An Indepth Analysis of Mutual Fund Industry

8/8/2019 An Indepth Analysis of Mutual Fund Industry

1/191


2/191
http://birlamutual.com/index.htm


3/191

UNDERTAKING

I hereby declare that this project written by me in the second semester of

Post Graduate Diploma is the result of my own efforts and this project

has not been provided to any other Institute and the work done is original

and authentic.

ROOPESH KUMAR SHARMA Attested by-

Roll No. 2K-F-148


4/191


5/191

ACKNOWLEDGEMENT

I would like to thank all the people of Birla, Alliance and Pioneer ITI

Mutual Funds for providing me with valuable information about their

products and their kind support. A special thanks to Ms. Neena Madhura

for giving an opportunity to enhance our knowledge about Mutul Fund

Sector and also for her kind support for showing the right track.


6/191

OBJECTIVES

1. To study the growth and profitability of Mutual Fund sector for the

past 3 years.

2. To enhance out knowledge about the subject.

3. To have a vivid pictures of major players in Mutul Fund sectors in

India

4. How effectively they are reaching their customers.

5. To give comprehensive analysis of Mutul Fund sectors.

6. To study the consumer awareness regarding Mutul Fund.


7/191

EXECUTIVE SUMMERY OF THE

PROJECT

The project was done on Mutual funds in Birla Mutual Fund, Alliance

capital, and Pioneer ITI

The tern 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.

Trusts

Asset management company


8/191

Custodian

Sponsor

Mutual funds can be classified on the parameter of investment

objective in four main cetegories. These categories are

Equity funds

Debt/Income funds

Balanced funs

Liquid funds/ Money market funds

MUTUAL : AN 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 commingle funds invested by different investors, who have no contact


9/191

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 dtre 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, 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.

MUTUAL FUNDS FOR WHOM? These funds can survive and thrive

only if they can live upto the hopes and trusts of their individual members.

These hopes and trusts echo the peculiarities which support the emergence

and growth of such insrescue of such investors who come to the rescue of

such investors who face following constraints while making direct

investments:


10/191

(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.

(c) Lack of professional knowledge associated with investment business

unables investors to operate gainfully in the market. Small investors can

hardly afford to have ex-pensive investment consultations.

(d) To buy shares, investors have to engage share brokers who are the

members of stock exchange and have to pay their brokerage.

(e) They hardly have access to price sensitive information in time.

(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.

WHY MUTUAL FUNDS? Mutual Funds are becoming a very popular

form of investment characterised by many advantages that they share with

other forms of investment characterised by many advantages that they


11/191

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.

i. Diversification: A proven principle of sound investment is that of

diversification which is the idea of not putting all your eggs in one basket.

By investing in many companies the mutual funds can protect themselves

from unexpected drop in values of some shares. The small investors can

achieve wide diversification on his own because of many reasons, mainly

funds at his disposal. Mutual funds on the other hand, pool funds of lakhs

of investors and thus can participate in a large basket of shares of many

different companies. Majority of people consider diversification as the

major strength of mutual funds.

ii. Expertise Supervision: Making investments is not a full time

assignment of investors. So they hardly have a professional attitude


12/191

towards their investment. When investors buy mutual fund scheme, an

essential benefit one acquires is expert management of the money he puts

in the fund. The professional fund managers who supervise funds portfolio

take desirable decisions viz., what scrips are to be bought, what

investments are to be sold and more appropriate decision as to timings of

such buy and sell. They have extensive research facilities at their disposal,

can spend full time to investigate and can give the fund a constant

supervision. The performance of mutual fund schemes, of course, depends

on the quality of fund managers employed.

iii. Liquidity of Investment: A distinct advantage of a mutual fund over

other investments is that there is always a market for its unit/ shares.

Moreover, Securities and Exchange Board of India (SEBI) requires the

mutual funds in India have to ensure liquidity. Mutual funds units can

either be sold in the share market as SEBI has made it obligatory for

closed-ended schemes to list themselves on stock exchanges. For open-

ended schemes investors can always approach the fund for repurchase at

net asset value (NAV) of the scheme. Such repurchase price and NAV is

advertised in newspaper for the convenience of investors.


13/191

iv. Reduced risks: Risk in investment is as to recovery of the principal

amount and as to return on it. Mutual fund investments on both fronts

provide a comfortable situation for investors. The expert supervision,

diversification and liquidity of units ensured in mutual funds minimise the

risks. Investors are no longer expected to come to grief by falling prey to

misleading and motivating headline leads and tips, if they invest in

mutual funds.

v. Safety of Investment: Besides depending on the expert supervision of

fund managers, the legislation in a country (like SEBI in India) also

provides for the safety of investments. Mutual funds have to broadly follow

the laid down provisions for their regulations, SEBI acts as a watchdog and

attempts whole heartedly to safeguard investors interests.

vi. Tax Shelter: Depending on the scheme of mutual funds, tax shelter is

also available. As per the union budget-99, income earned through

dividends from mutual funds is 100% tax-free.

vii. Minimise Operating Costs: Mutual funds having large investible

funds at their disposal avail economies of scale. The brokerage fee or


14/191

trading commission may be reduced substantially. The reduced operating

costs obviously increases the income available for investors.

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 mobilise additional savings and channelising to

more productive sectors of the economy.

CLASSIFICATION OF MUTUAL FUND SCHEMES

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 these basis the simplest way to categorise

schemes would be to group these into two broad classifications:


15/191

Operational Classification and Portfolio Classification.

Operational classification highlights the two main types of schemes, i.e.,

open-ended and close-ended which are offered by the mutual funds.

Portfolio classification projects the combination of investment instruments

and investment avenues available to mutual funds to manage their funds.

Any portfolio scheme can be either open ended or close ended.

A. Operational Classification

(a) Open Ended Schemes: As the name implies the size of the scheme

(Fund) is open i.e., 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 implies that the

capitalisation of the fund is constantly changing as investors sell or buy

their shares. Further, the shares or units are normally not traded on the

stock exchange but are repurchased by the fund at announced rates. Open-

ended schemes have comparatively better liquidity despite the fact that

these are not listed. The reason is that investor can any time approach

mutual fund for sale of such units. No intermediaries are required.

Moreover, the realizable amount is certain since repurchase is at a price


16/191

based on declared net asset value (NAV). No minute to minute fluctuations

in rates haunt the investors. The portfolio mix of such schemes has to be

investments, which are actively traded in the market. Otherwise, it will not

be possible to calculate NAV. This is the reason that generally open-ended

schemes are equity based. Moreover, desiring frequently traded securities,

open-ended schemes hardly have in their portfolio shares of comparatively

new and smaller companies since these are not generally traded. In such

funds, option to reinvest its dividend is also available. Since there is always

a possibility of withdrawals, the management of such funds becomes more

tedious as managers have to work from crisis to crisis. Crisis may be on

two fronts, one is, that unexpected withdrawals require funds to maintain a

high level of cash available every time implying thereby idle cash. Fund

managers have to face questions like what to sell. He could very well

have to sell his most liquid assets. Second, by virtue of this situation such

funds may fail to grab favourable opportunities. Further, to match quick

cash payments, funds cannot have matching realisation from their portfolio

due to intricacies of the stock market. Thus, success of the open-ended

schemes to a great extent depends on the efficiency of the capital market.


17/191

(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 India as per SEBI (MF)

Regulations every mutual fund is free to launch any or both types of

schemes.

A. Portfolio Classification of Funds:


18/191

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.

(a)Return based classification:

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.

i.Income Funds: For investors who are more curious for returns, Income

funds are floated. Their objective is to maximise 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.

ii. 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


19/191

production facilities in long run. An investor who selects such funds should

be able to assume a higher than normal degree of risk.

iii. 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.

(b)Investment Based Classification:

Mutual funds may also be classified on the basis of securities in which they

invest. Basically, it is renaming the subcategories of return based

classification.

i. 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


20/191

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

chipcompanies 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.

ii. 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 Fundswhich specialise in investing short-term money

market instruments. The emphasis is on liquidity and is associated with

lower risks and low returns.

iii.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.


21/191

(c) Sector Based Funds:

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.


22/191

MUTUAL FUND CONSTITUENTS

All mutual funds comprise four constituents Sponsors, Trustees, Asset

Management Company (AMC) and Custodians.

Sponsors: The sponsors initiate the idea to set up a mutual fund. It could

be a registered company, scheduled bank or financial institution. A sponsor

has to satisfy certain conditions, such as capital, record (at least five

yearsoperation in financial services), de-fault free dealings and general

reputation of fairness. The sponsors appoint the Trustee, AMC and

Custodian. Once the AMC is formed, the sponsor is just a stakeholder.

Trust/ Board of Trustees:


23/191

Trustees hold a fiduciary responsibility towards unitholders by protecting

their interests. Trustees float and market schemes, and secure necessary

approvals. They check if the AMCs investments are within well-defined

limits, whether the funds assets are protected, and also ensure that

unitholders get their due returns. They also review any due diligence by the

AMC. For major decisions concerning the fund, they have to take the

unitholdersconsent. They submit reports every six months to SEBI;

investors get an annual report. Trustees are paid annually out of the funds

assets 0.5 percent of the weekly net asset value.

Fund Managers/ AMC: 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 exercises due diligence on investments, and submits quarterly reports

to the trustees. A funds 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


24/191

Rs. 100 crore. SEBI can pull up an AMC if it deviates from its prescribed

role.

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-distributing dividends,

safekeeping of the units and segregating assets and settlements between

schemes. Their charges range between 0.15-0.2 percent of the net value of

the holding. Custodians can service more than one fund.

MUTUAL FUND: RELATIONSHIP AMONGSTTHE ENTITIES

INVOLVED

SPONSOR REGISTRAR

SETS UP

MAINTIANRECORDS OF

AND SERVICESOF

APPOINTS

TRUSTEECOMPANY

ACT ASTRUSTEE TO

THEUNITHOLDERS

OF

ASSETMANAFEME

NT

COMPANY

SUBSCRIBETHE UNITS OF

MANGES

THEINVESTMENT OF

SAFE KEEPS

THE ASSETSOF

CUSTODIAN

INVESTO

RS

MUTUA

L FUND(AS ATRUST)


25/191

SEBI GUIDELINES


26/191

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.

Mutual fund should be formed as trusts and managed by

AMC

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.


27/191

The Mutual fund should have a custodian, not associated

in any way with the AMC and registered with the board.

The minimum amount to be raised with each closed

ended scheme should be Rs. 20 crore and for the open-

ended scheme Rs. 50 crore.

The Mutual Fund are obliged to maintain books of

account.

The minimum net worth of AMC is Rs. 5 crore of which

the minimum contribution of the sponsor should be 40%.

The Mutual Fund should ensure adequate disclosures to

the investors

SEBI can impose suspension of registration in case of

violation of the provision of the SEBI act 1992, to the

regulations.

Restrictions to ensure the investments under an

individual scheme do not exceed 5% of the corpus of any


28/191

companies shares and investments under all schemes do

not exceed 10% of the funds in the shares, debentures

or securities of a single company.

STRUCTURE OF INDIAN MUTUAL FUND

INDUSTRY

The Indian Mutual Fund industry is dominated by the Unit Trust of India

which has a total corpus of 700 Billion collected from over 20 million

investors. The UTI has many funds/ schemes in all categories i.e. Equity,

balanced, income etc. With some being open ended and some being closed

ended. The Unit scheme 1964 commonly referred to as US 64, which is a

balanced fund, is the biggest scheme with a corpus of about 200 billion.

UTI was floated by financial institutions and is governed by a special act of

Parliament. Most of its investors believe that the UTI is government owned

and controlled, which, while legally incorrect, is true for all practical

purposes.


29/191

The second largest category of mutual funds are the ones floated by

nationalized banks. Canbank asset management floated by Canara Bank

and SBI Funds Management floated by State Bank of India are the largest

of these. GIC AMC floated by General Insurance Corporation and Jeevan

Bima Sahayog AMC floated by the LIC are some of the other prominent

ones. The aggregate corpus of the funds managed by this category of

AMCs is around Rs. 150 billion.

The third largest category of mutual funds are the ones floated by the

private sector and by foreign asset management companies. The largest of

these are Birla Capital AMC and Prudential ICICI AMC . The aggregate

corpus of the assets managed by this category of AMCs is about Rs. 60

billion.

Recent Trends in the Mutual Funds Industry


30/191

The most important trend in the mutual fund industry is the aggressive

explosion of the foreign owned mutual funds companies and the decline of

the companies floated by nationalized banks and small private sector

players.

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 understand the mutual funds business and

they viewed it as another kind of banking activity. Few hired specialized

staff and generally chose to transfer staff from parent organisations. The

performance of most of the schemes floated by these organisations was not

good. Some schemes had offered guaranteed returns and there parent

organisations had to bail out these AMCs by paying large amount 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.


31/191

The experience of some of the AMCs floated by the private sector Indian

companies was also very similar. They quickly realized that the AMC

business is a 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 a

general restructuring going on.

The foreign owned companies have deep pockets and have come here with

the expectations of a long haul. They can be credited with the introduction

of many new practices such as new product innovation, sharp improvement

in the service standards and disclosure, usage of technology , broker

education and support etc. In fact, they have forced the industry to upgrade

itself and service levels of organisations like UTI have improved

dramatically in the in the last few years in response to the competition

provided by these.

For instance, collection figures for April-February 1998-99 show that the

net outflow from UTI has been Rs. 20 billion, while private sector funds

have managed to collect RS. 10 billion.


32/191

Rs. Billion Private Public UTI Total

Mobilized 61 13 121 195Repurchases 12 8 85 106

Redemptions 39 6 56 101

Net 10 -2 -21 -12

Name of the AMC Nature of Ownership

Alliance Capital Private Foreign

Anagram Wellington Private Indian

Apple Private Indian

Birla Capital International Private Indian

Bank of Baroda Banks

Bank of India Banks

Canbank Investment Banks

Cholamandalam Cazenove Private Foreign

Dundee Private Foreign

DSP Merrill Lynch Private Foreign

Escorts Private Indian

First India Private Indian

GIC Institutions

IDBI Investment Institutions


33/191

Indfund Management Ltd. Banks

ING Investment Private ForeignITC Threadneedle Private Foreign

JM Capital Management Ltd. Private Indian

Jardine Fleming Private Foreign

Kotak Mahindra Private Indian

Kothari Pioneer Private Indian

Jeevan Bima Sahayog Institutions

Morgan Stanley Private Foreign

Punjab National Bank Banks

Reliance Capital Private Indian

State Bank of India Banks

Shriram Private Indian

Sun F&C Private Foreign

Sundaram Newton Private Foreign

Tata Private Indian

Credit Capital Private Indian

Templeton Private Foreign

UTI Institutions


34/191


35/191

The present marketing strategies of mutual funds can be divided into two

main headings:

Direct marketing

Selling through intermediaries.

Joint Calls

Direct Marketing:

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 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%.


36/191

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. 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.

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.

Advertisements in newspapers and magazines: The funds regularly

advertise in business newspapers and magazines besides in leading national

dailies. The purpose to keep investors aware about the schemes offered by

the fund and the their performance in recent past.


37/191

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. Generally such hoardings are put near UTI offices in

order to tap people who are at present investing in UTI schemes. The

hoarding and banner generally contains information either about one

particular scheme or brief information about all schemes of fund.

Selling through intermediaries:

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.


38/191

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 HNIs

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 HNIs: This is a special feature of all the funds. Whenever

a top official visits a particular branch office, he devotes atleast one to two


39/191

hours in meting with the HNIs of that particular area. This generally

develops a faith among the HNIs towards the fund.

MARKETING OF FUNDS: CHALLENGES AND OPPORTUNITIES

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:


40/191

Assessing of investors needs and market research;

Responding to investors needs;

Product designing;

Studying the macro environment;

Timing of the launch of the product;

Choosing the distribution network;

Finalising strategies for publicity and advertisement;

Preparing offer documents and other literature;

Getting feedback about sales;

Studying performance indicators about fund performance like NAV;

Sending certificates in time and other after sales activities;

Honouring the commitments made for redemptions and repurchase;

Paying dividends and other entitlements;


41/191

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.

Widening, Broadening and Deepening the Markets

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 their wings

not only within the country, but also outside the country.

A. Markets in Rural and Semi-Urban Areas


42/191

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.


43/191

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 semi0urban 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 easy access to

information, NRIs are willing to invest in Indian mutual funds. The

expansion of the distribution network and quick dissemination of


44/191

information, coupled with prompt and timely service, efficient collection

and remittance mechanism, will play an important role in mobilising and

retaining these funds. NRIs will also require a continuous presence in their

market, because that generates trust and confidence, which translates into

sustained mobilisation of funds.

PRODUCT INNOVATION AND VARIETY

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


45/191

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

childs 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


46/191

designed to primarily have debt 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.

The industry can also design separate funds to attract semi-urban and rural

investors, keeping their seasonal requirements in mind for harvest seasons,

festival seasons, sowing seasons, etc.

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.

Retail through agents


47/191

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


48/191

distribution through the agents is a preferred alternative for distributing

mutual fund products.


49/191

ADVERTISING AND SALES PROMOTION

By their very nature, mutual funds require higher advertisement and sales

promotion expenses than any consumer product offering measurable

performance. Different kinds of advertising and sales promotion exercises

are required to serve the needs of different classes of investors. For

instance, an aggressive pushmarketing strategy is required for retail

markets, where investors are not adequately aware of the product and do

not have specialised skill in financial market, in contrast with

pullmarketing strategies for the wholesale market.

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


50/191

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 certainity whether the objectives of the fund

will be achieved or not. Some more relaxations 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 months time, perhaps the


51/191

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:

Timely services after the sale of the units; and

Continuous reporting of investment performance.

Mutual fund managers must give due attention and evaluate their

performance on each front. They may also consider an option of

conducting a service audit for controlling and improving the quality of

service.

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,


52/191

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


53/191

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,

Dividend or interest income,

Regulatory restrictions,

Time period for investment, etc.

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:


54/191

i. Salaried class people;

ii. Retired people;

iii. Businessmen and firms having occasional surpluses;

iv. HUFs for long term investment purpose.

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


55/191

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 considerations in their investment decisions. Each class of

participants, such as banks, provides a niche to the fund managers in this

segment.It requires more of a personalised and direct marketing to sustain

and increase volumes.

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.


56/191

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.

5) Corporates

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


57/191

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.

ADS THE WAYIncreasing 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 from Rs.12.20 crore in

the period January to April 1998 to Rs. 31.6 crore in January to April 1999,

according to data supplied by Prudential ICICI AMC (PIAMC) and

sourced from ORG-MARG.

Whats interesting is that in this period the share of the private sector

mutual funds in the categorys total media spending has surged from 20

percent to 52 percent. This can be attributed to private sector funds (given


58/191

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.

For proof, take a look at some figures. PIAMC which spent Rs. 3 crore

on advertising in the entire fiscal year 1998-99 has spent the same amount

during the first four months of the current fiscal itself. Kothari Pioneer

Mutual Fund which spent a negligible amount on advertising in 1997-98

and Rs.50 lakhs in 1998-99 has already spent Rs. 50 lakhs in the first

quarter.

Birla Mutual fund, which spent Rs. 1 crore on advertising in the year 1998-

99 plans to double that amount.

Clearly advertising types have something to cheer about. But whats 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.


59/191

In the words of Mr. Rajiv Vij, vice president marketing, Templeton Asset

Management (India) Pvt. Ltd., 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.PIAMC managing director Ajay Srinivasan gives his rationale for

stepping up marketing spends: we believe that the brand is an important

part of the consumers 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 looking at investment

opportunities. Srinivasan says that tactical advertising has raised PIAMCs

brand awareness from five percent in June 1993 to 34 percent now, as per a

recent IMRB survey.

Advertising backed by an integrated marketing and communication

campaign designed to attract investors with long term prospective has

helped the fund post a redemption-to-sales ratio of just about five percent

as compared to 20-30 percent for the industry on an average.

But what mode of advertising do these funds choose? To sell the

category, avers VIJ, mass media is more effective because one needs to


60/191

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 ones 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.

Attractive point of purchase (POP) material can also help.

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.


61/191

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 doesnt

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.

According to Birla Sun Life AMC chief market development officer

N.K.Sharma, advertising serves as a reminder complementing a sales push

by the distributor. Since the distributor wasnt ready in earlier years,

advertising then, didnt work,he says. 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.

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 to build brands that strike a chord

with investors by relating to their concerns rather than selling flavour-of-

the-month style. The winning formula as industry watchers put it is the


62/191

troika of performance, service and trust for meeting long term needs or

goals.

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

millenium, fund managers predicted at the Second Economic Times

Roundtable on mutual funds held last week.

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


63/191

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, Tata Mutual Fund chief K.N. Atmaramani said. 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.


64/191

HEAR WHAT THE CZARS TELL: DISTRIBUTE WELL & ALLS

WELL 1. M.M. Kapur ( Executive Director, UTI)

The MF industry is gradually breaking the walls of the banking industry.

It is trying to make products like government securities available in the

retail market, via government securities or gilt funds. Even savings bank

accounts, where investors earns 3-4 percent, have been converted into a

retail product via money market MFs the best part is that even confidence

levels of investors in MFs has been gradually improving.

2. Ajay Kaul ( President, Alliance Capital )


65/191

Not all funds in the bank time deposits or post office belong to individuals.

However , even if you assume that the in the next four-five years MFs can

tap 10 percent of these, the assets under management will double. Second,

MFs could be a good substitute for all other financial instruments available

in the market. Funds are quite safe because of the present regulations and

are transparent. If you consider all the features of competing instruments,

MF product would easily be a substitute for all this. When one combines all

these characteristics, one can definitely sell the product. What one requires

is Concept Selling.

3. Ravi Malhotra ( Chief Investment Officer, Kothari Pioneer )

The professional distributors are keeping a check on the fund houses and

are setting client expectations at the right level. This augurs well for the

industry. Fund selling has improved considerably from earlier where

nobody could distinguish between an equity and fixed income fund.

Technology is going to make a big difference down the road both in

terms of servicing as well as a fundamental change in the business

model. There is a whole new distribution channel opened up over the last

two to three years where most international banks, private sector banks


66/191

have started distributing funds. That can give you an idea of what the

trends are and what the potentials.

The US mutual fund industry in 1997 was about $50 billion, we are talking

about $18-19 Billion in India. In 22 odd years in the U.S.A, the industry

has crossed $4 trillion and has overtaken banking assets.

4. K.N.Atmaramani ( Managing Director, Tata Mutual Fund )

There are three important points: (a) Performance Comparison, (b)

Internet marketing and (c) Gone are the days big names would sell.

Competition and competitive edge of getting closer to the investor and

attracting large volumes of retail investors will be the key determinants.

5. Gul Teckchandani ( Chief Investment Officer, Sun F&C Mutual

Fund )

Service standards will become critical. Performance obviously is one of

the legs of the package. I dont think people are willing to leave their

money where they cant really take it out.

6. Dileep Madgavkar ( Sr. VP Investments, Prudential ICICI )


67/191

While we have got increasing professionalism in distribution business,

we have to guard as the geographical reach increases against distributors

themselves in their enthusiasm to sell over-committing and over-

promising.

7. Bharat Shah ( Chief Investment Officer, Birla Mutual Fund )

The question is who has the ability to provide competitive solutions to

fulfill the needs of the customer and the investor. In terms of range and

depth of solution providing capability and transparency and ability to

package products, funds are far superior than banks. The number of people

transacting has gone up five, six times .And even if people are pulling out

the money, it is not a bad thing because the investor tests the efficiency of

the system.

How do we incentivise and motivate the distribution channel to make it

more productive. The non traditional channels like e-commerce or internet

driven models will need to be tested for robustness.

Analytics of the customer is again very important and today we have some

idea. Using psychographics and data mining techniques to provide

customised and targeted solutions to customer needs.


68/191

How do we reach the more mofusssil areas? Costing for such an exercise

needs to be worked out as nobody is a good Samaritan to do it for you .

This is why fund delivery today is largely at the upper retail segment.

Handling thousands and thousands of customers: The cost of handling

these customers and providing services doesnt warrants your trying to

address those needs . Hoe do we ensu1`re that we have the capability to

deal with them if it is proved worthwhile.

BIRLA MUTUAL FUND

Birla Mutual Fund offers Investment Schemes, which aim to provide

superior returns. The funds offered are:

Birla Advantage Fund The Fund is a growth scheme and aims primarily at

capital appreciation. Given the expectation of substantial growth of the

Indian economy (and hence, for Indian capital markets as well), normally

at least 70% of the funds will be invested in equities or related instruments.

The balance would be invested in debt and money market instruments,

encompassing both short-term and long-term considerations. In a situation

of extreme volatility in equity markets, the equity allocation may be


69/191

reduced below 70%, in favour of debt instruments, money market

instruments or cash.

Short-term debt considerations for this open-end scheme include

maintaining an adequate float to meet anticipated levels of redemptions,

expenses, and other liquidity needs. A portion of funds may also be kept in

cash or cash equivalents.

Investments will be in listed securities from all Indian Stock Exchange

including the National Stock Exchange and the OTC Exchange of India.

Investments may also be made in unlisted transferable securities. The

securities would cover secondary market purchases, Initial Public Offers,

(IPOs), other public offers, placements, rights offers, negotiated deals, etc.

Investment policies of the Fund shall reflect restrictions for mutual fund

investments established by SEBI. In addition, certain investment

parameters (such as limits on portfolio exposure to sectors, industries,

business houses, etc.) may be adopted internally by BCIAMC, and

amended from time to time, to ensure appropriate diversification of the

Fund.

Birla Income Plus


70/191

The Scheme is an income scheme and aims primarily of the steady

generation of income. Considering this, normally about 70% of the funds

will be invested in fixed-income securities that encompass both short-term

and long-term considerations. In the current scenario such debt

instruments, rated investment grade by Credit rating agencies, are giving a

yield of about 18 percent per annum. Since long-term reasonable growth of

capital is also desired, the balance in excess of the fixed-income allocation

would be invested in equities or related instruments. In a situation of

extreme uncertainty in any of the markets, the respective fixed income or

equity allocations may be varied significantly.

Under normal circumstances, it is expected that investing in long-term debt

instruments of good quality will enable the Fund to earn competitively high

yields for a sustained period. Short-term debt considerations for this open-

end Scheme include maintaining an adequate float to meet anticipated

levels of redemptions, expenses, and other liquidity needs. A portion of

funds may also be kept in cash or cash equivalents.

Fixed-income investments may be in listed or unlisted instruments, as per

SEBI guidelines, investments will be in listed securities from any of the


71/191

Indian Stock Exchange including the National Stock Exchange and the

OTC Exchange of India. Investments may also be made in unlisted

transferable securities. The securities, both fixed-income and equities,

would cover secondary market purchases, Initial Public Offers (IPOs),

other public offers, placements, rights offers, negotiated deals, etc.

Investment policies of the Fund shall reflect restrictions for mutual fund

investments established by SEBI. In addition, certain investment

parameters (such as limits on portfolio exposure to sectors, industries,

business houses, etc.) may be adopted internally by BCIAMC, and

amended from time to time, to ensure appropriate diversification of the

portfolio.

Birla Cash Plus

The objective of the scheme is to provide reasonable returns, at a high level

of safety and liquidity through judicious investments in high-quality debt

and money market instruments.

The Scheme will invest the entire net assets in fixed income and money

market securities with flexibility to invest in the whole spectrum of debt

and money market instruments. Depending upon liquidity needs and other


72/191

considerations, the Scheme may also hold cash or cash equivalents

including call money.

The endeavour will be to optimise returns while providing liquidity and

safety.

The investments shall be made in various securities including treasury bills

and other Government securities, PSU bonds, listed, and unlisted corporate

papers including non-convertible debentures and bonds, commercial paper,

commercial bills arising out of genuine trade/ commercial transactions and

accepted/ co-accepted by banks, certificates of deposit and other such

instruments, permitted by SEBI from time to time.

India Advantage Fund

This is an Offshore India Fund. The Fund's principal investment objective

is to achieve long-term growth of capital through a diversified, research-

based approach to investment in Indian securities. The majority of the

Fund's assets will normally be invested in listed equities or equity-based

instruments. A smaller proportion will be invested in unlisted equities,

listed or unlisted debentures or bonds issued by private or public sector


73/191

corporations, and in inter-bank money market instruments, cash and cash

equivalents.

Birla Taxplan '98

An attractive equity linked saving scheme (ELSS) from Birla Mutual Fund.

Get a rebate u/s 88 of the Income Tax Act, 1961 @ 20% of any investment

upto Rs. 10,000/- Minimum amount Rs. 500/- and in multiple thereof. Also

available is full exemption from capital gain tax u/s 54 EA & EB of the

Income Tax Act. Now is the best time for the scheme since blue chip

equities are available at attractive valuations.

Birla Taxplan

Following the sterling performance of Birla Taxplan '98, Birla Mutual

Fund, has launched India's first open-end, equity linked (ELSS), tax saving

scheme, Birla Taxplan. This is the first scheme launched under revised

notification from the Central Board of Direct Taxes, which has permitted

the ELSS scheme to be launched as an open-end scheme. The scheme had

its Initial Public Offer on Saturday, the 13th February 1999 and has re-

opened for subscriptions from Monday, the 15th February 1999. The


74/191

minimum investment is Rs.500 and in multiples thereof without any limit

on maximum investment.

Birla Mutual Fund offers two types of plans:

Systematic Investment Plan

Systematic Investment Plan is a way to a good savings habit. Post-dated

cheques are invested in Birla Income Plus/Birla Advantage Fund on

monthly or quarterly basis. You can invest in monthly installment as per

your convenience, like in a recurring deposit scheme.

Regular Withdrawal Plan

It's an ideal way to get regular returns Post dated cheques are issued to the

Birla Income Plus (BIP) investors on monthly, bi-monthly or quarterly

basis. You can have the monthly withdrawals as per your requirements.

KOTHARI PIONEER MUTUAL FUND

KP Blue-chip

Fund Type: Steady Growth, Open-end fund

Options: Growth and Dividend Plans


75/191

Blue-chip Fund is a steady growth scheme that aims at providing growth of

capital through investments in large cap blue-chip shares.

Launched in December 93 as a 3-year closed end fund, Blue-chip Fund is

now continued as an open end fund from January 97,when a dividend of

20% was declared. Blue-chip Fund has recently declared a tax-free

dividend of 35% in July 99 in its dividend plan. Ever since its inception,

Blue-chip Fund has been ranked consistently among Indias top performing

fund.

Fund Suitability: For investors seeking steady growth in the medium to

long term through investments in shares of large well established blue-chip

companies. Ideal for a time horizon of 3 to 5 years.

K.P. Prima

Fund Type: Aggressive, open-end fund

Options: Growth and Dividend Plan

Prima Fund has the distinction of being Indias first truly authentic

open-end fund. Launched in October 1993, the fund seeks to provide

aggressive growth through investments in mid and small cap shares.


76/191


77/191

a portfolio of debt and money market instruments. Ideal for a timehorizon

of 6 months to 3 years.

K.P.Infotech

Fund Type: Open-end fund investing primarily in Infotech sector. Infotech

Fund is India's first fund dedicated to the fast growing information

technology sector. Launched in August 22, 1998 the fund has already given

a return of over 249.34 since inception. Infotech Fund has been ranked as

the best performing open end equity scheme in the country by

Micropal.The fund has also declared a 40% tax-free dividend (highest ever

by a mutual fund in India) in October 1999.

Fund Suitability: For investors seeking above normal capital appreciation

through investments in high quality, fast growing companies in the

Infotech sector.

SUN F&C MUTUAL FUND

SUN F&C Value Fund

Fund appreciated by 43.96% from 01/01/99 30/06/99

FUND MANAGERS REVIEW


78/191

The quarter that went by proved a mixed bag for the markets. The quarter

started with the government falling and in turn pulling down the markets

15%. The healthy economic numbers, however, helped the markets recover

smartly and gain almost 30% in less than two months. However, the gains

were limited by the escalating tensions on the border that overshadowed

the fundamentals. Since then the markets have remained in a trading zone

and fluctuated with the news/rumours about the ongoing conflict on the

Kashmir front. We believe that the markets will remain range-bound till the

time the Indo-Pak stand off reaches some decisive conclusion.

Once again the results declared for the full year by the three sectors -

information technology (IT), pharmaceuticals and fast moving consumer

goods (FMCG) - where we remain over-weight, have been above

expectations. The IT sector has not participated in the recent rally despite

the excellent results. This is largely due to concerns that the industry is too

dependent on Year 2000 business. We believe this is unfounded and the

IT companies will continue to log a healthy growth during the next couple

of years. Thus we continue to remain overweight in this sector.


79/191

Due to above reason, Value Funds NAV lost 8.55% and under performed

the benchmark BSE SENSEX and BSE-200 by 19.27% and 16.33%

respectively, during the last quarter. However, for the calendar year to date,

the Fund has appreciated by 43.96% and has outperformed the BSE

SENSEX and BSE-200 by 8.66% and 13.73%, respectively

SUN F&C MONEY VALUE FUND

DEBT FUND: SUN F&C Money Value Fund

Returns in Bond Option: 13% per annum (from 10/01/99 30/06/99)

Fund Managers Review

Interest rates remained depressed throughout the quarter despite the

government repeatedly tapping the money markets to meet its huge

borrowing requirement. Some large corporate borrowers also tapped the

wholesale primary debt market. The major reason for the dip in interest

rates could be attributed to the sluggish credit off-take from the banking

system. The excess liquidity in the system and the low inflation rate of 3%

on the back of a good agricultural crop reduced the difference between the

interest rates on government and corporate debt securities. The foreign


80/191

exchange market was stable despite a steady depreciation in the rupee as a

fall-out of the border conflict at Kargil.

The fund continued its focus on safety and liquidity. The investment has

been done in high quality corporate debentures and institutional bonds. In

the last quarter, the fund has done well with 13.45% p.a. return in the Bond

Option and 8.71% p.a. return in the Liquid option.

Alliance Capital Asset Management (I)Pvt. Ltd.

Brief Introduction


81/191

Alliance Capital Asset Management (India) Pvt. Ltd. (ACAM) isan affiliate of Alliance Capital Management L.P., a leading globalinvestment adviser based in New York, USA. Since 1993, AllianceCapital has maintained a presence in India when it was registeredas a Foreign Institutional Investor (FII). As an FII, Alliance Capitallaunched an "off-shore" fund, the India Liberalization Fund inDecember 1993. The Indian Asset Management Company, ACAM,has launched ten open-ended schemes, each designed to meet aspecific investment objective. ACAM is headquartered in Mumbaiand has sales offices in New Delhi, Pune, Bangalore, Chennai,

Calcutta, Hyderabad and Ahmedabad. The company has built areputation as a professional asset manager, focussed on providinginvestors superior investment performance and quality servicing.Besides the offering and management of collective investmentschemes the Asset Management Company may undertake activitiesin the nature of management and advisory services to offshorefunds, pension funds, provident funds, venture capital funds,management of insurance funds and financial consultancy andexchange of research on commercial basis.

No. of schemes 11

No. of schemes including options 32

Equity Schemes 9

Debt Schemes 15

Short term debt Schemes 2

Equity & Debt 2

Gilt Fund 4


82/191

Key Personnel

Dave William (Chairman), John DCarifa (President), Karan Trehan, Ajay

Piramal, James J. Posch, Prakash Shah,Vineet Udeshie, Sameer C. Arora(CIO), Nikhil Johri (CEO)

Corpus under

management2881.446 Crs. as on Sep 28 , 2001

Fund Managers Samir Arora, Vineet Udeshie .

Open Ended Schemes

Scheme Name Date30Days

91Days

1 Year 3 YearFundSize( in Cr.)

FundSize Date

Alliance 95- Dividend10/12/01

-5.91 -11.49 -24.35 28270.3245788

9/28/01

Alliance 95- Growth10/12/01

-5.89 -11.51 -27.99 22.78270.3245788

9/28/01

Alliance Basic Industries- Dividend

10/12/01

-3.03 -9.9 -6.23 NA21.4846953

9/28/01

Alliance Basic Industries 10/12/ -3.15 -9.9 -6.23 NA 21.4846 9/28/01
http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC001http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC006http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC019http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC019http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC016http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC001http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC006http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC019http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC019http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC016


83/191

- Growth 01 953

Alliance Buy India Fund- Dividend

10/12/01

-6.21 -5.23 -22.43 NA41.851253

9/28/01

Alliance Buy India Fund- Growth

10/12/01

-6.21 -5.23 -22.56 NA41.851253

9/28/01

Alliance Capital TaxRelief 96

10/12/01

-5.94 -12.97 -36.23 51.5911.7230717

9/28/01

Alliance Cash Manager -Dividend

NA NA NA NA615.0818644

9/28/01

Alliance Cash Manager -Growth

10/12/01

0.61 1.95 8.62 9.23 615.0818644

9/28/01

Alliance Equity Fund -Dividend

10/12/01

-9.46 -18.82 -41.03 36.16269.3476143

9/28/01

Alliance Equity Fund -Growth 10/12/01 -9.12 -18.5 -42.1 22.69 269.3476143 9/28/01

Alliance GovtSecurities Fund LT -

10/12/01

0.12 1.96 14.72 NA 12.176968

9/28/01
http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC016http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC017http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC017http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC021http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC021http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC007http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC007http://opt/scribd/conversion/tmp/scratch2434/fund_facts_rpt.asp?scheme=AC022http://opt/scribd/conversion/tmp/scrat

Documents

An Indepth Analysis of Mutual Fund Industry