Académique Documents
Professionnel Documents
Culture Documents
its performance
in India
PROJECT GUIDE:
Mr. Kawal Nain Singh
SubmittedS
SSubmitted
by:
Rajneesh kumar saini
Roll
No- 90112232662
MBA 4th sem.
(Finance)
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I am sure with everyone’s blessings; this project would prove my perseverance and
dedication and would provide some valuable lead to Mutual fund investors for development
and prosperity. First of all, I would like to thank Prof. Satish Kapoor for giving me the
opportunity to do such a wonderful project. I would like to thank Mr. Soumya Chakraborty,
Mr. Shiladitya Chatterjee, Mr. Satya Datta Dey, Mr. Sujit Bharti for their numerous
suggestion, guidelines and intellectual influence.
I also want to acknowledge the other faculty of our college for providing me a good support
throughout the project period. I am greatly impressed by their friendly attitude and heartiest
cooperation. A homely ambience is felt everywhere. This made me work more lucidly as I
was able to approach anybody of them during my problem.
At last, I am indebted to my parents who have been a perennial source of inspiration in every
walks of my life.
Last but not least, I am thankful to all those names have not mentioned without whose co-
operation this project would have not been completed.
Rajib Roy
PGDBM (2k61A37)
Executive Summery...…………………………………………………….3
Introduction…..………………………………………………………......4
Background……..……………………………………………………….13
AUM…………………………………………………………………….17
MFs of India……………………………………………………………..25
Types of investors………………………………………………………..29
Marketing strategies……………………………………………………...31
Research Methodology…………………………………………………..45
Data Analysis…………………………………………………………….48
Conclusion……………………………………………………………….64
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Glossary………………………………………………………………….70
Bibliography……………………………………………………………..74
Questionnaire……………..……………………………………………..75
The term mutual fund itself gives its meaning. It means the fund, which is
collected and invested mutually or collectively. It acts as investment conduit,
which pools the savings of the community and invests large funds in a fairly
large and well-diversified portfolio of sound investments. In India presently 36
mutual funds are working. It includes public, private and foreign companies.
1. Equity funds
2. Debt/Income funds
3. Balanced funds
1. There is now vibrant competition in the Indian mutual fund industry even
though all the new entrants into this industry since 1987 are small compared
to the old established like UTI-MF which is still the market leader in terms of
Assets under Management.
INTRODUCTION:
Mutual funds are financial intermediaries, which collect the savings of investors and invest
them in a large and well-diversified portfolio of securities such as money market instruments,
corporate and government bonds and equity shares of joint stock companies. A mutual fund is
a pool of common funds invested by different investors, who have no contact with each other.
Mutual funds are conceived as institutions for providing small investors with avenues of
investments in the capital market. Since small investors generally do not have adequate time,
knowledge, experience and resources for directly accessing the capital market, they have to
rely on an intermediary, which undertakes informed investment decisions and provides
consequential benefits of professional expertise. The raison d’être of mutual funds is their
ability to bring down the transaction costs. The advantages for the investors are reduction in
risk, expert professional management, diversified portfolios, and liquidity of investment and
tax benefits. By pooling their assets through mutual funds, investors achieve economies of
scale. The interests of the investors are protected by the SEBI, which acts as a watchdog.
Mutual funds are governed by the SEBI (Mutual Funds) Regulations, 1993.
These funds can survive and thrive only if they can live upto the hopes and trusts of their
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individual members. These hopes and trusts echo the peculiarities which support the
(a) Limited resources in the hands of investors quite often take them away from stock
market transactions.
(b) Lack of funds forbids investors to have a balanced and diversified portfolio.
(d) To buy shares, investors have to engage share brokers who are the members of stock
exchange and have to pay their brokerage.
(f) It is difficult for them to know the development taking place in share market and
corporate sector.
(g) Firm allotments are not possible for small investors on when there is a trend of over
subscription to public issues.
Mutual Funds are becoming a very popular form of investment characterized by many
advantages that they share with other forms of investments and what they possess uniquely
themselves. The primary objectives of an investment proposal would fit into one or
combination of the two broad categories, i.e., Income and Capital gains. How mutual fund is
expected to be over and above an individual in achieving the two said objectives, is what
attracts investors to opt for mutual funds. Mutual fund route offers several important
advantages.
funds at his disposal. Mutual funds on the other hand, pool funds of lakhs of investors and
D. Tax Shelter: Depending on the scheme of mutual funds, tax shelter is also available.
As per the Union Budget-2003, income earned through dividends from mutual funds is 100%
tax-free at the hands of the investors.
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Investing in securities through mutual funds has many advantages like – option to reinvest
dividends, strong possibility of capital appreciation, regular returns, etc. Mutual funds are
also relevant in national interest. The test of their economic efficiency as financial
intermediary lies in the extent to which they are able to mobilize additional savings and
channeling to more productive sectors of the economy.
Any mutual fund has an objective of earning income for the investors and/ or getting
increased value of their investments. To achieve these objectives mutual funds adopt different
strategies and accordingly offer different schemes of investments. On this basis the simplest
way to categorize schemes would be to group these into two broad classifications:
Operational classification highlights the two main types of schemes, i.e., open-ended and
close-ended which are offered by the mutual funds.
Operational Classification:
(A) Open Ended Schemes: As the name implies the size of the scheme (Fund) is open – i.e.,
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not specified or pre-determined. Entry to the fund is always open to the investor who can
subscribe at any time. Such fund stands ready to buy or sell its securities at any time. It
(B) Close Ended Schemes: Such schemes have a definite period after which their shares/
units are redeemed. Unlike open-ended funds, these funds have fixed capitalisation, i.e., their
corpus normally does not change throughout its life period. Close ended fund units trade
among the investors in the secondary market since these are to be quoted on the stock
exchanges. Their price is determined on the basis of demand and supply in the market. Their
liquidity depends on the efficiency and understanding of the engaged broker. Their price is
free to deviate from NAV, i.e., there is every possibility that the market price may be above
or below its NAV. If one takes into account the issue expenses, conceptually close ended
fund units cannot be traded at a premium or over NAV because the price of a package of
investments, i.e., cannot exceed the sum of the prices of the investments constituting the
package. Whatever premium exists that may exist only on account of speculative activities. In
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Following are the portfolio classification of funds, which may be offered. This classification
may be on the basis of (A) Return, (B) Investment Pattern, (C) Specialised sector of
investment, (D) Leverage and (E) Others.
To meet the diversified needs of the investors, the mutual fund schemes are made to enjoy a
good return. Returns expected are in form of regular dividends or capital appreciation or a
combination of these two.
1. Income Funds: For investors who are more curious for returns, Income funds are floated.
Their objective is to maximize current income. Such funds distribute periodically the income
earned by them. These funds can further be splitted up into categories: those that stress
constant income at relatively low risk and those that attempt to achieve maximum income
possible, even with the use of leverage. Obviously, the higher the expected returns, the higher
the potential risk of the investment.
2. Growth Funds: Such funds aim to achieve increase in the value of the underlying
investments through capital appreciation. Such funds invest in growth oriented securities
which can appreciate through the expansion production facilities in long run. An investor who
selects such funds should be able to assume a higher than normal degree of risk.
3. Conservative Funds: The fund with a philosophy of “all things to all” issue offer document
announcing objectives as: (i) To provide a reasonable rate of return, (ii) To protect the value
of investment and, (iii) To achieve capital appreciation consistent with the fulfillment of the
first two objectives. Such funds which offer a blend of immediate average return and
reasonable capital appreciation are known as “middle of the road” funds. Such funds divide
their portfolio in common stocks and bonds in a way to achieve the desired objectives. Such
funds have been most popular and appeal to the investors who want both growth and income.
1. Equity Fund: Such funds, as the name implies, invest most of their investible shares in
equity shares of companies and undertake the risk associated with the investment in equity
shares. Such funds are clearly expected to outdo other funds in rising market, because these
have almost all their capital in equity. Equity funds again can be of different categories
varying from those that invest exclusively in high quality ‘blue chip companies to those that
invest solely in the new, unestablished companies. The strength of these funds is the expected
capital appreciation. Naturally, they have a higher degree of risk.
2. Bond Funds: such funds have their portfolio consisted of bonds, debentures, etc. this type
of fund is expected to be very secure with a steady income and little or no chance of capital
appreciation. Obviously risk is low in such funds. In this category we may come across the
funds called ‘Liquid Funds’ which specialize in investing short-term money market
instruments. The emphasis is on liquidity and is associated with lower risks and low returns.
3. Balanced Fund: The funds, which have in their portfolio a reasonable mix of equity and
bonds, are known as balanced funds. Such funds will put more emphasis on equity share
investments when the outlook is bright and will tend to switch to debentures when the future
is expected to be poor for shares.
There are number of funds that invest in a specified sector of economy. While such funds do
have the disadvantage of low diversification by putting all their all eggs in one basket, the
policy of specialising has the advantage of developing in the fund managers an intensive
knowledge of the specific sector in which they are investing. Sector based funds are
aggressive growth funds which make investments on the basis of assessed bright future for a
particular sector. These funds are characterised by high viability, hence more risky.
All mutual funds comprise four constituents – Sponsors, Trustees, Asset Management
Company (AMC) and Custodians.
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Sponsors:
Trustees hold a fiduciary responsibility towards unit holders by protecting their interests.
Trustees float and market schemes, and secure necessary approvals. They check if the AMC’s
investments are within well-defined limits, whether the fund’s assets are protected, and also
ensure that unit holders get their due returns. They also review any due diligence by the
AMC. For major decisions concerning the fund, they have to take the unit holders consent.
They submit reports every six months to SEBI; investors get an annual report. Trustees are
paid annually out of the fund’s assets – 0.5 percent of the weekly net asset value.
They are the ones who manage money of the investors. An AMC takes decisions,
compensates investors through dividends, maintains proper accounting and information for
pricing of units, calculates the NAV, and provides information on listed schemes. It also
SPONSOR REGISTRAR
exercises due diligence on investments, and submits quarterly reports to the trustees. A fund’s
AMC can neither act for any other fund nor undertake any business other than asset
management. Its net worth should not fall below Rs. 10 crore. And, its fee should not exceed
1.25 percent if collections are below Rs. 100 crore and 1 percent if collections are above Rs.
MAINTIAN
TRUSTEE
100 crore. SEBI can pull up an AMC if itUP
deviates from its prescribed RECORDS OF
role.
SETS
COMPANY AND SERVICES
OF
Custodian:
Often an independent organisation, it takes custody of securities and other assets of mutual
fund. Its responsibilities include receipt and delivery of securities, collecting income-
APPOINTS
distributing dividends, safekeeping of MUTUAL
ACT AS TRUSTEE the units and segregating assets
SUBSCRIBE INVESTORS
THEand settlements
TO THE FUND (AS UNITS OF
between schemes. Their charges
UNITHOLDERS OF rangeA between
TRUST) 0.15-0.2 percent of the net value of the
ASSET
MANAFEMENT
COMPANY Mutual fundsTHE
and its performance in India
MANGES SAFE KEEPS CUSTODIAN
INVESTMENT THE ASSETS
OF OF
SEBI GUIDELINES:
The SEBI issued a set of regulations and code of conduct of 20 January. 1993 for the smooth
conduct and regulation of Mutual fund. The silent features of these guidelines are a s follows:
• Mutual Fund cannot deal in Option trading, short selling or carrying forward transactions
in securities.
• Restriction to ensure those investments under all schemes do not exceed 15% of the funds
in the shares and debentures of a single company.
• SEBI will grant registration to only those Mutual Fund which can prove an efficient and
orderly conduct of business.
• The Mutual fund should have a custodian, not associated in any way with the AMC and
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• The minimum net worth of AMC is Rs. 5 crore of which the minimum contribution of the
sponsor should be 40%.
• SEBI can impose suspension of registration in case of violation of the provision of the
SEBI act 1992, to the regulations.
BACKGROUND
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:
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by
the Reserve Bank of India and functioned under the Regulatory and administrative control of
the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial
Development Bank of India (IDBI) took over the regulatory and administrative control in
place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988
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1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks
and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India
(GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987
followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),
Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund
(Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund
in December 1990. At the end of 1993, the mutual fund industry had assets under
management of Rs.47,004 crores.
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.
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,
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BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations.
Many nationalized banks got into the mutual funds business in the early nineties and got of to
a good start due to the stock market boom prevailing then. These banks did not really
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understand the mutual funds business and they viewed it as another kind of banking activity.
Objectives:
10. To study the pattern of consumer behaviour within the available investment options
and to test awareness among the consumer about the various mutual fund houses.
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Several simple approaches can help to judge volatility and most don’t involve much numbers-
crunching.
The prospectus: the first step is to read the prospectus, the closest thing to an owner’s
manual for a fund the portfolio’s objectives and risk factors are spelled out in detail. For
example, an aggressive-growth fund may mention that it concentrates on a limited number of
companies or uses leverage- two signs that it could be more volatile than normal. A sector
fund investing in a specific industry or precious metals would also likely experience wider
swings in NAV than a conservatively managed portfolio.
Annual returns: another simple way to eyeball a fund’s risk is to examine its annual returns
over a period of several up and down years. Compare the results with those of similar types of
funds and a market index such as the base sensitive index. How did the portfolio fare in weak
market years such as 1981, 1984, 1987,1990 & 2001? Annual returns can, however, conceal a
lot of volatility along the way.
Quarterly returns: for this reason, we have to analyze quarterly or even monthly returns.
Take a look at table A, which compares the quarterly and annual performance for a
hypothetical volatile fund.
TABLE-A
QUARTERLY RETURNS
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The fund gained 11 percent and 14.8 percent in years 1 and 2 respectively. Considered by
themselves, the annual numbers indicate relative stability. However, they hide a string of
negative quarterly returns. Compounding the four negative quarters results in a loss of 34.6
percent. Anyone who had invested in the fund just before the tumble and sold right before its
rebound would have suffered a staggering blow.
Past quarterly returns for funds are not as accessible as annual results are, especially if you
want them for longer periods.
It is useful to know how a portfolio held up in particularly bad stretches such as the fourth
quarter in 2000 and the third quarter of 2001. But for most purposes, a study of past annual
returns will suffice.
Standard Deviation
Standard deviation, as noted, is a way to quantify risk. It reflects the degree to which returns
fluctuate around their average. The higher the standard deviation, the greater the risk. The
measure is typically calculated using monthly results. A conservative equity fund might have
a number below 3.5 percent per month, whereas an extremely aggressive one could have a
value of 6 percent or more.
What do these numbers mean? About thirds of the time a fund’s actual monthly return will
range within plus or minus one standard deviation of its monthly average. Its return will vary
within two standard deviations about 95 percent of the time. Suppose an aggressive-stock
portfolio has an average monthly return of 2 percent and a standard deviation of 6 percent.
About two thirds of the time its monthly performance would fall within the-4 percent to + 8
percent range. About 95 percent of the time returns should lie within the bounds of -10
percent and +14 percent. This gives you an idea of the magnitude of loss you might expect in
an unusually bad month.
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Table 1
Total Returns
Jan 7% 12% 4%
Feb. 4 -6 2
Mar. 6 11 3
Apr. -4 -11 -2
May -1 5 1
June 5 7 2
July -4 -8 -2
Aug. 4 8 3
Sept. 3 6 2
Oct. 2 5 1
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Nov. -1 -6 0
It’s pretty clear from the negative monthly returns that ABC Growth has the greater risk. In
fact standard deviation shows that it has about twice as much variability as the market index
and four times as much as XYZ.
analysts commonly use 36 months. An individual could calculate standard deviations for
older funds using annual return data. Atleast 15 years of information would be needed to
obtain meaningful results.
Standard deviation can also be used to evaluate the riskiness of bond portfolios. The
standards deviation of a bond fund’s returns would reflect price fluctuations resulting from
changing interest rates (interest rate risk) or changes in the quality of the bonds held (credit
risk).
Market risk is commonly measured by what’s known as the “beta coefficient.’ Beta relates
the return on a stock or mutual fund to a market index, commonly the BSE. This is often done
by taking returns for, say, the past 36 months and correlating them with the index’s monthly
results.
Beta reflects the sensitivity of the fund’s return to fluctuations in the market index. The beta
for the average volatility- the higher the beta, the greater the risk. For example, a fund with a
beta of 1.5 would be expected to advance or the stock funds have a beta of zero since their
returns are independent of the stock market. Negative betas can exist but are rare.
Based on the data in Table- 1, ABC Growth has a beta of 1.65 and XYZ Income has a beta of
0.48, (In statistical jargon, beta is the slope of a regression line relating the result on the fund,
or the Y-axis variable, to the return on the market, the X- axis variable). This confirms that
the first fund carries significantly more risk than the second.
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Beta isn’t perfect. Academics have criticized it on several grounds. For instance, the measure
isn’t necessarily a reliable indicator of future performance, especially over shorter periods. A
high-beta fund might not advance or may even decline if the market rallies.
Recently published research by University of Chicago Professors Eugene Fama and Kenneth
French presents compelling evidence that beta is no longer a useful predictor of performance.
This is, high-beta portfolios are not necessarily going to produce better returns than low-beta
portfolios do.
Also beta’s value depends on how an investor calculates it. For instance, a given mutual fund
would have one beta based on date stretching back 36 months and another for 60 months. It
would also vary depending on the market index that’s being used as a benchmark-say, the
BSE versus the NIFTY index.
Beta won’t reveal much about funds with highly specialized portfolios, such as those
investing in particular industries or in precious metals. These funds can be plenty voltaic in
the sense that their standard deviations are very high, but their betas might be well below 1.0,
even close to 0. This is because with the overall market. Also, betas often don’t work for
foreign-stock portfolios.
A measure known as “R-squared” can help spot questionable betas. This statistic indicates
how much of a fund’s fluctuations are attributable to movements in the overall market.
R-squared ranges between 0 percent and 100 percent. The greater a fund’s diversification, the
higher the R-Squared. The Vanguard Index Trust 500 Portfolio, which replicates the S&P
500, has an R-squared of 100 percent Large, well-diversified funds have R-squared values of
90 percent or higher. But, funds classified as “nondiversified” could have an R-squared of 60
percent or less. A gold portfolio might have an R-squared of only 1 percent only.
Re-squared may be misleading for funds that retreat heavily into cash or into short-term
fixed-income securities. If the fund has had a large cash position for some time, its R-squared
could be relatively low: This is because the returns on cash equivalents do not fluctuate in
sync with the stock market. When the portfolio gets back to a fully invested position, its R-
squared number would tend to rise.
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Standard deviation, too has its shortcomings since It’s based on past data that might not be
representative of the future. Nonetheless, it’s the single best risk measure for stock funds.
Here’s why:
1. Standard deviation is a broader measures than beta, as it gauges total risk, not just
market risk.
Risk by category
Some of the lower numbers are found among utility, convertible, balanced, and asset-
allocation funds. The fixed-income portfolios, with the exception of junk bonds, would
generally have much lower volatility measures, Overall, the monthly standard deviation for
bond funds averaged 1.4 percent during a recent three-year period.
Groups with higher standard deviations also tend to have higher-average betas, with some
notable exceptions such as the precious metals funds. These portfolios often do not move in
tandem with the stock market. When in doubt, use standard deviation, a generally better
indicator of risk than beta.
Risk-Adjusted returns
Since mutual funds are both popular and fairly easy to study and because their performance
results are readily accessible, they became the subject of intense academic inquiry. This was
at a time when scholars were seeking compelling evidence to show that stock markets were
seeking compelling evidence to show that stock markets were efficient, that past
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performances could not serve as a reliable guide to future results, and that the only way a
When academics measure the performance of a portfolio, they, look at risk and return
together. When evaluating a mutual fund, one should consider not only the return but also
how much risk was assumed to generate the results. Ideally, we would like to hold a fund that
consistently earns generous returns while fluctuating less than other, comparable investments.
Exceptional risk-adjusted performance would result from either superior stock selection,
superior market timing, or both.
The Sharpe and Treynor ratios are two ways to gauge risk-adjusted performance. Both use
what’s known as a “risk premium,” of the difference between a fund’s average return and the
average return on a riskless Treasury bill over the same period. The risk premium can be
positive or negative depending on how the fund performed. The Sharpe ratio divides the risk
premium by the fund’s standard deviation; the Treynor ratio divides the risk premium by the
fund’s beta. In either case higher values are favourable as they indicate more return per unit
of risk.
Example: Fund A had an average return of 2 percent monthly over a three-year period when
the T-Bill rate averaged 0.6 percent. Its standard deviation is 5 percent per month. Fund A’s
Sharpe ratio is 0.28 [(2 percent-0.6 percent)/5 percent]
Fund B returned 1.4 percent monthly with a 2 percent standard deviation, Its Sharpe ratio is
0.4 (1.4 percent- 0.6 percent)/ 2 percent] (2 percent]. So Fund b performed better than A on a
risk-adjusted basis.
While logical and useful, the risk-adjusted measures are not perfect. The shortcomings of
standard deviation, or beta especially, would affect them.
Another risk-adjusted gauge is the portfolio’s alpha. Simply put, alpha compares the actual
results of a portfolio with what would have been expected given the fund’s beta and the
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market’s behaviour. If the fund fares better than predicted, it has a positive alpha. Below-par
performance results in a negative alpha. Ideally, investors want managers who can
ICICI Mutual Fund, which has been renamed as Prudential-ICICI Mutual Fund has been
constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of
1882). The Mutual Fund was registered with SEBI on October 13, 1993.
ICICI Mutual Fund was established by erstwhile ICICI Ltd. (Since merged with ICICI Bank
Ltd.), by execution of a Trust Deed dated August 25, 1993. Prudential Plc, through its wholly
owned subsidiary, Prudential Corporation Holdings Limited.
a) Sponsors
Prudential plc is a leading international financial services group providing retail financial
products and services and fund management to many millions of customers worldwide. As a
group Prudential plc has, as of 31 December 2002, over GBP155 billion of funds under
management, more than 12 million customers and over 15,000 employees, worldwide.
ICICI Bank is India’s second largest bank with an asset base of Rs. 106,812 Crore, ICICI
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Prudential ICICI Trust Limited, a company incorporated under the Companies Act, 1956 is
the Trustee to the Fund vide Trust Deed dated August 25, 1993 as amended form to time.
Prudential plc, through its wholly owned subsidiary, Prudential Corporation Holdings
Limited, U.K. holds 55% of the shares of the Trustee, whereas the balance 45% shareholding
of the Trustee company is being held erstwhile ICICI and is under a process of being
transferred to ICICI Bank Ltd. and its Group companies.
HDFC mutual fund has been constituted as a trust in accordance with the provisions of the
Indian trusts Act , 1982 . The mutual fund has been registered with SEBI , vide registration
number MF/ 044/00/6 dated June 30,2000
HDFC was incorporated in 1977 as the first specialized housing finance assistance to
individuals, corporates and developers for the purchase or construction of residential housing
it also provides property related services.
The standard life assurance company was established in 1825 and has considerable
experience in global financial markets in 1998, standard life investments limited became the
dedicated investment management company of the standard life group and is owned 100% by
the standard life assurance company with global assets under management of approximately
US$126 billion as at May 15,2003. Standard life investments limited is one of the world’s
major investment companies and is responsible for investing money on behalf of five million
retail and institutional clients worldwide with its headquarters in Edinburgh, Standard life
investments limited has an extensive and developing global presence with operations in the
united kingdom, Ireland Canada, USA and Hong Kong .in order to meet the different needs
and risk profiles of its clients , standard life investments limited manages a diverse portfolio
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covering all of the major markets world –wide , which includes a range of private and public
equities, government and company bonds, property investments and various derivative
THE TRUSTEE
HDFC Trustee company limited, a company incorporated under the companies Act, 1956 is
the Trustee to the mutual fund vide the trust Deed. HDFC Trustee Company Limited is a
wholly owned subsidiary of HDFC.
UTI- The Division and Repeal of the Unit Trust of India Act-1963
Parliament has passed The Unit Trust of India (Transfer of Under taking and Repeal) Act
2002 (hereafter referred to as the Act) As per the Act the assets and liabilities of UTI has been
bifurcated into two parts the specified undertaking and the specified company. Specified
Undertaking of Unit Trust of India comprises of US 64 for which assured repurchase prices
have been announced and assured return schemes. The Specified Company has been set up as
a Mutul Fund viz UTI Mutual Fund, comprising of all net asset value based schemes
including the scheme mentioned in the memorandum. UTI Mutual Fund has been structured
in accordance with SEBI (Mutual Funds) Regulations 1996, The UTI Act has been repealed
with effect from 1st February 2003.
The UTI Mutual Fund has been constituted as a Trust under the Indian Trust Act 1882. The
Mutual Fund was registered with SEBI on January 14,2003 under Registration Code
MF/048/03/01.
Pooling of capital from the public for collective investment by way of acquisition, holding,
management, trading or disposal of securities or any other property whatsoever for the
purpose of providing facilities for the participation by persons as beneficiaries in such
properties or investments and in the profits or income arising there from.
Sponsors
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Trustee Company
UTI Trustee Company Private Limited a company incorporated under the Indian Companies
Act 1965 will be the first and sole trustee of the Mutual Fund under the Trust Deed dated
December 9, 2002 executed between the sponsors and the Trustee company ( the Trustee).
Registered office: UTI Tower, Gn Block, Bandra –Kurla Complex Bandra (East)Mumbai-
400051.
Reliance Mutual Fund (RMF) is one of India’s leading Mutual Funds, with Assets Under
Management (AUM) of Rs. 93,532 crore (AUM as on 29th Feb 08) and an investor base of
over 65.73 Lakhs. Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani
Group, is one of the fastest growing mutual funds in the country. RMF offers investors a
well-rounded portfolio of products to meet varying investor requirements and has presence in
115 cities across the country. Reliance Mutual Fund constantly endeavors to launch
innovative products and customer service initiatives to increase value to investors. "Reliance
Mutual Fund schemes are managed by Reliance Capital Asset Management Limited., a
subsidiary of Reliance Capital Limited, which holds 93.37% of the paid-up capital of RCAM,
the balance paid up capital being held by minority shareholders."Reliance Capital Ltd. is one
of India’s leading and fastest growing private sector financial services companies, and ranks
among the top 3 private sector financial services and banking companies, in terms of net
worth. Reliance Capital Ltd. has interests in asset management, life and general insurance,
private equity and proprietary investments, stock broking and other financial services.
Regd. Office : “Reliance House”, Near Mardia Plaza, Off CA Road, Ahmedabad 380006.
Corporate Office : Express Building, 4th & 6th Floor, 14-'E' - Road, Above Satkar Hotel,
Opp. Churchgate Station, Churchgate, Mumbai 400 020. Tel: 30414800 Fax: 30414818.
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The Et survey on retail equity investors in the secondary market has identified different
categories of investors based on their characteristics. Many questions are raised about the
behaviour of the small investor under different circumstances The answer to many of these
questions and similar others is not difficult to interpret once we identify the different types of
retail investors in the stock markets.
The survey shows that there are five different kinds of retail investors: ‘intellectuals’,
‘cavaliers’, ‘reactivists’, ‘opportunists’, and ‘gamblers’. This classification is based on the
attitudes of investors towards secondary market investments. Let’s explain each type of
investor and understand their investment psyche and behavioural patterns.
INTELLECTUALS:
This retail investor group forms around 17% of the total retail investment class. They are the
intelligent investors who follow an intelligent, individualist approach to investment planning
and a well-defined and deliberate strategy for stock investment. these investors are self reliant
good stock pickers and try to monetise market knowledge.
Giving proof of their intelligence, they consider low-risk, low–gain guaranteed return
avenues as passé. Also, they believe in and work towards a well-planned. asset allocation and
seek the right mix of stability and reliability of returns.
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CAVALIERS:
As high as 49% of the small retail equity investors are ‘cavaliers’. They are those who have
lost money in ‘fly-by –night ‘ schemes. Therefore, much of their investments are driven by
the desire to recover past losses and make profits in the future. As such, they invest
aggressively into equities, mostly in volatile sectors in order to make big gains. However,
they will also invest in FDs and insurance as a precautionary measure.They get tempted to
speculate in the secondary market and once in a while, they actually speculate but with
smaller amounts. The cavaliers try to gather all available information and compare it with
opinions from experts in the media, but will trust their own judgment before making
decisions.
REACTIVISTS:
About 5% of the retail equity investors fall under this category. These investors basically
short-term investors, are impulsive info addicts who are vulnerable to external influences
and as such, they have no specific investment patterns, They believe that dynamic and ad hoc
investments will result in better profits and are prompted to act on popular opinion rather than
systematic planning. As they lack in confidence, experience and expertise, they constantly
rely on advise from in the know people such as brokers and analysts. They are extremely
anxious about price fluctuations or short-term declines. They are very sceptical and believe
that small declines can lead to larger losses if not reacted upon immediately. Therefore, the
reactivists constantly seek new information about stocks in which they are currently invested
in , to ensure a feeling of security . Moreover, their investments apart from equities are solely
for tax-saving purposes.
OPPORTUNISTS:
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GAMBLERS:
19% the retail investor population is made up of not actual investors. But gamblers.’ They are
the typical thrill seeking traders who link profitability to personal achievement. They
experiment a lot, mostly driven by instinct and self confidence, as such their stock selection is
more a random exercise that lacks rationale. This class perceives all securities as tradable
commodities to be bought and sold in the short term. However, they know completely about
the risk factors and therefore, have a tendency to invest only as much as they are willing to
lose. As a part, of the game and this does not act as a hindrance for future investments. they
do not trust brokers, but will secretly verify their suggestions for fear of missing an
opportunity . they ascertain fair value of stocks on gut feeling rather than any financial
analysis and use sudden downward fluctuations as buying opportunities.
The present marketing strategies of mutual funds can be divided into two main headings:
Ø Direct marketing
Ø Joint Calls
This constitutes 20 percent of the total sales of mutual funds. Some of the important tools
used in this type of selling are:
Personal Selling: In this case the customer support officer or Relationship Manager of the
fund at a particular branch takes appointment from the potential prospect. Once the
appointment is fixed, the branch officer also called Business Development Associate (BDA)
in some funds then meets the prospect and gives him all details about the various schemes
being offered by his fund. The conversion rate in this mode of selling is in between 30% -
40%.
Telemarketing: In this case the emphasis is to inform the people about the fund. The names
and phone numbers of the people are picked at random from telephone directory. Some fund
houses have their database of investors and they cross sell their other products. Sometimes
people belonging to a particular profession are also contacted through phone and are then
informed about the fund. Generally the conversion rate in this form of marketing is 15% -
20%.
Direct mail: This one of the most common method followed by all mutual funds. Addresses
of people are picked at random from telephone directory, business directory, professional
directory etc. The customer support officer (CSO) then mails the literature of the schemes
offered by the fund. The follow up starts after 3 – 4 days of mailing the literature. The CSO
calls on the people to whom the literature was mailed. Answers their queries and is generally
successful in taking appointments with those people. It is then the job of BDA to try his best
to convert that prospect into a customer.
Hoardings and Banners: In this case the hoardings and banners of the fund are put at
important locations of the city where the movement of the people is very high. The hoarding
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and banner generally contains information either about one particular scheme or brief
information about all schemes of fund.
Intermediaries contribute towards 80% of the total sales of mutual funds. These are the
people/ distributors who are in direct touch with the investors. They perform an important
role in attracting new customers. Most of these intermediaries are also involved in selling
shares and other investment instruments. They do a commendable job in convincing investors
to invest in mutual funds. A lot depends on the after sale services offered by the intermediary
to the customer. Customers prefer to work with those intermediaries who give them right
information about the fund and keep them abreast with the latest changes taking place in the
market especially if they have any bearing on the fund in which they have invested.
Regular Meetings with distributors: Most of the funds conduct monthly/bi-monthly meetings
with their distributors. The objective is to hear their complaints regarding service aspects
from funds side and other queries related to the market situation. Sometimes, special training
programmes are also conducted for the new agents/ distributors. Training involves giving
details about the products of the fund, their present performance in the market, what the
competitors are doing and what they can do to increase the sales of the fund.
Joint Calls:
This is generally done when the prospect seems to be a high net worth investor. The BDA and
the agent (who is located close to the HNI’s residence or area of operation) together visit the
prospect and brief him about the fund. The conversion rate is very high in this situation,
generally, around 60%. Both the fund and the agent provide even after sale services in this
particular case.
Meetings with HNI’s: This is a special feature of all the funds. Whenever a top official visits
a particular branch office, he devotes atleast one to two hours in meeting with the HNI’s of
that particular area. This generally develops a faith among the HNI’s towards the fund.
When we consider marketing, we have to see the issues in totality, because we cannot judge
an elephant by its trunk or by its tail but we have to see it in its totality. When we say
marketing of mutual funds, it means, includes and encompasses the following aspects:
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Product designing;
Creating positive image about the fund and changing the nature of the market itself.
The above are the aspects of marketing of mutual funds, in totality. Even if there is a single
weak-link among the factors which are mentioned above, no mutual fund can successfully
market its funds.
There are certain issues that are directly linked with the marketing of mutual funds, the first
of which is widening, broadening and deepening of the market for the mutual fund products.
Consider the geographical spread of the investors in the mutual fund industry. Almost 80% of
the funds are mobilised from less than 10 centres in the country. In fact there are only around
35 centres in the country, which account for almost 95% of the funds mobilised. Considering
the vast nature of this country, the first priority is that the geographic spread has to be
widened and the market has to be deepened. Secondly, the mutual funds must try to spread
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their wings not only within the country, but also outside the country.
There exists a large investor base in rural and semi-urban areas, having a population of about
one lakh, which normally has access to only post office savings and bank deposits. This is the
single largest untapped market for mutual funds in India. Rural marketing, unlike the
marketing of mutual funds in the metros and urban areas, would require a completely
different strategy, and different means of communication to the target customer. Typically,
investors in the rural and semi-urban areas are not well educated and are inadequately
exposed to the capital market mechanisms. Therefore, more emphasis has to be given to the
electronic media and other forms of publicity such as wall paintings, hoardings, and
educational films. It is also important to utilise the services of local intermediaries like Gram
Sevaks, Postmasters, School teachers, Agricultural Co-operative Societies and Rural Banks. It
would therefore be more expensive to market mutual funds in such markets than marketing in
the cities.
The mutual fund industry can collectively undertake this job of creating awareness among the
rural population about the mutual funds as a new form of savings , translate that awareness
into increased fund mobilsation. Collective Advertisements can be released .AMFI can
coordinate this task on behalf of the various Mutual Fund houses. The retail distribution
network, comprising of the district representatives and the collection centres can be best
utilised to create such awareness and expand the market. Simplification of literature in
regional languages, group meetings in these semi-urban and rural areas, visits by mobile vans
with some audio visual aids and the like, should help develop these markets. In other words,
the untapped markets in the country should ideally be the first thing that the mutual funds in
India should endeavour to tap, not entirely relying upon the investors in the 35 odd cities of
the country. By concentrating on these areas, the investor base will get more broad based.
Once the semi urban population gets acquainted with the concept of mutual funds, it will
naturally give the much needed stability to the market.
B. Overseas Markets
The second aspect with respect to the widening and deepening the market is expanding the
overseas investor base. A target group with large potential, which can be tapped is non-
resident Indians. If offered after sales services of international standard, reasonable return and
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easy access to information, NRI’s are willing to invest in Indian mutual funds. The expansion
of the distribution network and quick dissemination of information, coupled with prompt and
A. Investor Preferences
The challenge for the mutual funds is in the tailoring the right products that will help
mobilising savings by targeting investors’ needs. It is necessary that the common investor
understands very clearly and loudly the salient features of funds, and distinguishes one fund
from the another. The funds that are being launched today are more or less look-alikes, or
plain vanilla funds, and not necessarily designed to take into account the investors’ varying
needs. The Indian investor is essentially risk averse and is more passive than active. He is not
interested in frequently changing his portfolio, but is satisfied with safety and reasonable
returns. Importantly, he understands more by emotions and sentiments rather than a
quantitative comparison of funds’ performance with respect to an index. Mere growth
prospects, in an uncertain market, are not attractive to him. He prefers one bird in the hand to
two in bush, and is happy if assured a rate of reasonable return that he will get on his
investment. The expectations of a typical investor, in order of preference are the safety of
funds, reasonable return and liquidity.
The investor is ready to invest his money over a long periods, provided there is a purpose
attached to it which is linked to his social needs and therefore appeals to his sentiments and
emotions. That purpose may be his child’s education and career development, medical
expenses, health care after retirement, or the need for steady and sure income after retirement.
In a country where social security and social insurance are conspicuous more by their
absence, mutual funds can pool their resources together and try to mobilise funds to meet
some of the social needs of the society.
B. Product Innovations
With the debt market now getting developed, mutual funds are tapping the investors who
require steady income with safety, by floating funds that are designed to primarily have debt
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instruments in their portfolio. The other area where mutual funds are concentrating is the
money market mutual funds, sectoral funds, index funds, gilt funds besides equity funds.
DISTRIBUTION NETWORK
Among the competitors to the mutual fund industry, Life Insurance Corporation with its
dedicated sales force is offering insurance products; banks with their friendly neighbourhood
presence offer the advantage of extensive network; finance companies with their hefty
upfront incentives offer higher returns; shares – provided the market is moving favourably –
also attract direct investments from retail investors. It is against this background that the
merits and demerits of the alternative methods of distribution have to be studied.
The alternative distribution channels that are available are selling, or using lead managers and
brokers along with sub-brokers, for selling units. The experience of UTI has been that, if
necessary motivation and incentive is provided to the retailer agents, they are likely to be
more successful than the lead managers. This is because, there is a sense of loyalty amongst
agents, in anticipation of getting continuous business throughout the year, and the trust and
credibility that has been generated or will be generated by being loyal to one institution.
Statistics reveal that the wastage ratio of application forms in the lead manager concept, is
much higher than in the retail agency system. Savings in advertisement and publicity
expenses is also affected, as the target of communication is restricted to a few group of
individuals, since the agent will function as a facilitator, informer and educator. The reduced
cost benefit will ultimately accrue to the investor in the form of higher returns.
In such a system, one achieves brand loyalty through continuous interaction between agents
and investors. Building a team of agents and other distribution network such as distribution
and collecting agents and franchise offices, will provide the investor the opportunity of
having continuous interaction and contact with the mutual fund. Therefore, retail distribution
through the agents is a preferred alternative for distributing mutual fund products.
By their very nature, mutual funds require higher advertisement and sales promotion
expenses than any consumer product offering measurable performance. Different kinds of
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advertising and sales promotion exercises are required to serve the needs of different classes
There are certain issues with reference to advertisement, publicity literature and offer
documents, which deserve attention. Most of the mutual fund advertisements look similar,
focussing on scheme features, returns and incentives. An investor exposed to the increasing
number of mutual fund products finds that all the available brands are rather identical, and
cannot appreciate any distinction.
The present form of application, brochures and other literature is generally lengthy,
cumbersome and at times complicated leading to higher emphasis on advertisement. One of
the limiting factors is the regulatory framework governing advertisements of mutual fund
products. For instance, in the offer documents, mutual funds are required to mention the fund
objectives in clear terms. Immediately thereafter, the first risk factor that has to be mentioned
is that there is no certainty whether the objectives of the fund will be achieved or not. Some
more relaxation’s in these may facilitate bringing more novelty in advertisements, within a
broad framework, without luring investors through false promises, and will certainly improve
the situation. Another hurdle is the statutory disclaimer required to be carried along with
every advertisement. Mutual funds have to provide risk factors. Under the present mutual
fund regulations, a prior approval by SEBI is a must before a mutual fund can launch its fund.
In the regulation itself, a period of one month has been provided. But in a month’s time,
perhaps the situation may so change, that the timing of launch gets affected. The requirement
for getting approval, which normally takes about 2 months’ time, defeats the purpose for
which the fund was designed also.
QUALITY OF SERVICE This industry primarily sells quality of services, given that the
performance cannot be promised. It is with this attribute along with procedural simplicity,
that the fund gradually builds its brand and its class of loyal investors. The quality of services
are broadly categorised as:
MARKET RESEARCH
Investment in mutual fund is not a one-time activity. It is a continuous activity. The same
investor, if satisfied, will come to the fund again and again. When the investor sends his
application, it is not only an application, but it also contains vital information. Most of this
information if tabulated and analysed, would provide important insights into investor needs,
preferences and behaviour and enables us to target customers need more accurately, to
achieve better penetration, deeper loyalty and reduced costs. It is in this context that direct
marketing will assume increased importance. Knowing the customer thoroughly is of utmost
importance. Unlike the consumer goods industry, it is not possible for mutual fund industry to
test market and have pilot projects before launch. At the same time, focusing and
concentrating on a particular geographic area where the fund has a strong presence and
proven marketing network, can help reduce network, can help reduce issue expenses and
ultimately translate into higher returns for the investor. Very little research on investor
preference is available, but the industry can collectively have a data bank, and share the
information for appropriate use.
Market Segmentation Different segments of the market have different risk-return criteria, on
the basis of which they take investment decisions. Not only that, in a particular segment also
there could be different sub-segments asking for yet different risk-return attributes, and
differential preference for various investment attributes of financial product. different
investment attributes an investor expects in a financial product are:
Liquidity,
Capital appreciation,
Safety of principal,
Tax treatment,
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On the basis of these attributes the mutual fund market may be broadly segmented into five
main segments as under.
1) Retail Segment
This segment characterizes large number of participants but low individual volumes. It
consists of individuals, Hindu Undivided Families, and firms. It may be further sub-divided
into:
These may be further classified on the basis of their income levels. It has been observed that
prospects in different classes of income levels have different patterns of preferences of
investment. Similarly, the investment preferences for urban and rural prospects would differ
and therefore the strategies for tapping this segment would differ on the basis of differential
life style, value and ethics, social environment, media habits, and nature of work. Broadly,
this class requires security of the principal, liquidity, and regular income more than capital
appreciation. It lacks specialised investment skills in financial markets and highly susceptible
to mob behaviour. The marketing strategy involving indirect selling through agency network
and creating awareness through appropriate media would be more effective in this segment.
2) Institutional Segment
This segment characterises less number of participants, and large individual volumes. It
consists of banks, public sector units, financial institutions, foreign institutional investors,
insurance corporations, provident and pension funds. This class normally looks for more
specialised professional investment skills of the fund managers and expects a structured
product than a ready-made product. The tax features and regulatory restrictions are the vital
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3) Trusts
This is a highly regulated, high volumes segment. It consists of various types of trusts,
namely, charitable trusts, religious trust, educational trust, family trust, social trust, etc. each
with different objectives. Its basic investment need would be safety of the principal, regular
income and hedge against inflation rather than liquidity and capital appreciation. This class
offers vast potential to the fund managers, if the regulators relax guidelines and allow the
trusts to invest freely in mutual funds.
4) Non-Resident Indians
This segment consists of very risk sensitive participants, at times referred as ‘fair weather
friends.’ They need the highest cover against political and exchange risk. They normally
prefer easy exit with repatriation of income and principal. They also hold a strategic
importance as they bring in crucial foreign exchange – a crucial input for developing country
like ours. Marketing to this segment requires special kind of products for groups of foreign
countries depending upon the provisions of tax treaties. The range of suitable products are
required to design to divert the funds flowing into bank accounts. The latest flavour in the
mutual fund industry is exclusive schemes for non-resident Indians (NRI’s).SBI MF has
already launched an exclusive scheme for NRI’s. ICICI Prudential and JM Mutual are in
process of finalizing details and some more funds have also confirmed that they are planning
such schemes.The MF industry is also looking to tap the vast NRI funds of about $5 billion
that were transferred to the local banks as FCNR and NRE deposits on the redemption of the
Resurgent India Bonds in October,2003. HDFC was one of the first to launch a fixed maturity
plan to NRI’s after the RIB redemption .The scheme had collected Rs.16-17 crore. Sundaram
and HDFC MF are currently in the process of strengthening distribution net-works
overseas,especially in the Middle East. Sanjay Santhanam, Vice President Marketing &Sales
of Sundaram MF says, “ We are intensifying our efforts at tapping NRI money . To begin
with, we are looking at a representative office and a distribution network in Dubai.Then we
will work out specialised products and asset allocation models.NRI’s are used to seeing low
interest rates so their return expectations are different from domestic investors.The large
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South Indian population in the Middle East will surely connect with the Sundaram brand.”
Generally, the investment need of this segment is to park their occasional surplus funds that
earn returns more than what they have to pay on account of holding them. Alternatively, they
also get surplus fund due to the seasonality of the business, which typically become due for
the payment within a year or quarter or even a month. They need short term parking place for
their fund,. This segment offers a vast potential to specialised money market managers. Given
the relaxation in the regulatory guidelines, fund managers are expected design products to this
segment. Thus, each segment and sub-segment have their own risk return preferences forming
niches in the market. Mutual funds managers have to analyse in detail the intrinsic needs of
the prospects and design a variety of suitable products for them. Not only that, the products
are also required to be marketed through appropriately different marketing strategies.
AD’S THE WAY Increasing sales have given mutual fund promoters the budget to spend
more on advertising, which has further boosted sales
The Atheists are turning believers. Mutual funds, private sector ones in particular, who had
written off advertising as the “ultimate waste of money” have nearly tripled their press media
spend .What’s interesting is that in this period the share of the private sector mutual funds in
the category’s total media spending has surged from 20 percent to 52 percent. This can be
attributed to private sector funds (given the data available with the Association of Mutual
Funds of India) seeing an increase share of net inflows relative to the bank-sponsored
counterparts in the public sector.
Clearly advertising types have something to cheer about. But what’s caused this sudden
attitudinal shift towards advertising? According to experts, funds are being pushed into
advertising more by intermediaries like banks who are reluctant to sell a product whose name
is unfamiliar to investor. Besides, since more open-ended schemes are now available, some
form of ongoing support to keep sales booming has been deemed necessary by the funds. “
The industry has discovered that advertising in the changed climate today, when investors are
most receptive to mutual funds, can perk up sales by anywhere between 20-40 percent. MF’s
has rationale for stepping up marketing spends because the brand is an important part of the
consumer’s decision to invest in a category that is not yet clearly understood by people.
According to the mutual fund marketers, advertising helps bring recall when consumers are
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But what mode of advertising do these funds choose? “To sell the category,” answer is “mass
media is more effective because one needs to target a large segment of the population.”
Mutual Fund marketers feel that since the category is ‘information – centric’, press is the best
medium to get across one’s message. Within the print media, most marketers feel that a
combination of leading mainline and financial newspapers complemented by finance/
business magazines, with relevant thematic appeal and editorial content are the perfect mix.
Direct mail is another medium, which some funds have successfully used. But rather than
sending out mailers to all and sundry, there is a need for appropriate targeting.
Educational seminars are the final leg in the marketing and communication process. In these,
investors conditioned by advertising and hooked by an interesting mailer can have lingering
doubts clarified.
Another very successful media niche, which has been exploited to the hilt by funds, is
intermediary magazines and newsletters. Besides the low costs of advertising in these
newsletters, these publications circulate to those who are looking for investment opportunities
and thus represent an extremely lucrative target segment.
Advertising content by most of the funds too has undergone a marked change from concept-
selling ads dispelling myths, to selling specific schemes that meet defined objectives/ goals.
But why is advertising suddenly working for mutual funds when it doesn’t seem to have
made a difference earlier? A sustained marketing strategy instead of a few, scrappy ads is
now seen to be the key to investor demand. Advertising serves as a reminder complementing
a sales push by the distributor. “Since the distributor wasn’t ready in earlier years, advertising
then, didn’t work,”. Brand building, is a long-term exercise. Just like mutual funds advocate
that investors take a long-term approach to investing, similarly funds need to take a long-term
approach to brand building.
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Fund marketers and industry observers however, caution against the danger of selling the
product for the wrong reasons. Funds need to focus on sustainable communication. They need
Inspired Marketing will help Mutual Funds walk away with the bank Deposits
Bankers better watch out! The Indian mutual fund industry will soon start relieving the
banking system of its prized deposits.
Innovative distribution, marketing and aggressive concept selling will drive savings into the
lap of the Indian Mutual Fund industry in the next millennium. Fund chiefs predicted that
ease of transactions, thanks to technology and increased awareness, would lead to more
investors putting their money into mutual funds. The day was not far , they said , when small
savings account s too began moving into mutual funds.
Significantly, fund chiefs were unanimous that the credibility gap which the industry suffered
for the past few years did not exist any more. All the fund chiefs were unanimous that
performance, service and support were all imperative for growth. “Performance, transparency
and after sales service and genuine retail investor interest as opposed to hot corporate money,
an important contributor to many mutual fund schemes, will drive the industry growth.
“Performance, transparency, after sales customer service and genuine retail investor interest
are opposed to hot corporate money, an important contributor to many mutual fund schemes,
will drive the industry growth, On the state of market in general, fund chiefs attempted to
allay fears that an overvalued market may pose hurdles to stock picking.
According to them, while investors may feel that information technology, pharmaceuticals
and consumer goods stocks - or the BSE Sensex for that matter – might have peaked, new
opportunities are opening up in areas like retail, healthcare and even in internet business.
Fund chiefs also made a case for the code to prevent mutual funds from projecting short-term
gains in an attempt to attract investors into their schemes. They were of the view that, “
Mutual Funds have to agree to present performances in an annualised fashion, over a longer
period. The industry as a whole should standardise its performance.”
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Primary Data : Primary data are generated when a particular problem and hand is
investigated by the researcher employing mail questionnaire, telephone survey, personal
interviews, observations, and experiments.
Advantages
d. The results can be projected to the relevant universe with a greater degree of accuracy.
Disadvantages
a. The cost per completed interview is relatively higher as compared to other methods.
b. The investigator may have to face relatively more difficulties in administering the
interview schedule.
2. TELEPHONE SURVEY
In telephone survey, prospective respondents are telephoned, usually at homes, and asked to
answer a series of questions over the telephone.
This form of the survey technique has become more popular in recent years in advanced
countries more people are having telephones at their houses.
Advantages
b. The interviews can be completed very quickly. Thus, speed is the most significant
advantage.
Disadvantages
In non-probability sampling, the chance of any particular unit in the population being selected
is unknown. Since randomness is not involved in the selection process, an estimate of the
sampling error cannot be made. But this does not mean that the findings obtained from non-
probability sampling are of questionable value. If properly conducted their findings can be as
accurate as those obtained from probability sampling.
a. Convenience Sampling
As the name implies, a convenience sample is one chosen purely for expedience (e.g., items
are selected because they are easy or cheap to find and measure.
While few analysts would find credibility in conclusions from such extreme cases, the
inappropriateness of using convenience sampling to estimate universe values is not widely
recognized. The major problem with this (and other non-probability method) is that one is
unable to draw objective inference about a rigorously defined universe . In practice, it is
often found that the response given by "convenient" items in a universe differ significantly
from the responses given by universe items that are less accessible. As a result, unless one
is dealing with a known highly homogeneous universe (virtually all items responding alike),
convenience sampling should not be used to estimate universe values.
Sample Size
The sample size taken in the project work is 50. The area selected is Delhi & NCR area.
Convenience sampling method was used in this study because of the constraints like cost and
time.
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UTI-MF
Reliance MF
HDFC-MF
ICICI-PRU-MF
PREFERENCE FOR The respondents have shown their preference for mutual
VARIOUS funds as below:-
MUTUAL FUNDS.
The first preference is given to the ICICI-PRU-MF. 40%
respondents have shown their choice for ICICI-PRU-MF
for their future mutual fund investments.
The following large and Institutional distributors of Delhi were contacted during the study
period and observed their preference for selling MF products:-
BAJAJ CAPITAL
RR FINANCIAL SERVICIES
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SECURITES INVESTENTS
INVESTCARE
CAPITAL INVESTMENTS
ELITE INVESTMENTS
CREDENT INVESTMENTS
INTEGRATED INVESTMENTS
All the above distributors were selling the products of the various funds of various mutual
funds. However 90% of their preference were similar. Their choice of fund and fund houses
can be categorised as below:-
RETURNS:- All the distributors were unanimous for the performance of the schemes. The
performance of the fund is very important for the selection for selling. Low performing
schemes are seldomly pushed by the distributors. They recommend for the high performing
funds only.
SERVICE: - Sales and after sales service for the investors are very important criteria for
selling by the distributors. The service standard for sales and after sales ,redemption cheques
are very important factor. The distributors give very high degree of importance for the level
of service by the mutual funds. They are recommending even a high performing schemes if
the level of service is poor.
INCENTIVES:- All the mutual funds are using various sales promotion tools for promoting
their schemes. They are also using trade promotion and using various types of trade
promotion i.e., Coupons, Financial incentives based on no. of applications, based of volume
of sales mobilized. Besides financial incentives various non-financial incentives are also
used. All the distributors give importance for various incentives as a selection for choosing
the Mutual fund foe selling.
LIMITATIONS
Now I will analyze the some schemes and will show how they are performing in
recent past. I have taken three categories:
a. Equity – Diversified
Here I have shown top 10 mutual funds under each scheme. And analyzed top 5
mutual funds from every statistical point of view. I have also shown how each
category performing in Indian emerging mutual fund industry.
Type: Equity-Diversified
Its a fire cracker from the infrastructure theme, Tata Infrastructure returned an
awesome 60.32 per cent through 2006 to emerge as the third best performing
diversified equity fund. The fund achieved this essentially on the back of a large-cap
growth-oriented focus, with some help from the mid caps. To some extent one can
attribute this stellar performance to the sector exposure that most infrastructure funds
maintain. But the real clincher had been the fund manager's ability to spot sector
trends which has truly augmented the fund's returns. For instance, before the markets
tanked in May 2006, the fund manager had cut back his exposure to financial services.
The move was profitable, because the sector was amongst the biggest losers in the
bear phase that ensued. By February 2007 the fund manager re-entered the sector,
timing the entry rather well, because through the June 2007 quarter (April-June) this
sector delivered phenomenal returns. Similarly, the fund's timing in the metal sector
was flawless. These two significant calls have translated into a 23.3 per cent return in
the June 2007 quarter compared to the category's 16.88 per cent return. But the
strategy has its share of pitfalls too. March 2007 quarter was disastrous, for the fund
lost 8.26 per cent compared to the category's loss of 5.93 per cent. The main reason
for this slip up was the 24 per cent exposure to the construction sector. In fact the
March 2007 quarter was dismal for all infrastructure funds that were overweight on
the construction sector. The fund also shows a tendency to slip faster in a falling
market. In a nutshell, the fund is definitely not for nervy investors.
Asset Allocation
As on 29/02/08 % Net Assets
Equity 86.85
Debt 0.23
Others 12.92
Asset Allocation
As on 29/02/08 % Net Assets
Equity 95.87
Debt 0.11
Others 4.02
UTI Infrastructure-G
The category pioneer, UTI Infrastructure has been going great guns. A runaway hit in
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2005 and an exemplary success in 2006 & 2007, the fund is on a roll with the future
Asset Allocation
As on 29/02/08 % Net Assets
Equity 89.61
Debt 0.00
Others 10.39
Magnum Contra-G
When the goings great, the fund performs exceptionally and even when the goings not
so smooth, Magnum Contra still manages to save face. Read on to find out why this
fund is a hot pick. Magnum Contra has consistently managed to stay ahead of the
curve. The fund outperformed the category in every quarter since 2003. It emerged as
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the second and third best fund in 2004 and 2005 and was pretty impressive last year
too. It has the third highest risk adjusted return in its category, i.e. for every unit of
Asset Allocation
As on 29/02/08 % Net Assets
Equity 93.76
Debt 0.35
Others 5.89
The scheme seeks long term capital appreciation. The scheme would take around 80-85 per
cent exposure to equity, while exposure to bonds and money market instruments would be up
to 20 per cent of the corpus. The scheme was made open-ended in February 2001.
Asset Allocation
As on 29/02/08 % Net Assets
Equity 72.61
Debt 0.00
Others 27.39
The scheme aims to generate long-term capital growth from a diversified portfolio of
predominantly equity and equity-related securities. It intends to invest across market capand
sectors utilizing bottom up approach. It will aim to have concentrated well researched
portfolio, which would be around 20 - 50 stocks.
Asset Allocation
As on 31/01/08 % Net Assets
Equity 97.69
Debt 0.00
Others 2.31
The scheme is due for redemption in 2006. The scheme seeks capital appreciation with at
least 80 per cent exposure to equities, FCDs, preference shares and bonds of companies. The
scheme can make investments in money market instruments up to 20 per cent. The scheme
offers liquidity through repurchase at NAV.
Asset Allocation
As on 31/01/08 % Net Assets
Equity 93.65
Debt 0.00
Others 6.35
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The scheme seeks to generate medium to long-term capital appreciation from a diversified
portfolio that is substantially constituted of equity and equity related securities.
Asset Allocation
As on 29/02/08 % Net Assets
Equity 83.94
Debt 0.00
Others 16.06
The scheme aims to generate long term capital appreciation from a portfolio that is invested
predominantly in equity and equity related instruments.
Asset Allocation
As on 29/02/08 % Net Assets
Equity 96.01
Debt 0.27
Others 3.72
The scheme aims to reduce interest rate risk associated with investments in fixed rate
instruments by investing predominantly in floating rate securities, money-market instruments
and appropriate derivatives.
Asset Allocation
As on 29/02/08 % Net Assets
Equity 0.00
Debt 83.77
Others 16.23
The scheme aims to provide income consistent with the prudent risk from a portfolio
comprising substantially of floating rate debt instruments, money market instruments and
fixed rate debt swapped for floating rate return. There would be no restrictions in terms of
maturity profile of fixed rate, floating rate and swapped assets.
Asset Allocation
As on 31/01/08 % Net Assets
Equity 0.00
Debt 96.46
Others 3.54
The scheme aims to generate regular income through investment in a portfolio comprising
substantially of floating rate debt / money market instruments, it may also invest a portion of
its net assets in fixed rate debt securities and money market instruments.
Asset Allocation
As on 31/01/08 % Net Assets
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Equity 0.00
Debt 96.07
The scheme seeks to generate reasonable return with commensurate risk from a portfolio
comprised of floating rate debt, fixed rate debt swapped for floating rate returns and fixed rate
money market and debt instruments. This plan would invest atleast 65 per cent in floating rate
instruments with shorter residual maturities and upto 35 per cent in fixed rate debt
instruments.
Asset Allocation
As on 29/02/08 % Net Assets
Equity 0.00
Debt 95.23
Others 4.77
ING Floating Rate-G:
The scheme aims to provide income consistent with the prudent risk from a portfolio
comprising substantially of floating rate instruments, fixed rate instruments swapped for
floating rate returns, and also fixed rate instruments, short term bonds and money market
instruments.
Asset Allocation
As on 29/02/08 % Net Assets
Equity 0.00
Debt 74.08
Others 25.92
Equity-Derivative 9.46
Equity-Diversified 26.84
Equity-ELSS 26.22
Equity-Index 23.33
FOF 22.42
Sectoral-Auto -3.48
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Sectoral-Bank 49.52
Sectoral-FMCG 18.78
Sectoral-Healthcare 5.19
Sectoral-Infrastructure 44.13
Sectoral-Pharma 3.29
Sectoral-Power 89.67
Sectoral-Services 29.66
Sectoral-TMT -10.17
Gilt 8.01
Income 8.84
Liquid 7.46
MIP 10.02
Balanced 19.25
Most of the interviewee said most fund houses have their sales office location in the top 10
cities, with a token presence in the remaining cities. And according to Invest India Economic
Foundation survey, there are around 34 million people with the potential and capacity to
invest in mutual funds out of that over 57 percent of such people live in rural areas.
Thus there is great scope for both widening and deepening the spread of mutual fund industry
in India. This financial inclusion of investors from other areas can be achieved through
investor education, awareness building, networking and greater use of IT.
Moreover, the expansion of the mutual fund industry is critical on account of the major role
the government is expecting it to play in garnering the huge resources, required for
developing India's infrastructure, which Rangarajan pointed out, 'is currently the single
biggest long-term constraint on sustaining high growth rates of 9-10 percent'.
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Stressing the need for expansion of the mutual fund industry, they said that the funds also
have a critical role to play in increasingly ageing societies.
Lauding the growth of the mutual funds industry, they said that the future looks bright for this
sector. However, they came down sharply on certain practices prevailing in the industry.
Take for example the advertisements that carry statutory warnings regarding risks. The rapid-
fire manner in which it is read out only shows that the warning is suppressed.
CONCLUSION
The end of millennium marks 44 years of existence of mutual funds in this country. The ride
through these 44 years is not been smooth .Investors opinion is still divided .while some are
for the mutual funds others are against it.
UTI commenced its operations from July 1964.The impetus for establishing a formal
institution came from the desire to increase the propensity of the middle and lower groups to
save and to invest. “with a view to encouraging savings and investment and participation in
the income, profits and gains accruing to the Corporation from the acquisition ,holding,
management and disposal of securities.” The period 1986-993 can be termed as the period of
public sector mutual funds.
The opening up of the asset management business to private sector in 1993 saw international
players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros and Capital
International along with the host of domestic players join the party. But for the equity funds,
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the period of 1994-96 was one of the worst in the history of Indian Mutual Funds. But from
The tax benefits on mutual funds made a turning point. The industry has started moving from
infancy to adolescence ,the industry is maturing and the investors and funds are frankly and
openly discussing difficulties, opportunities and compulsions.
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 small 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. The performance of most of the schemes floated by these funds was not good.
Some schemes had offered guaranteed returns and their parent organizations had to bail out
these AMCs by paying large amounts of money as the difference between the guaranteed and
actual returns. The service levels were also very bad. Most of these AMCs have not been able
to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions,
they have serious plans of continuing the activity in a major way. The experience of some of
the AMCs floated by private sector Indian companies was also very similar. They quickly
realized that the AMC business ,which makes money in the long term and requires deep-
pocketed support in the intermediate years. Some have sold out to foreign owned companies,
some have merged with others and there is general restructuring going on.
FUTURE SCENARIO:-
The asset base will continue to grow at an annual rate of about 30 to 35% over the next few
years as investor’s shift their assets from banks and other traditional avenues. Some of the
older public and private sector players will either close shop or be taken over. But this does
not mean there is no room for other players. The market will witness a flurry of new players
entering the arena. There will be a large number of offers from various asset management
companies in time to come. Some big names like FIDELITY, PRINCIPAL have already
stared their Indian operation.
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India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts
of an asset base that is much higher than its bank deposits. In India ,mutual fund assets are not
even 10% of the bank deposits, but this trend is beginning to change. The basic fact lies that
banks cannot be ignored and they will not close down completely. Their role as
intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way
banks do business in future.
Foreign institutional investors continued to pour money into the Indian equity market. FII net
inflows remained strong this quarter at US$3.6bn compared to US $ 1.8bn in the previous
quarter and US $64 mn in the corresponding period last year. While the increase in FII
ownership is a positive indication of India’s relative attractiveness in relation to regional and
international markets it correspondingly increases our dependence on external capital and
exposes us to the risk of a slowdown in these inflows.
One of the key reasons supporting FII enthusiasm has been a marked improvement in the
macro-economic environment. Following a positive monsoon the outlook for the agrarian
economy has improved considerably. At the same time industrial output and services growth
continues to maintain a healthy growth trajectory. As a result the Indian economy is projected
to be among the fastest growing economies in the world with GDP growth expected at 9 % in
FY2008.
All the above facts and feel good factors are good for the mutual fund industry during the
future days.
GLOBAL SCENARIO:-
The money market mutual fund segment has a total corpus of $ 1.48 trillion in the U.S.
against a corpus of $200 million in India.
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In the U.S. the total number of schemes is higher than that of the listed companies while
in India we have just 300 schemes.
In the U.S. about 9.7 million households are managing their assets on-line but such a
facility is not yet available in India.
On –line trading is a great idea to reduce management expenses from current 2% of total
assets to about 0.75% of the total assets.
72% of the core customer base of mutual funds in top 50-broking firms in the U.S. is
trading on line.
Internationally, on-line investing continues its meteoric rise. Many have debated about the
success of e-commerce and its breakthroughs, but it is true that this aspect of technology
could and will change the way financial sectors function. However, mutual funds cannot
be left far behind. They have realized the potential of internet and are equipping
themselves to perform better.
In fact in advanced countries like the U.S.A. mutual funds buy-sell transactions have
already begun on the Net. while in India the Net is used as a source of information.
Such changes could facilitate easy access, lower intermediation costs and better services
for all.
Here are some of the basic changes that have taken place since the advent of Net.
LOWER COSTS:
Distribution of funds will fall in the online trading regime. Mutual funds could bring their
administrative costs to 0.75% if trading is done on-line. As per SEBI regulations, bond funds
can charge a maximum of 2.25% and equity funds can charge 2.5% as administrative fees.
Therefore, if the administrative costs are low, the benefits are passed down and hence mutual
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funds are able to attract more investors and increase their asset base.
Mutual funds could provide better advice to their investors through the Net rather than
through the traditional investment routes where there is an additional channel to deal with the
Brokers. Direct dealing with the fund could help the investor with their financial planning. In
India, brokers could get more Net savvy investors and could help. The investors with the
knowledge through from Net.
India has around 1.6 million net users who are prime target for these funds and this could just
be the beginning. The internet users are going to increase dramatically and
mutual funds are going to be the best beneficiary. With smaller administrative costs more
funds would be mobilized. A fund manager must be ready to tackle the volatility and will
have to maintain sufficient amount of investments which are high liquidity and low yielding
investments to honor redemption.
There will be more sites involved in ads and promotion of mutual funds. In the U.S. sites like
AOL offer detailed research and financial details about the functioning of different funds and
their performance statistics . These sites can be further used for advertisements and
communications.
MORE PRODUCTS:-
In the U.S. most mutual funds concentrate only on financial funds like equity and debt. Some
like real estate funds and commodity funds also take an exposure to physical assets. The latter
type of funds is preferred by corporates who want to hedge their exposure to the commodities
they deal.
In U.S.A. apart from bullion funds there are copper funds, precious metal funds and real
estate funds. In India such funds are still awaited.
In developed countries like the U.S.A. there are funds to satisfy everybody’s requirement, but
in India only the tip of the iceberg has been explored. In the near future too India will
concentrate on financial as well as physical funds.
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2. To create the awareness about the different products of Mutual Fund and not about
the generic product. Various respondents were not aware of the mutual fund products
and the type of mutual fund schemes and the risk associated with mutual fund
products.
The respondents preference as per the sample collected by this study is as below:-
1. ICICI-PRU-MF
3. This shift of preference may change the market leadership in terms of AUM in years
to come. Therefore, the change of strategy and tactics is required to maintain their
market position, those who are holding today and those who want to hold in future.
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GLOSSARY
The price at which a Mutual Funds shares can be purchased. The asked or the offering price
means the current net asset value (NAV) per share plus sales charge, if any. If a no load fund,
the asked price is the same as the NAV.
BALANCED FUND:
A Mutual Fund that maintains a balanced portfolio, generally 60% bonds or preferred stocks
and 40% common stocks.
BID/SELL PRICE:
The price at which a Mutual Funds shares are redeemed (bought back) by the fund. The bid
or redemption price means the current net asset value per share less any redemption fee or
back-end load.
BOND PRICE:
CAPITAL MARKET:
It deals with transactions related to long-tern instruments (with a period of maturity of above
one year like corporate debentures, government bonds, etc) and stock (equity and preference
shares).
A fee (or back-end load) imposed by certain funds on shares redeemed within a specific
period following their purchase. These charges are usually assessed on a sliding scale, such
as four percent to one percent of the amounts redeemed, with the fee reduced each year the
units are held.
GOVERNMENT SECURITIES:
It encompasses all bonds and treasury bills issued by the central government, state
government, and other entities like corporations, municipal authorities and companies wholly
owned by the government for the purpose of raising funds from the public.
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GROWTH FUND:
INCOME FUND:
A mutual fund that primarily seeks current income rather than growth of capital. It will tend
to invest in stocks and bonds that normally pay high dividends and interest.
INDEX FUND:
A mutual fund that seeks to mirror general stock-market performance by matching its
portfolio t a broad-based index, most often the S&P CNX Nifty index.
INVESTMENT COMPANY:
A corporation, partnership or trust that invest the pooled monies of many investors. It
provides greater professional management and diversification of investment than most
investors can obtain independently. Mutual funds, or “open-end” investment companies, are
the most popular form of Investment Company.
LOAD:
A Sales charge or commission assessed by certain mutual funds (“load funds”) to cover their
selling costs. The commission is generally stated as a portion of the fund’s offering price,
usually on a sliding from one to 8.5%.
MONEY MARKET:
It deals with all transactions is short-term instruments 9with a period of maturity of one year
or less like treasury bills, bills of exchange etc).
A Mutual Fund that aims to pay money market interest rates. This is accomplished by
investing in sage, highly liquid securities, including bank certificates of deposit, commercial
paper, government securities and repurchase agreements. Money market funds make these
high interest securities available to the average seeking immediate and high investment
safety.
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NAV = (M+O)-L
O= other assets
L= total liabilities
PORTFOLIO:
PROSPECTUS:
An official document that each investment company must publish, describing the mutual fund
and offering its shares for sale. It contains information required by the Securities and
exchange commission.
RECORD DATE:
The date the fund determines who its shareholders are; “shareholders of record” who will
receive the fund’s income divided and/or net capital gain distribution. Frequently the business
immediately prior to the Ex-Dividend date.
REDEMPTION FEE:
A mutual fund that concentrates its investments within a specific geographic area, usually the
fund’s local region. The objective is to take advantage growth potential before the national
investment community does.
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SHORT SELLING:
The sale of a security, which is not owned by the seller. The “short seller” borrows stock
delivery to the buyer, and must eventually purchase the security for return to the lender.
SPREAD:
Many mutual funds offer withdrawal programs whereby shareholders receive payments from
their investments. These payments are usually drawn from fund’s dividend income gain
distributions, if any, and from principal only necessary.
YEILD:
It is the amount of interest paid on a bond dividend by the price, a measure of income
generated by the bond.
YIELD CURVE:
It is a graphic line chart that shows interest rates at a specific point for all securities having
equal risk but different maturity dates. For bonds it typically compares the 2 or 5 year
treasury with the 30 year.
YIELD TO MAUTRITY:
It is the interest rate that makes the present value of the future coupon payments equal to the
current bond price, i.e. for a known price
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2. AMFI –Mutual Fund Testing Programme for Distributors & Employees of Mutual
Funds in India.
4. Economic Times
5. www.mutualfundindia.com
6. www.amfiindia.com
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1. NAME: ____________________________________
4. CITY: _________________________________________
5. PROFESSION :
a) professional b) business
c) retired d) Housewife
e) service f) Student
g) Others(specify) _____________
c) Rs10000-Rs.20000 d) Rs.20000-Rs.30000
e) Rs.30000& above
c) don’t know
a) balance fund
b) debt fund
c) equity fund
c) HDFC-MF d) PRU-ICICI-MF
a) Shares b) PO savings
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a) Shares b) PO savings
c) Property d) Gold
g) Bank FD
a) Shares b) PO savings
c) Property d) Bank Fd
a) UTI-MF b) PRU-ICICI-MF
c) HDFC-MF d) TEMPLETON-MF