar Graph showing kind of risk people are willing to take in urban market.
10. Pie-Chart showing % of risk taking capacity in urban market.
11. Bar Graph showing kind of risk people are willing to take in rural market.
12. Pie-Chart showing % of risk taking capacity in rural market.
13. Bar Graph showing preferences of people for different investment options in
urban market.
14. Bar Graph showing preferences of people for different investment options in
rural market.
15. Bar Graph showing purpose of investment in urban market.
16. Bar Graph showing purpose of investment in rural market.
17. Bar Graph showing preferences of investors for different schemes in urban
market.

5
 18. Bar Graph showing preferences of investors for different schemes in rural
market.
19. Bar Graph showing quantum of amount people are willing to invest in urban
market.

LIST OF ABBREVIATIONS

1. AMC – Assets Management Company

2. AUM – Assets Under Management
3. AMFI- Association of Mutual Funds in India
4. BSE – Bombay Stock Exchange
5. CII – Confederation of Indian Industry
6. ELSS – Equity Linked Saving Schemes
7. FMCG – Fast Moving Consumer Goods
8. FIs – Financial Institutions
9. GIC – General Insurance Corporation of India
10. IT Act – Income Tax Act
11. LIC – Life Insurance Corporation of India
12. MSN – Micro Soft Network
13. MF – Mutual Fund
14. NRI – Non Resident Indian
15. NSE – National Stock Exchange
16. NAV – Net Asset Value
17. PPF – Public Provident Fund
18. PO – Post Offices
19. RBI – Reserve Bank of India
20. RE – Real Estate
21. SBI – State Bank of India
22. SBIMF – State Bank of India Mutual Fund
23. SBOP – State Bank of Patiala
24. SGAM – Societe Generale Assets Management
25. SEBI – Securities Exchange Board of India
26. UTI – Unit Trust of India

6
EXECUTIVE SUMMARY

My project “Penetration of mutual funds in rural and urban markets” was selected in
consultation with my project guide keeping the present and future needs of the
organization under consideration. The project aims at collection of various types of
primary and secondary data to strengthen the position of SBIMF in urban ad rural
markets.
SBIMF draws its strength from India’s premier and largest Bank, the State Bank of
India. SBIMF has grown tremendously in terms of corpus as well as number of
investors. This can be proved from the fact that last year SBIMF was one of the fastest
growing AMCs in the country with a growth of over 26%.
The summer training project covers finding out awareness level of mutual funds in
both the markets, preferences of investors for different schemes, various marketing
strategies followed by SBI MF, growth made by SBI MF in last few years, comparison
of mutual funds with other investment options. All this information has been collected
in consultation with project guide while working with various Banks like State Bank of
India, Chandigarh, State Bank of Patiala, Kharar and HDFC Bank, Ropar.
The primary data was collected through techniques like personal interviews, direct
structured questionnaires which consisted closed ended, multiple choice and
dichotomous questions. It has been analyzed by putting the data in the form of graphs
and pie charts and the conclusion has been drawn thereafter, which will fulfill the
objectives of the study

The survey revealed that there is a tremendous difference between the conclusions
drawn from both the markets as the living style; occupations, incomes, etc are not same
in these two markets. Preferences of the investors are different; their risk taking
capacity is also different which in turn affects their investing habits. Therefore, the
strategies followed to capture these markets should also be different.

7
INTRODUCTION ABOUT THE PROJECT

NAME OF THE PROJECT: PENETRATION OF MUTUAL FUNDS IN RURAL

AND URBAN MARKETS

THINGS, WHICH WILL BE COVERED UNDER THIS PROJECT

Under this project, following things will be covered in detail

• What are mutual funds?
• Brief history of mutual funds in India
• Awareness about mutual funds in both urban and rural markets
• Investing habits of people in both rural and urban markets
• Marketing strategies followed by SBI to capture these markets
• Growth made by both urban and rural markets
• Recommendations which can be implemented in both these markets
• Future prospects in both these markets

PURPOSE OR OBJECTIVE OF THE PROJECT

This study is being carried out keeping in mind the following objectives:
MAIN OBJECTIVE
- To know the level of awareness about mutual funds and investing habits of
people in urban and rural markets so that proper marketing strategies can be
designed for both the markets accordingly
SPECIFIC OBJECTIVES
- To see the prospects of growth in both urban and rural market.
- To get an idea about the type of marketing strategies that will be needed in both
the markets because both these sectors require different marketing strategies.

8
RATIONALE OF STUDY

The study of this nature is being conducted for the first time at SBI MF,
Chandigarh. SBIMF, because of being an old company, has been able to establish
an effective brand image in the minds of the consumers but with competition
entering the mutual funds sector, companies need to catch up with the ever
changing demands of the industry. The study is being conducted to improve the
existing position of SBI MF as a brand in the mutual fund industry. It is also done
in order to know as to how much knowledge the consumer has about the mutual
funds.

SCOPE OF THE STUDY

The study is being conducted to know the difference in investing habits of people
in urban and rural market. Primary research requires speaking to various Bank
employees and clients of the Bank during Bank working hours in Chandigarh,
Kharar, Ropar and adjoining villages. The secondary research requires exploring
research papers, newspapers, magazines brought to the workplace by SBIMF Fund
Manager and Finance Department. It also involves surfing the internet.

9
RESEARCH METHODLOGY

Research in a common parlance refers to search of knowledge. Infact one can define
the research as scientific and systematic search for pertinent information on specific
topic.
Research comprises defining and redefining the problem, formulating hypothesis,
suggest solution, collecting, organizing, and evaluating data, reaching at a specific
conclusion and at the same time careful evaluation of the conclusion.
Marketing research is a systematic and objective process of identifying and
formulating the market problems, setting research objectives and methods for
collecting, editing, coding, tabulating, analyzing, interpreting and preventing data in
order to find justified solutions for these problems.
Research methodology is a systematic way to solve the research problem. The research
process consists of a series of closely related activities and to solve a research problem
adopt the following process.

1. RESEARCH DESIGN
“A research design is the arrangement of condition for collection and analysis of
Data in a manner that aims to combine the relevance to the research purpose
with Ceremony of procedure.”
The preparation of research design appropriate for a particular research problem
involves usually the consideration of the following:
a. Means of obtaining the information
- Personal observation
- Questionnaire
b. Time for the Study.

SAMPLE DESIGN

Sample size and sample areas are two important things in sample design. Sample size
means number of customers, clients visited during the project. Sample area means area
covered for conducting the research. This project covers the study of both urban and
rural markets for mutual funds. For this purpose

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SAMPLE SIZE
I plan a sample of 100 people out of which 50 would be from urban market and 50
would be from rural market. This sample size would be covering various categories of
people viz. government employees, business class, agriculturists, professionals, NRIs,
traders.

SAMPLE AREA

Sample area means area in which research is conducted. For my project both urban and
rural markets are to be covered. For studying urban market areas covered will be
Chandigarh and Panchkula, for rural market areas covered would be Kharar and
adjoining villages.

COLLECTION OF DATA

During the research process the critical stage is the stage of data collection. It needs
utmost attention of the researcher, as data is the base for the whole of the research
undertaken. So data collection should be accurately done otherwise mistake of data
collection will lead to errors and failures of the research report.

ORIGIN OF DATA

Data can be obtained from primary and secondary sources. Primary data is collected
from primary sources; it is first hand information and original in nature and content.
Primary data is collected by conducting experiments, personal observations,
interviews, questionnaires etc. In the project primary data will be collected with the
help of questionnaire and personal observation.
Secondary data will be collected with the help of company manuals, pamphlets,
magazines, web sites, Banks, SEBI and product profile manual of the company.

ANALYSIS AND INTERPRETATION

Once the data has been collected it should be analyzed very carefully. Data should be
converted in to the short form with the help of coding, tabulation, and drawing graphs.

PREPARATION OF REPORT

Finally the report will be prepared on the basis of the above research methodology.
11
LIMITATIONS OF THE STUDY

• The survey was conducted in Chandigarh and adjoining areas. The standard of
living, per capita income of people, earning style, etc. of this region is different
from other areas. Therefore, the inferences drawn from the survey can’t be
generalized.
• Another major limitation was unwillingness of respondents to reveal
information. Due to lack of sufficient time and hesitation to reveal information
regarding their investments, it was a difficult task to extract information from
them.
• Sample size was also very small i.e. 50 from rural sector and 50 from urban
sector. Therefore, it is very difficult to infer correct conclusions from small
sample.

12
INTRODUCTION

Different investment avenues are available to investors. Mutual funds also offer good
investment opportunities to the investors. Like all investments, they also carry certain
risks. The investors should compare the risks and expected yields after adjustment of
tax on various instruments while taking investment decisions. The investors may seek
advice from experts and consultants including agents and distributors of mutual funds
schemes while making investment decisions.

WHAT IS A MUTUAL FUND?

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.
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. All such investors buy units of a fund that best suits their
needs be it capital growth, regular returns or safety of capital. The Fund Manager then
invests this pool of money in securities, ranging from shares to debentures to money
market instruments, depending on the objective of the scheme. The income earned
through these investments and the capital appreciation realised 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:

13
Mutual Fund Operation Flow Chart

Figure 1
Investments in securities are spread across a wide cross-section of industries and
sectors and thus the risk is reduced. Diversification reduces the risk because all stocks
may not move in the same direction in the same proportion at the same time. Mutual
Fund issues units to the investors in accordance with quantum of money invested by
them. Investors of Mutual Funds are known as unit holders.
The profits and losses are shared by the investors in proportion of their investments.
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 and Exchange Board of India (SEBI) which regulates
securities markets before it can collect funds from public.

A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset
management company (AMC) and custodian.
The trust is established by a sponsor or more than one sponsor who is like promoter of
the company.
The trustees of the mutual fund hold it’s property for the benefit of the unit holders.
Asset Management Company (AMC) approved by SEBI manages the funds by making
the investments in various types of securities.

14
Custodian, who is registered with SEBI, holds the securities of various schemes of the
fund in it’s custody.
The trustees are vested with the general power of superintendence and direction over
AMC. They monitor the performance and compliance of SEBI Regulations by the
mutual fund.

SEBI Regulations require that at least two thirds of the directors of the Trustee
Company or board of trustees must be independent i.e. they should not be associated
with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual
funds are required to be registered with SEBI before they launch any scheme.
However, Unit Trust of India (UTI) is not registered with SEBI (as on January
15,2002).

History of the Indian Mutual Fund Industry:-

The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank the. The history of
mutual funds in India can be broadly divided into four distinct phases: -

First Phase – 1964-87

An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by
the Reserve Bank of India and functioned under the Regulatory and administrative
control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the
Industrial Development Bank of India (IDBI) took over the regulatory and
administrative control in place of RBI. The first scheme launched by UTI was Unit
Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under
management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance
Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund
15
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 comprehensive
and revised Mutual Fund Regulations in 1996. The industry now functions under the
SEBI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds
setting up funds in India and also the industry has witnessed several mergers and
acquisitions. As at the end of January 2003, there were 33 mutual funds with total
assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets
under management was way ahead of other mutual funds.

Fourth Phase – since February 2003

16
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust
of India with assets under management of Rs.29,835 crores as at the end of January
2003, representing broadly, the assets of US 64 scheme, assured return and certain
other schemes. The Specified Undertaking of Unit Trust of India, functioning under an
administrator and under the rules framed by Government of India and does not come
under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund 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.

ADVANTAGES OF MUTUAL FUNDS

If mutual funds are emerging as the favorite investment vehicle, it is because of the
many advantages they have over other forms and avenues of investing, particularly for
the investor who has limited resources available in terms of capital and ability to carry
out
detailed research and market monitoring. The following are the major advantages
offered by mutual funds to all the investors:

17
• Portfolio diversification: Mutual funds normally invest in a diversified
portfolio or securities. Each investor in a fund is a part owner of all of the
fund’s assets. This enables him to hold a diversified investment portfolio even
with a small amount of investment that would otherwise require big capital.

• Professional management: Even if the investor has a big amount of capital

available to him, he benefits from the professional management skills brought
in by the fund in the management of the investor’s portfolio. The investment
management skills, along with the needed research into available investment
options, ensure a much better return than what an investor can manage on his
own. Few investors have the skills and resources of their own to succeed in
today’s fast-moving, global and sophisticated markets.

• Reduction/Diversification of Risk: An investor in a mutual fund acquires a

diversified portfolio, no matter how small his investment. Diversification
reduces the risk of loss, as compared to investing directly in one or two shares
or debentures or other instruments. When an investor invests directly, all the
risk of potential loss in his own. A fund investor also reduces his risk in
another way. While investing in the pool of funds with other investors, any
loss on one or two securities is also shared with other investors. This risk
reduction is one of the most important benefits of a collective investment
vehicle like the mutual fund.

• Reduction of transaction costs: What is true of risk is also true of the

transaction costs. A direct investor bears all the costs of investing such as
brokerage or custody of securities. When going through a fund, he has the
benefit of economies of scale; the funds pay lesser costs because of larger
volumes, a benefit passed on to its investors.

• Liquidity: Often, investors hold shares or bonds they cannot directly, easily
and quickly sell. Investment in a mutual fund, on the other hand, is more
liquid. An investor can liquidate the investment, by selling the units to the fund

18
 if open-ended, or selling them in the market if closed-end, and collect funds at
the end of a period specified by the mutual fund or the stock market.

• Convenience and flexibility: Mutual fund management companies offer many

investor services that a direct market investor cannot get. Investors can easily
transfer their holdings from one scheme to the other, get updated market
information, and so on.

DIFFERENT ORGNANISATIONS ENGAGED IN SELLING MUTUAL FUNDS

IN INDIA: Following are the main mutual fund agencies in India

• UNIT TRUST OF INDIA (UTI)

• SBI MUTUAL FUNDS
• ABN AMRO
• ALLIANCE CAPITAL
• BIRLA SUNLIFE
• CANBANK
• HSBC MUTUAL
• HDFC
• PRUDENTIAL ICICI
• RELIANCE
• SAHARA INDIA
• CHOLAMANDALAM
• TATA MUTUAL
• STANDARD CHARTERED
• D S P MERRILL LYNCH
• TAURUS
• TEMPLETION INDIA
• PNB
• PRINCIPAL MUTUAL

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DIFFERENT TYPES OF MUTUAL FUND SCHEMES

Schemes according to maturity period

A mutual fund scheme can be classified into open-ended scheme or closed ended
scheme depending on it’s maturity period.

OPEN-ENDED FUND/SCHEME

An open-ended fund or scheme is one that is available for subscription and repurchase
on a continuous basis. These schemes do not have a fixed maturity period. Investors
can conveniently buy and sell units at Net Asset Value (NAV) related prices which are
declared on a daily basis. The key feature of open-ended schemes is liquidity.

CLOSE-ENDED FUND/SCHEME

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund
is open for subscription only during a specified period at the time of launch of the
scheme. Investors can invest in the scheme at the time of the initial public issue and
thereafter they can buy and sell the units of the scheme on the stock exchanges where
the units are listed. In order to provide an exit route to the investors, some closed-
ended funds give an option of selling back the units to the mutual fund through
periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one
of the two exit routes is provided to the investor i.e. either repurchase facility or
through listing in stock exchanges. These mutual fund schemes disclose NAV
generally on a weekly basis.

Schemes according to investment objective:

A scheme can also be classified as growth scheme, income scheme, or balanced
scheme considering it’s investment objective. Such schemes may be open-ended or
close-ended schemes as described earlier. Such schemes may be classified as follows:

GROWTH / EQUITY ORIENTED SCHEME

20
The aim of growth fund is to provide capital appreciation over the medium to long
term. 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 investor may choose an
option depending on their preferences. The investors must indicate the option in the
application form. The mutual funds also allow the investor to change the option at a
later date. Growth schemes are good for investors having a long term outlook seeking
appreciation over a period of time.

INCOME / DEBT ORIENTED SCHEME

The aim of the income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate
debentures, Government securities and money market instruments. Such funds are less
risky as compared to equity funds. These funds are not affected because of fluctuations
in equity markets. However, opportunities of capital appreciation are also limited in
such funds. The NAVs of such funds are affected because of change interest rates in
the country. If the interest rates fall, NAVs of such funds is likely to increase in the
short run and vice-versa. However, long-term investors may not bother about these
fluctuations.

BALANCED FUND

The aim of balanced fund is to provide both growth and regular income as such
schemes invest both in equities and fixed income securities in the proportion indicated
in the offer document. These are appropriate for investors looking for moderate
growth. They generally invest 40-60% in equity and debt instruments. These funds are
also affected because of fluctuations in share prices in the stock markets. However,
NAVs of such funds are likely to be less volatile compared to pure equity funds.

MONEY MARKET or LIQUID FUNDS

These funds are also income funds and their aim is to provide easy liquidity,
preservation of capital and moderate income. These schemes invest exclusively in safer
21
short term instruments such as treasury bills, certificate of deposit, commercial paper
and inter bank call money, Government securities, etc. returns on these funds fluctuate
much less compared to other funds. These funds are appropriate for individual and
corporate investors as a means to park their surplus funds for short periods.

GILT FUNDS

These funds invest exclusively in Government securities. Government securities have

no default risk. NAVs of these schemes also fluctuate due to change in interest rates
and other economic factors as in the case with income or debt oriented schemes.

INDEX FUNDS

Index funds replicate the portfolio of a particular index such as the BSE Sensitive
index, S&P NSE 50 index (Nifty), etc. These schemes invest in the securities in the
same weightage comprising of an index. NAVs of such schemes would rise or fall in
accordance with the rise or fall in the index, though not exactly by the same percentage
due to some factors known as “tracking error” in technical terms. Necessary
disclosures in this regard are made in the offer document of the mutual fund scheme.
There are also exchange traded index funds launched by the mutual funds, which are
traded in the stock exchanges.

SECTOR SPECIFIC FUNDS / SCHEMES

These are the funds 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 specific 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 in an appropriate
time. They may also seek advice of an expert.

TAX SAVING SCHEMES

These schemes offer tax rebates to the investors under specific provisions of the
income Tax Act,1961 as the Government offers tax incentives for investment in
22
specified avenues e.g. Equity Linked Saving Scheme (ELSS). Pension schemes
launched by the mutual funds also offer tax benefits. These schemes are growth
oriented and invest predominantly in equities. Their growth opportunities and risks
associated are like any equity-oriented scheme.

INVESTMENT PATTERN

Investing in mutual funds is extremely easy and simple but many people find it
difficult because of lack of information and awareness with them. 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 the mutual funds through the agents and
distributors of who provide such services. Now days, the post offices and banks also
distribute the units of mutual funds.
Even the NRIs can also invest in mutual funds.

DISADVANTAGES OF INVESTING THROUGH MUTUAL FUNDS

While the benefits of investing through mutual funds far outweigh the disadvantages,
an investor and his advisor will do to be aware of a few shortcomings of using the
mutual funds as investment vehicles.
• No Control over Costs: An investor in a mutual fund has no control over the
overall cost of investing. He pays investment management fees as long as he
remains with the fund, albeit in return for the professional management and
research. Fees are usually payable as a percentage of the value of his
investments, whether the fund value is rising or declining. A mutual fund
investor also pays fund distribution costs, which he would not incur in direct
investing. However, this shortcoming only means that there is a cost to obtain
the benefits of mutual fund services. However, this cost is often less than the
cost of direct investing by the investors.
• No tailor - made portfolios: Investors who invest on their own can build their
own portfolio of shares, bonds and other securities. Investing through funds
means he delegates this decision to the fund managers. The very high-net-worth
23
 individuals or large corporate investors may find this to be a constraint in
achieving their objectives. However, most mutual funds help investors
overcome this constraint by offering families of schemes-a large number of
different schemes-within the same fund. An investor can choose from different
investment plans and construct a portfolio of his choice.
• Managing a portfolio of funds: Availability of a large number of funds can
actually mean too much choice for the investor. He may need advice on how to
select a fund to achieve his objectives, quite similar to the situation when he
has to select individual shares or bonds to invest in.

24
INTRODUCTION TO ORGANISATION

STATE BANK OF INDIA MUTUAL FUNDS (SBIMF)

The sponsor of SBI Mutual Funds i.e. State Bank Of India has entered into a joint
venture arrangement with Societe Generale Asset Management (SGAM). SGAM is a
subsidiary of Societe Generale Group, which established one of the first French mutual
funds in the year 1964. SGAM was established in the year 1996 and has assets under
management aggregating to more than Euro 300 billion and has presence in United
States, Continental Europe, United Kingdom and Asia.

SBI Mutual Funds is the first mutual fund set up by the public sector bank.

Last year SBI Mutual Funds as one of the fastest growing AMCs (Assets
Managements Company) in the country with a growth of over 26% and assets under
management of Rs.6595 Crores as on 31st March 2005, compared to the industry
growth of 8%.

The board of trustees of SBI MF has entrusted the management of the fund to SBI
Funds Management Pvt. Ltd., the AMC.

About the AMC

SBI Funds Management Pvt. Ltd. (SBIMF) having it’s corporate office at 191, Maker
Tower “E”, 19th Floor, Cuffe Parade, Mumbai 400 005 is a joint venture between SBI
and SGAM. As per audited accounts on 31st march, 2005, the authorized and paid up
capital of the AMC was Rs. 50 crores and the net worth of the AMC was Rs. 70.75
crores. Pursuant to the shareholder’s and Share Purchase Agreement dated November
5, 2004 entered into amongst State Bank of India (SBI), Societe Generale Asset
Management (SGAM), Societe Generale S.A. and SBI Funds Management Private
Limited (SBIFM), 37% of the paid up share capital of the AMC (i.e. 18,50,000 equity
shares of Rs. 100/- each) had been transferred by SBI to SGAM on December 21,
2004.
25
SBIFM had entered into an Investment Management Agreement with the Trustees of
SBI Mutual Fund on 14th May, 1993 and also a supplemental thereto on 28th April,
2003 and the same have been replaced by Restated and Amended Investment
Agreement entered into between SBIMFTCPL and SBIMF on December 29, 2004. in
terms of this Agreement, SBIMF has assumed the day to day investment management
of the fund and in that capacity makes investment decisions and manages the SBI
Mutual Fund Schemes in accordance with the scheme objectives, Trust deed,
provisions of Investment Management Agreement and SEBI Regulations &
Guidelines.

To date, SBIMF has successfully launched and managed 37 schemes (including 2

offshore funds) of SBI Mutual Funds of which 19 schemes have been redeemed. Of the
18 schemes still being managed, 16 are open-ended schemes and the rest are close-
ended schemes, with total net assets of Rs. 7182 crores(as on 31st May 2005)
In addition to the Investment Management activity, SBI Funds Management Private
Limited has also been granted a certificate of registration as a Portfolio Manager with
registration code INP000000852. the certificate of registration is valid for a period of
three years up to 15th January 2007. The AMC certifies that there would be no conflict
between the Asset Management activity and the Portfolio Management activity.

26
BOARD OF DIRECTORS
The board of directors of the SBIMF comprises the following eminent persons:

Shri A.K.Purwar

Chairman (Associate)
Chairman
State Bank of India

Mr. Alian Clot

CEO of SGAM and Member of

SG Group Management Committee
(Associate Director)

Mr. Christian d’Allest

Director International Network and

Member of the Executive Committee
(Associate Director)

Shri Manu Chadha

Director (Independent)
Chartered Accountant

Shri Pradeep Mallick

Director (Independent)

Shri Ashwin Dani

Director (Independent)
Vice chairman &
Managing Director

Mr. P.G. Kakodkar

Ex-Chairman, State Bank of India

(Independent Director)

27
Shri P.G.R. Prasad

Director (Associate)
Managing Director
SBI Funds Management Pvt. Ltd.

KEY PERSONNEL

The day-to-day operations of the AMC are looked by experienced and qualified
professionals, consisting of senior officials on deputation from the State Bank of India
as well as directly recruited officials of the AMC.
a) The top key management personnel of SBI Funds Management Pvt. Ltd. are

Shri P.G.R.Prasad (Managing Director & Chief Executive Officer)

59 years Associated with SBI MF since November 2002

Mr. Didier Turpin (Deputy Chief Executive Officer)

48 years Associated with SBI MF since December 2004

Shri N. Sethuram Iyer (Chief Investment Officer)

52 years Associated with SBI MF since January 2003

b) Funds Managers

Fund Manager Name of Scheme

Mr. K. Ram Kumar Magnum Income Fund

Vice President and (floating rate plan)
Head (Fixed Income) Magnum InstaCash Fund
40 years Magnum Institutional Income
Associated with SBI MF Fund
Since July 2003

Mr. Sandip Sabharwal Magnum Equity Fund

28
33 years Magnum NRI Investment Fund
Vice President and Magnum Multiplier Plus 93
Head (Equity & Research) Magnum Global Fund
Associated with SBI MF Magnum Taxgain Scheme 93
Since June 1995 Magnum Sector Funds Umbrella
Midcap Fund
Ms. Bekxy Kuriakose Magnum Monthly Income Plan,
Chief Manager Magnum Children’s Benefit Plan,
26 years Magnum Income Plus Fund,
Associated with SBIMF Magnum NRI Investment Fund
Since April 2000 (STBP,LTBP)

Mr. Ganti Murthy Magnum Gilt Fund,

36 years Magnum Income Fund,
Asst. Vice President (Growth, Dividend and Bonus Plans)
Associated with SBIMF Magnum Debt Fund Series
Since July 2004

Mr. Nitin Jain Magnum Balanced Fund,

33 years Magnum Index Fund
Chief Manager
Associated with SBIMF
Since March 2004

In an effort to provide consistent returns to it’s investors SBI Mutual Funds have a
bouquet of 16 schemes catering to the needs of different segment of investors.
Following are the various schemes:

• MAGNUM INSTACASH FUND (MICF)

• MAGNUM INSTITUTIONAL INCOME FUND (MIIF)
• MAGNUM INCOME FUND (MIF)
• MAGNUM GILT FUND (MGILT)
• MAGNUM MONTHLY INCOME PLAN (MMIP)

29
• MAGNUM CHILDREN’S BENEFIT PLAN (MCBP)
• MAGNUM INCOME PLUS FUND (MIPF)
• MAGNUM NRI INVESTMENT FUND (MNRI)
• MAGNUM BALANCED FUND (MBAL)
• MAGNUM INDEX FUND (MINDEX)
• MAGNUM EQUITY FUND (MEF)
• MAGNUM MULTIPLIER PLUS SCHEME 93 (MMPS)
• MAGNUM GLOBAL FUND (MGLF)
• MAGNUM TAXGAIN SCHEME 93 (MTGS)
• MAGNUM EQUITY FUND (MEF)
• MAGNUM SECTOR FUNDS UMBRELLA (MSFU)
• MAGNUM COMMA FUND

30
AWARENESS ABOUT MUTUAL FUNDS IN RURAL AND URBAN

MARKETS

The mutual fund industry in India started in 1963 with the formulation of Unit Trust of
India, after this many public and private sector banks and financial institutions have
also entered into this sector. Till date there are more than 25 assets management
companies which are managing funds in India.

Despite of the fact that mutual funds industry is operating in India since 42 years,
awareness level of mutual funds in India is very low. In urban sector, small proportion
of population knows about mutual funds but the awareness level is very low.

In urban market around 60% people know about mutual funds, but they are not clear
about the entire concept of mutual funds. They are not aware about the various kinds of
schemes offered by mutual funds, they are not aware about the tax benefits that can be
availed by investing in mutual funds. They find it similar to investing directly in share
market.

As already stated, awareness level in rural market is very low. They don’t know
anything about mutual funds. They find it a very difficult concept to understand.
Except few people who are working in urban areas and few businessmen, nobody
knows about mutual funds in rural market.

31
Different investment avenues available to people in India

There are two main asset classes where people generally invest:
• Physical assets
• Financial assets

These are the asset classes where people generally invest but the investors with small
savings generally invest in various schemes of Post-Offices and Banks as investing in
real estate and currencies, etc. require a huge investment.

PHYSICAL ASSETS

Physical assets mainly cover the following two types of assets

• Gold
• Real Estate

Indians are the largest investors in Gold in its various forms. Investment in gold is not
subject to erosion on account of rupee depreciation, which is perhaps it’s biggest
advantage. Historically, Gold has been perceived as a hedge against inflation or as a
means of security in bad times. Hence, investors do not always look for returns while
investing in gold. Recently, the government has deregulated the import of Gold
significantly. Nevertheless, it is the average Indian’s obsession with Gold that has
maintained its place as a key investment option.
An interesting development recently has been the permission by the government for
banks to issue Gold Bonds. These bonds represent securitisation of gold. Investors can
hold these bonds and earn some returns, instead of holding the metal and incur costs
and risks associated with storage. The instrument is still in its infancy.
Real estate has also been a preferred investment alternative with the Indian investor.
However, the capital required is beyond the reach of the small individual investor.
Also, the real estate market has been in a recession for the past few years, and even
during an upswing, it is not easy to liquidate holdings quickly at an appropriate price.
Even high net worth individuals have tended to keep away from real estate purely as a
form of investment.

32
 FINANCIAL ASSETS

Financial assets include the following types of assets

• Banks Fixed deposits
• Post Offices Various kinds of instruments
are offered
• Corporates Shares
Bonds, Debentures
Fixed deposits
• Government Govt. securities
PPF
Other Personal Investments
• F Is Bonds
• Insurance Cos. Insurance Policies

Various schemes offered by Post-Offices and Banks are discussed as under:

Schemes offered by Post-Offices

1. KISAN VIKAS PATRA :

Money doubles in 8 years and 7 months. A single holder type certificate may be issued
to a.) an adult for himself or on behalf of a minor or to a minor; can also be purchased
by two adults, b) a Trust. Facility of premature encashment is also available.

2. POST OFFICE MONTHLY INCOME ACCOUNT

Rate of interest is 8% per annum; in addition 10% bonus is also payable on maturity.
Maturity period is 6 years. Premature encashment can be done after one year at a
discount of 3.5%.

3. 15 YEAR PUBLIC PROVIDENT FUND ACCOUNT

33
Rate of interest is 8% per annum compounded annually. Deposits qualify for Income
Tax Rebate under Section 80-C of I.T Act. Interest is completely tax-free. Withdrawal
is permissible every year from 7th financial year.

4. POST OFFICE TIME DEPOSIT ACCONT

Interest is payable annually but calculated quarterly.

Period rate
1 year account 6.25%
2 year account 6.50%
3 year account 7.25%
5 year account 7.50%

5. 5-YEAR POST OFFICE RECURRING DEPOSIT ACCOUNT

On maturity Rs. 10/- per month account fetches Rs. 728.90.

6. POST OFFICE SAVINS ACCOUNT

Rate of interest is 3.5% on individual / joint and group accounts. 3% per annum on
public accounts. Interest is completely tax-free.

7. NATIONAL SAVINGS CERTIFICATE (VIII-ISSUE)

Interest is compounded six monthly but payable at maturity, Rs. 100/- grows to Rs.
160/-. It can be encashed after 6 years only.
Deposits qualify for tax rebate under Sec. 80--C of I.T Act.

8. SENIOR CITIZENS SAVINGS SCHEME RULES-2004

9% P.A interest payable quarterly. An individual who has attained the age of 60 years
or above can open the account. Maturity period is 5 years.

Schemes offered by banks

Bank deposits have been a favored investment option with the Indian investor, mainly
because of the liquidity and safety benefits they offer. Most Indian banks are promoted
34
either by the government or by leading financial institutions. Investors who want to
invest their savings in banks can basically invest in two types of schemes i.e. savings
account and fixed deposits.
Savings account offers an interest rate of 3.5%

Fixed deposits offer the following rate of interest

7 to 14 days 3.5%
15 to 45 days 4%
46 to 90 days 4.5%
91 to 120 days 4.75%
121 to 179 days 4.75%
180 days and
up to 1 year 5.25%
> 1 year and
up to 3 years 5.50%
>3 years and
up to 5 years 6%
Over 5 years 6.25%
There is an additional rate of 0.5% for senior citizens.
(Note : the rates shown above are not generalized rates of all Banks, these are the
interest rates on deposits offered by SBOP taken as example)

CORPORATES

Securities available in the capital market include equity instruments, debt instruments
and quasi-debt equity instruments issued by companies.
Equity instruments are in the form of shares in companies either issued privately and
unlisted, or issued publicly and listed on a stock exchange. The benefit of investing in
equities is the high growth potential that this avenue offers.
The corporate borrowers – companies – also issue debentures paying fixed rates of
interest. In India, these debentures are generally secured by the assets of the borrower.
Companies can also issue unsecured bonds, like F Is, though the instrument will not
be called a debenture.

35
Investing in company fixed deposits is yet another avenue available in the market.
While company fixed deposits may carry a higher rate of interest as compared to bank
deposits, they are also an unsecured investment.

FINANCIAL INSTITUTIONS

In the past, financial institutions such as ICICI and IDBI have issued bonds on a
regular basis. The bonds have usually offered two options two options. One option
allows the investor to receive periodic interest payments over the term of the
instrument, the other one is deep discount option, which does not pay interest on a
periodic basis. Both options qualify for tax rebate under Section 80-C of the Income
Tax Act.

GOVERNMENT

These instruments include

a.) Public Provident Fund

b.) RBI Relief Bonds
c.) Government Securities

LIFE INSURANCE

Life insurance in India was the monopoly of the Life Insurance Corporation of India
(LIC) until recently, when the government opened the market to private players.
A ‘without profits’ policy purchased by an individual promises to pay a certain sum of
money (the sum assured) to his survivor nominated by him in the event of his death
within a specified period (the term of the policy). If the individual survives the term of
the policy, he does not receive anything.
A ‘with profits’ policy not only pays the sum assured in the event of death during the
policy term, but also pays a bonus as declared by LIC from year to year. If the
individual survives the term of the policy, he receives the sum assured plus bonus
accrued.
In India, life insurance is viewed more as an investment option than as a vehicle for
risk protection. They also tend to opt for it on account of tax benefits. Premium paid on

36
life insurance qualifies for tax rebate under Section 80-C and proceeds at the time of
death or maturity are exempt from tax.

COMPARISON OF INVESTMENT PRODUCTS

There are two kinds of comparisons possible among different investment options. First,
one must compare the options by the nature of the investments- their characteristics,
benefits and risks. From this comparison will emerge certain type of investment which
may be considered superior to other types. Next, one needs to look at the specifics of
each investment option in terms of its current performance and its suitability for the
investor in the light of the investor’s specific situation (taxability, age, etc.). From this
comparison at a given point of time will emerge the options considered superior to
others for a given investor.

Comparison by nature of investment

Investors certainly look for the best returns on different options. However, to
determine which option is better, the comparison should also be made in terms of
other benefits that the investor ought to look for in any investment. Besides returns,
other potential benefits of any investment also include the safety of the capital, the risk
or the stability of returns, the liquidity or access to the funds when needed, and the
convenience with which the investment can be managed.

The table below compares the investment options discussed in the previous section
under the broad heads viz. return, safety, volatility, liquidity and convenience.
.

37
 Return Safety Volatility Liquidity
Convenience
Equity High Low High High or
Moderate Low
FI Bonds Moderate High Moderate Moderate
High
Corp. debentures Moderate Moderate Moderate Low,
Low
Company Moderate Low Low Low
Fixed Deposits Moderate
Bank Deposits Low High Low High
High
PPF Moderate High Low Moderate
High
Life Insurance Low High Low Low
Moderate
Gold Moderate High Moderate Moderate
Low
Real Estate High Moderate High Low
Low
Mutual Funds High High Moderate High
High
Table1
Although the table provides a qualitative evaluation of various financial products, the
comparison serves as a useful guide towards determining the best option.

It is clear from the above that equity investing in general has good potential in terms of
return, liquidity and convenience. However, individual stocks can give varied
performance, one stock being more liquid than another or one stock giving lower
return than another. For this reason, equity investing is fraught with risk and is not
ideal for individual investor. It is recommended only for investors who are willing to
invest the time required for research in stock selection and possess the capacity to bear
the inherent risk.
Bonds issued by institutions are an attractive option, particularly now with the liquidity
that accompanies their listing on stock exchanges. Bonds are a stable option in terms of
fixed returns, and are recommended for the risk-averse investor. However, bonds can
loose value when general interest rates go up. Bonds are also subject to credit risk or
38
risk of default by the borrower. In case of corporate bonds, the risk must be assessed in
terms of the strength of the borrower as indicated by the credit rating assigned to the
bonds. In the absence of credit rating, it is extremely difficult for the investor to decide
on the quality of the bonds or debentures. The secondary market in corporate bonds in
India is also very thin, leading to lack of liquidity for the investors who wish to sell.
Company fixed deposits fall short on several counts and are recommended only if the
issuing company and the deposits on offer are rated highly by credit rating agencies.
The major advantage of bank deposits relative to other products is the liquidity they
offer. Banks are usually willing to give loans against fixed deposits at a nominal
charge over the interest rate applicable to the deposits. Deposit rates offered by banks
vary as per RBI directives and the interest rate scenario in the economy. Bank deposits
score high on safety, as the return of capital is guaranteed to the depositor by the bank.
However, the financial soundness of the bank is important to look at.
PPF combines stability with a respectable return. Its tax-exempt status makes it an
attractive mechanism for the small investor to build his savings portfolio. However, the
lock in period involved in PPF means that the investor loses out in terms of liquidity,
particularly during the early years of the scheme. Being a government supported
investment, PPF scores very high on safety, compared even to bank deposits.

Insurance could become a serious investment vehicle once the insurance market in
India is opened to private players. In today’s scenario the opportunity cost in terms of
return is too high for insurance to be compared on even terms with the other options.
Its liquidity is also extremely low, though safety is considered high at present for the
government owned LIC as the only insurer.

Comparison by current performance

Besides the inherent advantages of investing through mutual funds, recent tax
amendments have also helped to enhance the attractiveness of mutual funds. Dividends
distributed by mutual funds are exempt from tax in the hands of investor. Investments
in recognized mutual funds also qualify for tax rebate under Section 80-C.

Comparisons among different investment options are not valid for all time as the
financial markets are now deregulated and dynamic, causing frequent changes in
39
comparative returns from time to time. Each year mutual funds and other options may
give different returns. For example, when the banks increase or reduce the deposit
interest rates, the mutual funds performance may look better or worse. If the
government changes the PPF interest rates, again there will be an impact on the
comparative status of different options. That is why, it is recommended that the
specific comparisons of different investment options be made at a given point of time,
using the then prevalent return data.

THE INVESTOR PERSPECTIVE: FUNDS vs. OTHER PRODUCTS

Investment Risk Investment

objective Tolerance Horizon

Equity Capital appreciation High Long Term

FI Bonds Income Low Medium to Long

Term
Corporate Income H-M-Low Medium to Long
Debentures Term
Company Fixed Income H-M-Low Medium
Deposits
Bank Deposits Income Generally Low Flexible-All Terms

PPF Income Low Long Term

Life Insurance Risk Cover Low Long Term

Gold Inflation Hedge Low Long Term

Real Estate Inflation Hedge Low Long Term

Mutual Funds Capital Growth, H-M-Low Flexible-All Terms

Income

Table 2

40
The comparison above highlights the flexibility offered by mutual funds from the
investors perspective. An investor can choose from a wide variety of funds to suit his
risk tolerance, investment horizon and investment objective. Bank deposits offer
similar flexibility in investment horizon and risk level, but only a fixed income. An
investor looking for capital growth has to consider mutual funds, both equity and debt.
Direct equity investment offers the capital growth potential, but at high risk and
without the benefit of diversification and professional management offered by mutual
funds. Gold and real estate are attractive only in high inflation economies. Other
options are largely for the risk-averse, income-oriented investor. Mutual funds present
the widest choice to the investors.

MUTUAL FUNDS – THE BEST INVSTMENT OPTION

From the comparative analysis provided above, it emerges that each investment
alternatives has its strengths and weaknesses. Some options seek to achieve superior
returns (e.g. equity), but with correspondingly higher risk. Others provide safety (such
as PPF), but at the expense of liquidity and growth. Options such as Bank deposits
offer safety and liquidity, but at the cost of return. Mutual funds seek to combine the
advantages of investing in each of these alternatives while dispensing with the
shortcomings. Clearly, it is in the investor’s interest to focus his investment on mutual
funds.
However, a note of caution is in order. While the mutual funds are one of the best
options for the individual small investor, there are many mutual funds already
available for the investor to choose from. It must be realized that the performance of
different funds varies from time to time. Also, the Indian mutual fund sector has been
in an evolving phase over the past five years during which time several investors have
encountered some poorly performing funds, while others have been fortunate to be
with good performers. Besides, evaluation of fund performance is meaningful when a
fund has access to an array of investment products in the market. Currently in India,
there are limited investment opportunities available to mutual funds, and their track
record must be studied in this context. Therefore, the Indian investors have moved over
to mutual funds in a gradual process. But, there is little doubt that mutual funds will

41
increasingly attract the small investors as compared to other intermediaries such as
banks and insurance companies.

42
MARKETING STATEGIES FOLLOWED BY SBI MUTUAL FUNDS

There are 4 basic marketing strategies that are followed by SBI Mutual funds

• Advertising
• All India Distributors
• Individual Financial Advisors
• Banking Channel

ADVERTISING

Advertising is the paid form of non-personal presentation of goods and services by an

identified sponsor. SBI Mutual Funds basically use the following tools of advertising
for promoting their various schemes:
• Print Advertising: It basically includes advertising through newspapers, posters,
magazines, etc.
• Electronic Advertising: It includes advertising through television and websites.
For example some schemes are promoted on various TV channels and websites
include MSN.
• Hoardings: Another tool used by SBI Mutual Funds are hoardings.

ALL INDIA DISTRIBUTORS

SBI Mutual Funds market its schemes through various all India distributors. Following
are to name a few:
• KARVY Consultancy Limited
• Stock Holding Corporation of India
• India Bulls
• Master Trust
• SBI Capital Limited
• Birla Distribution House
• R R Investors
43
INDIVIDUAL FINANCIAL ADVISORS
These include AMFI certified retail agents. They are required to get a certification
from Association of Mutual Funds of India by clearing an examination conducted by
AMFI.

BANKING CHANNEL

SBI Mutual Funds also market its schemes through various bank branches. It has a tie
up arrangement with various banks which include:
• Nationalized banks like Andhra Bank
• Public sector banks like SBI, State Bank of Patiala, State Bank of Bikaner and
Jaipur, State Bank of Travancore, State Bank of Mysore, State Bank of Indore,
State Bank of Surastra.
• Private banks like HDFC Bank Ltd., IDBI Bank Ltd., Kotak Mahindra Bank,
ICICI Bank Ltd.

Besides these 4 main strategies, there are certain other measures also which are taken
by SBI MF to market their schemes like:
• Participation in finance related events like CII Fares, Exhibitions, Annual
Days, etc.
• Corporate Follow up. There are two types of follow-up telephonic follow up
and visiting the client.
• Direct Marketing
• Training the bank employees.

44
GROWTH OF SBI MUTUAL FUNDS

Corpus and AUM Growth – SBI Mutual Funds

Year Corpus % Change AUM % Change

(Rs. Cr.) (Rs. Cr.)
Dec. 92 1600 2398
94 2453 53.31% 2748
95 2558 4.28% 3448
96 2153 -15.83% 2574 -25.35%
97 1815 -15.70% 2011 -21.87%
98 1498 - 17.47% 1742 -13.38%
99 1587 5.94% 2288 31.34%
2000 2401 51.29% 4746 107.3%
01 2785 15.99% 2446 -48.46%
02 2847 2.23% 3095 26.53%
03 3028 6.36% 3458 11.73%
04 4340 43.33% 5339 54.40%
May 05 5597 28.96% 6595 23.53%
Table 3

SBIMF has grown tremendously in terms of corpus as well as number of

investors. This can be proved from the fact that last year SBIMF was

one of the fastest growing AMCs in the country with a growth of over
st
26% and Assets under management of 6595 crores as on 31 may 2005,

compared to industry growth of 8%

The graph indicates the growth of assets of mutual fund industry over the years.

45
Growth In Assets Under Management

Figure 2

ANALYSIS OF DATA

1. Do you know about mutual funds?

This question was asked from 100 people, 50 from urban sector and 50 from rural
market. The replies were as under:
URBAN MARKET

46
 YES-66%
NO-34%

Figure 3

In the urban market sample size taken was 50, out of these 50, 33 people said that
they know about mutual funds and 17 people were totally unaware about mutual
funds. This shows that awareness level in urban market is quite satisfactory.

47
RURAL MARKET

YES-6%
NO-94%

Figure 4
In rural market awareness level is very low.
Out of the sample size of 50, only 3 persons were aware about the concept of
mutual funds and rest was totally unaware.

IF ANSWER TO ABOVE QUESTION IS YES, then

• Do you know that you are investing in a safer way than investing directly
in shares?

URBAN MARKET

YES-69.69%
NO-30.30%

48
Figure 5
Out of 33 people who knew about the concept of mutual funds 23 said that they
know that investing in mutual funds is safer than investing directly in shares i.e.
69.69% people knew the fact.
RURAL MARKET

YES-33.33%
NO-67.67%

Figure 6

In the rural market out of 3 people only 1 was aware of the fact that investing in
mutual funds is safer. i.e. 33.33%.

2. Do you know about various kinds of schemes offered by mutual funds?

URBAN MARKET

YES-40%
NO-60%

49
Figure 7

There are various kinds of schemes offered by mutual funds like equity linked
schemes, debt schemes, balanced schemes, etc. In the urban market 40% people
know about these different kinds of schemes i.e. when asked from 50 persons, 20
replied that they know about these schemes.

RURAL MARKET

50
 YES-4%
NO-96%

Figure 8
When the same question was asked from 50 individuals in rural market only 2 gave
positive reply i.e. 4% people in the rural market knew about the various kinds of
schemes offered by mutual funds.

3. What kind of risk you are willing to take?

URBAN MARKET

40
35
30
25
20
No.of persons
15
10
5
0
HIGH MOD. LOW

Figure 9

51
In the urban market 5 out of 50 individuals are willing to take high risk i.e. 10% of
them are willing to take high risk as shown in pie-diagram. Similarly 10% of them
i.e. 5 out of 50 are willing to take moderate risk and 80% investors i.e. 40 out of 50
investors want to take very low risk.
Individuals who are willing to take high risk, they mainly comprise business-class.

high-10%
mod.-10%
low-80%

Figure 10

52
RURAL MARKET

45
40
35
30
25
20 No. of persons
15
10
5
0
HIGH MOD. LOW

Figure 11

In the rural market only 1 individual out of 50 was willing to take high risk i.e.
only 2% people were willing to take high risk and 4 out of 50 were willing to take
moderate risk i.e. 8% and rest were preferring low risk i.e. 90% people in rural
market were willing to take low risk.

53
 High-2%
Mod.-8%
Low-90%

Figure 12

4. According to you, which is the best investment option.

a. Bank/post office deposits
b. Real Estate
c. Mutual Funds

URBAN MARKET

54
 50

40

30

No.of persons
20

10

0
B/P.O R.E M.F

Figure 13
This question gives us an idea about the investing habits of people in urban and
rural markets. In urban market every person prefers to keep its savings with banks
and post offices because they find it the most safer and convenient place to keep
their savings. 50 out of 50 individuals said that banks and post-offices are the best
investment option. 50% people prefer investing in real estate i.e. 25 out of 50
investors prefer real estate. 30% prefer mutual funds i.e. 15 out of 50 individuals
prefer investing in mutual funds.

RURAL MARKET

50

40

30
No.of persons
20

10

0
B/P.O R.E M.F

Figure 14
55
In the rural market, investment pattern of people is a bit different, despite of the fact
that investing in real estate requires huge investment, they consider investing in real
estate as the best investment option. 100% people in rural market prefer investing in
real-estate. Only 6% people prefer mutual funds in rural market i.e. 3 out of 50
individuals responded for mutual funds and 42 out of 50 individuals preferred bank
and post office deposits i.e. 84%.

5. What is the purpose of your investment.

a. Regular Income
b. Savings for Children
c. Tax Rebate Purposes
d. Growth in Investment

URBAN MARKET

40
35
30
25
20
No.of persons
15
10
5
0
a. b. c. d.

Figure 15

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 In the urban market 40 out of 50 individuals replied that they want to save for their
children (i.e.80%), 20 out of 50 (i.e. 40%) wanted to invest for regular income and
10 out of 50 (i.e. 20%) wanted to invest for tax rebate purposes and growth in
investments.

RURAL MARKET

45
40
35
30
25
20 No.of persons
15
10
5
0
a. b. c. d.

Figure 16
In rural market 90% (i.e. 45 out of 50) people invest for their children, 46% (i.e. 23 out
of 50) for regular income, 6% (i.e. 3 out of 50) for tax rebate purposes and 10% (i.e. 5
out of 50) for growth in investments.
This shows that in both the markets main purpose of investing is savings for children.

6. In which kinds of schemes you invest?

a. Equity Linked Schemes

b. Debt Linked Schemes
c. Balanced Schemes

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URBAN MARKET

25

20

15
No.of persons
10

0
Equity Debt Bal.

Figure 17

In the urban market 50% (i.e. 25 out of 50) people were willing to invest in Equity
Linked Schemes, it means that they are willing to take some risk and they invest for
long term. Proportion of people who invest in debt linked schemes is very less as only
22% investors (i.e. 11 out of 50) preferred Debt Linked Schemes and 28% investors
(i.e. 14 out of 50) preferred Balanced Schemes which are a combination of both equity
and debt linked schemes.
RURAL MARKET

45
40
35
30
25
20 No. of persons
15
10
5
0
Equity Debt Bal.

58
Figure 18

In the rural market investment pattern was a bit different, investors wanted to take very
less risk and 88% (44 out of 50 individuals) people preferred Debt Linked Schemes,
6% (3 out of 50) preferred Equity Linked Schemes and the rest 6% Balanced Schemes.

7. What is the amount you prefer to invest annually?

a. Less than 5000

b. 5000 to 10000
c. 10000 to 50000
d. More than 50000

URBAN MARKET

59
 25

20

15

No.of persons
10

0
a. b. c. d.

Figure 19

This question is analyzed for urban market only as most of the individuals in
rural sector replied that they don’t have sufficient funds to invest. In rural
market 50% investors invest more than 50000 annually, 14% invest between
10000 to 50000, 26% invest between 5000 to 10000 and 10% invest less than
5000.

CONCLUSION

From the analysis of above questions, it has been interpreted that awareness level of
mutual funds is very low in India as compared to developed countries. It is quite
60
satisfactory in urban market but in rural market it is very low. In both the markets,
people who are aware of mutual funds they don’t know about the various kinds of
schemes offered by mutual funds, they simply confuse it with equity shares so it is the
need of the hour to provide the desired information to the general public. In rural as
well as urban market investors are not willing to take any kind of risk, they want stable
returns while taking a very less amount of risk. That is why; Banks and Post-Offices
remain the most favored investment option for investors. In urban market almost every
investors favor Banks and Post Offices and in rural market, investors prefer Real
Estate. In urban market people prefer investing in equity-linked schemes whereas in
rural market preferences of investors are entirely different, they prefer debt-linked
schemes. In both the markets the primary purpose of investments is to save for their
children followed by regular income.
Regarding the quantum of investment made by investors, in the rural market people
say that they don’t have sufficient funds to invest as their priorities are different as
compared to investors in urban market.

RECOMMENDATIONS

61
Certain recommendations to capture rural market

As earlier discussed, very few people are aware of mutual funds in rural market but the
next market which should be targeted is rural market only therefore there are certain
recommendations to tap rural market:
• Awareness level in rural market is very low, to make people aware of mutual
funds some sound advertising campaigns should be designed.
Certain special camps can be organized in rural areas to provide proper
guidance to rural population. People who are a bit aware of mutual funds, they
confuse them with equity shares and therefore they need clarity about the
concept which can conveniently be imparted through organizing such type of
special camps.
• Most of the population is illiterate and they find difficulty in understanding
English language, therefore advertisements and brochures should be developed
and designed in local language.
Verbal guidance should also be provided to people in rural area.
• People in rural areas find it difficult to undertake activities like selling and
repurchasing their units, so they need agents who can guide them at regular
intervals.
Franchise should be opened so that it becomes convenient for them to perform
various activities related to mutual funds.
• As per the survey done in rural market, most of the people want to invest their
surplus funds in real estate, so if SBI Mutual Funds comes out with a new fund
having its objective to invest in real estate, it can prove beneficial to tap rural
market.

Certain recommendations for urban market

As per the survey done in urban market, awareness level of mutual funds in urban
market is quite satisfactory; therefore SBI Mutual Funds needs to capture this market
by taking some new and innovative measures.
• Marketing channel of SBI Mutual Funds is very weak as compared to other
asset management companies. It has launched many new and innovative
schemes from time to time like Magnum Contra Fund, Magnum Comma Fund,

62
 Magnum Emerging Businesses Fund, etc. but there are certain drawbacks in its
marketing strategies, which should be amended.
Advertising expenditure done by SBI Mutual Funds is also very low as
compared to other asset management companies. Therefore it can increase its
advertising expenditure to a certain extent to capture the market share.
• As observed from the survey, main investment objective of retail investor is to
save for their children and there is only one scheme i.e. Magnum Children’s
Benefit Plan which is running exclusively for this purpose. This scheme has not
performed well for the last few months; therefore SBI Mutual Funds should
focus its attention in this sphere to increase the share of retail investors.

PENETRATION OF MUTUAL FUNDS IN URBAN SECTOR

GENERAL INFORMATION
63
Name - …………………………………..
Address - …………………………………..
Occupation - …………………………………..
Age - …………………………………...

SPECIFIC INFORMATION
1. Do you know about mutual funds?
• Yes
• No

If yes, then

Do you know that you are investing in a safer way than investing directly in

shares?

• Yes
• No
2. Do you know about various kinds of schemes offered by mutual funds?
• Yes
• No

3. What kind of risk you are willing to take?

• HIGH
• MODERATE
• LOW

4. In which kinds of schemes you invest?

• EQUITY LINKED SCHEMES
• DEBT LINKED SCHEMES
• BALANCED SCHEMES

5. According to you, which is the best investment option?

• BANK / POST OFFICE DEPOSITS
64
 • REAL ESTATE
• MUTUAL FUNDS

6. What is the purpose of your investment?

• REGULAR INCOME
• TAX-REBATE PURPOSES
• SAVINGS FOR CHILDREN
• GROWTH IN INVESTMENT

7. What is the amount you prefer to invest annually?

• LESS THAN Rs. 5000
• Rs. 5000 – 10000
• Rs. 10000 – 50000
• MORE THAN Rs.50000

BIBLIORAPHY

65
BOOKS

1. D.C. Anjaria, Dhaivat Anjaria, AMFI Workbook for Employees and Distributors,
Mumbai, December-2001, 2nd Edition, page number 191-201

2. M.Y. Khan, Indian Financial System, New Delhi, Tata Mcgraw Hill Publishing
Company,Ltd, 2002, 2nd Edition, page number 14.1-14.51

3. C.R. Kothari, Reseach Methodology Methods and Techniques, New Delhi,

Wishwa Prakashan, 2002, 2nd Edition, page number 1-29

4. Shashi K Gupta, R. K. Sharma, Financial Management, New Delhi, Kalyani

Publishers, 2000, 3rd Edition, page number 28.1-28.14

JOURNALS

1. Guide to Mutual Funds, Published by SEBI, page number 3-7

2. Key Information Memorandum of SBI Funds Management Pvt. Ltd

3. Investment Update of SBI MF, May 2005

4. Brochures of Banks and Post Offices

WEBSITES

1. www.sbimf.com

2. www.amfiindia.com

3. www.mutualfunds.india.com

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