Final Report-Idfc Mutual Funds Honey

8/4/2019 Final Report-Idfc Mutual Funds Honey

1/61

Managerial Internship Report

on

Mutual FundsAnalysis, Sales and Distribution

at

IDFC Mutual Fundsby

Honey Parnami

PGP20102129

Mr.S.Das Mr. GyanendraPrakash

(Faculty Mentor) (Industry Mentor)

IILM

iilm institute for higher education

(2010-2012)


2/61

TRAINING & PROJECT REPORT

Presented by

Honey Parnami

Based on the training undertaken in

IDFC Mutual Funds

Project

Mutual FundsAnalysis, Sales and distribution

Period

From 4 May to 28 June

Industry Guide

Mr. Gyanendra Prakash

ACKNOWLEDGEMENT


3/61

Going to the thick of things I would like to add some thankful words. I owe a huge debt of

thanks and deep sense of gratitude to my learned guide Mr. Gyanendra Prakash IDFC

MUTUAL FUND, ASSETS MANAGEMENT COMPANY, Barakhamba Road (New Delhi)

branch under whose guidance, supervision and encouragement the present study was

undertaken and completed. Their sympathetic, accommodating and constructive nature

remained a constant source of inspiration for me throughout the duration of this summer

project.

I am thankful to all the personnel in IDFC MUTUAL FUND AMC LTD for utmost co-

operation and timely help extended by them for the completion of the project.

Honey Parnami

PGP 20102129

CONTENTS


4/61

CHAPTER 1 INTRODUCTION

1.1 EXECUTIVE SUMMARY

1.2 OBJECTIVE...

1.3METHODOLOGY

CHAPTER 2 INTRODUCTION OF MUTUAL FUND

2.1 INTRODUCTION OF MUTUAL FUND.

2.2 CHARACTERISTICS OF MUTUAL FUND

2.3ADVANTAGES OF MUTUAL FUND

2.4 DISADVANTAGES OF MUTUAL FUND

2.5 HISTORY OF MUTUAL FUND IN INDIA...

2.6 TYPES OF FUNDS...

2.7 FUND STRUCTURE AND CONSTITUENTS.

2.8 ASSEST MANAGEMENT COMPANY..

CHAPTER 3 COMPANY PROFILE

CHAPTER 4 RESEARCH

4.1 QUESTIONNAIRE.

4.2 RESULT AND ANALYSIS OF FEEDBACK FORM

CHAPTER 5 FINDINGS

5.1 CONCLUSION

5.2 RECOMMENDATIONS..

5.3 LIMITATION..

CHAPTER 1.

INTRODUCTION


5/61

1.1 EXECUTIVE SUMMARY:

In few years Mutual Fund has emerged as a tool for ensuring ones financial wellbeing. Mutual

Funds have not only contributed to the India growth story but have also helped families tap into

the success of Indian Industry. As information and awareness is rising more and more people are

enjoying the benefits of investing in mutual funds. The main reason the number of retail mutual

fund investors remains small is that eight in ten people with incomes in India do not know that

mutual funds exist. But once people are aware of mutual fund investment opportunities, the

number who decide to invest in mutual funds increases to as many as one in five people. The

trick for converting a person with no knowledge of mutual funds to a new Mutual Fund customer

is to understand which of the potential investors are more likely to buy mutual funds and to use

the right arguments in the sales process that customers will accept as important and relevant to

their decision.

This Project gave me a great learning experience and at the same time it gave me enough scope

to implement my analytical ability. The analysis presented in this Project Report is based on

market research on the saving and investment practices of the investors and preferences of the

investors for investment in Mutual Funds. This report will help to know about the IFAs

Preferences in Mutual Fund which means do they prefer any particular Asset Management

Company (AMC), which type of product they prefer, which option (Growth or Dividend) they

prefer or which investment strategy they follow (Systematic Investment Plan or One time Plan).

This Project as a whole can be divided into three parts.

The first part gives an insight about Mutual Fund and its various aspects, the Company Profile,

Objectives of the study, Research Methodology. One can have a brief knowledge about Mutual


6/61

Fund and its basics through the Project. Also various case studies regarding Systematic

Investment Plans(SIP) and analysis sheets regarding assest classes of India and their returns,

NAV allotment in various Mutual Funds (Mid-Cap Mutual Funds) and report on STPs and VIPs.

The second part of the Project consists of data analysis collected through survey done on 30

IFAs (Independent Fund Advisors). For the collection of primary data a questionnaire was

drafted and was filled during the survey. Also data from the various investors were taken into

account.

The Third Part consisted of the sales part. This part holds account for the basic selling of mutual

funds through Private Sector Unit Banks channel of distribution. I was placed at PSU Bank in

Noida.

I also took views of people who visited the Bank. I also studied about various products and

strategies of other AMCs in INDIA. The data collected has been well organized and presented. I

hope the research findings and conclusion will be of use.

1.2 OBJECTIVE:

The Characteristics, Needs and Importance of Mutual Fund in India. To Find the various factors which affects the decision of investors while investing in

mutual fund scheme

To Find various methods adopted by AMCs to sell Mutual Fund in India Overall analysis of mutual fund Industry.

1.3 METHODOLOGY:


7/61

TYPE OF RESEARCH

In this project descriptive research is used.

DATA SOURCES

Information has been gathered through primary sources.

QUESTIONAIRE DESIGN

For research purpose questionnaire has been designed with closed-ended questions keeping in

mind the objective of the research. Some questions have been designed using ordinal scale.

LOCALE

The locale of the study is IFAs Of New Delhi region only. It is restricted because of time and

resource constraints.

SAMPLE SIZE

The size of the sample is around 30 IFAs

CHAPTER 2


8/61

INTRODUCTION OF MUTUAL FUND

2.1 INTRODUCTION OF MUTUAL FUNDS:


9/61

A mutual fund is simply a financial intermediary that allows a group of investors to pool their

money together with a predetermined investment objective. The mutual fund will have a fund

manager who is responsible for investing the pooled money into specific securities (usually

stocks or bonds). When you invest in a mutual fund, you are buying shares (or portions) of the

mutual fund and become a shareholder of the fund.

Mutual funds are one of the best investments ever created because they are very cost efficient

and very easy to invest in (you don't have to figure out which stocks or bonds to buy).

By pooling money together in a mutual fund, investors can purchase stocks or bonds with much

lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual

funds is diversification.

ACCORDING TO AMFI(ASSOCIATION OF MUTUAL FUND OF INDIA) :

A Mutual Fund is a trust that pools the savings of a number of investors who share a common

financial goal. The money thus collected is then invested in capital market instruments such as

shares, debentures and other securities. The income earned through these investments and the

capital appreciation realized is shared by its unit holders in proportion to the number of units

owned by them.

Thus a Mutual Fund is the most suitable investment for the common man as it offers an

opportunity to invest in a diversified, professionally managed basket of securities at a relatively

low cost. The flow chart below describes broadly the working of a mutual fund.

2.2 CHARACTERISTICS OF A MUTUAL FUND:

Investors own the mutual fund. Professional managers manage the affairs for a fee. The funds are invested in a portfolio of marketable Securities, reflecting the investment objective. Value of the portfolio and investors holdings, alters with Change in market value of investments.

2.3 ADVANTAGES OF MUTUAL FUNDS:

The advantages of investing in a Mutual Fund are:


10/61

There are numerous benefits of investing in mutual funds and one of the key reasons for its

phenomenal success in the developed markets like US and UK is the range of benefits they offer,

which are unmatched by most other investment avenues. We have explained the key benefits in

this section. The benefits have been broadly split into universal benefits, applicable to all

schemes and benefits applicable specifically to open-ended schemes.

AFFORDABILITYA mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the

investment objective of the scheme. An investor can buy in to a portfolio of equities, which

would otherwise be extremely expensive. Each unit holder thus gets an exposure to such

portfolios with an investment as modest as Rs.500/-. This amount today would get you less than

quarter of an Infosys share! Thus it would be affordable for an investor to build a portfolio of

investments through a mutual fund rather than investing directly in the stock market.

DIVERSIFICATIONThe nuclear weapon in your arsenal for your fight against Risk. It simply means that you must

spread your investment across different securities (stocks, bonds, money market instruments, real

estate, fixed deposits etc.) and different sectors (auto, textile, information technology etc.). This

kind of a diversification may add to the stability of your returns, for example during one periodof time equities might under perform but bonds and money market instruments might do well

enough to offset the effect of a slump in the equity markets. Similarly the information technology

sector might be faring poorly but the auto and textile sectors might do well and may protect your

principal investment as well as help you meet your return objectives.


11/61

VARIETYMutual funds offer a tremendous variety of schemes. This variety is beneficial in two ways: first,

it offers different types of schemes to investors with different needs and risk appetites; secondly,

it offers an opportunity to an investor to invest sums across a variety of schemes, both debt and

equity. For example, an investor can invest his money in a Growth Fund (equity scheme) and

Income Fund (debt scheme) depending on his risk appetite and thus create a balanced portfolio

easily or simply just buy a Balanced Scheme.

PROFESSIONAL MANAGEMENTQualified investment professionals who seek to maximize returns and minimize risk monitor

investor's money. When you buy in to a mutual fund, you are handing your money to an

investment professional that has experience in making investment decisions. It is the Fund

Manager's job to (a) find the best securities for the fund, given the fund's stated investment

objectives; and (b) keep track of investments and changes in market conditions and adjust the

mix of the portfolio, as and when required.

TAX BENEFITSAny income distributed after March 31, 2002 will be subject to tax in the assessment of all Unit

holders. However, as a measure of concession to Unit holders of open-ended equity-oriented

funds, income distributions for the year ending March 31, 2003, will be taxed at a confessional

rate of 10.5%.

In case of Individuals and Hindu Undivided Families a deduction unto Rs. 9,000 from the Total

Income will be admissible in respect of income from investments specified in Section 80L,

including income from Units of the Mutual Fund. Units of the schemes are not subject to

Wealth-Tax and Gift-Tax.

REGULATIONSSecurities Exchange Board of India (SEBI), the mutual funds regulator has clearly defined

rules, which govern mutual funds. These rules relate to the formation, administration and

management of mutual funds and also prescribe disclosure and accounting requirements. Such a

high level of regulation seeks to protect the interest of investors.


12/61

CONVENTIONAL ADMINISTRATIONInvesting in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad

deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save

your time and make investing easy and convenient. Return Potential Over a medium to long-

term; Mutual Funds have the potential to provide a higher return as they invest in a diversified

basket of selected securities.

LIQUIDITYIn open-ended mutual funds, you can redeem all or part of your units any time you wish. Some

schemes do have a lock-in period where an investor cannot return the units until the completion

of such a lock-in period.

CONVENIENCEAn investor can purchase or sell fund units directly from a fund, through a broker or a financial

planner. The investor may opt for a Systematic Investment Plan (SIP) or a Systematic

Withdrawal Advantage Plan (SWAP). In addition to this an investor receives account

statements and portfolios of the schemes.

2.4 DISADVANTAGES OF MUTUAL FUNDS:

No control over cost No tailor-made portfolio Managing a portfolio of fund

S.

No. Disadvantage Particulars

1.Costs Control

Not in the

Hands of an

InvestorInvestor has to pay investment management fees and fund

distribution costs as a percentage of the value of his investments

(as long as he holds the units), irrespective of the performance of

the fund.

2. NoCustomized

The portfolio of securities in which a fund invests is a decision

taken by the fund manager. Investors have no right to interfere in


13/61

Portfolios the decision making process of a fund manager, which some

investors find as a constraint in achieving their financial objectives.

3.Difficulty in

Selecting a

Suitable Fund

SchemeMany investors find it difficult to select one option from the

plethora of funds/schemes/plans available. For this, they may

have to take advice from financial planners in order to invest in the

right fund to achieve their objectives.

2.5 HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY IN INDIA:

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the

initiative of the Government of India and Reserve Bank the. The history of mutual funds in India

can be broadly divided into four distinct phases

FIRST PHASE 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act ofParliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and

administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI

and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative

control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of

1988 UTI had Rs.6,700 crores of assets under management.

MF Industry started in India in 1963 with formation of UTI Asset under management in 1987- 88: Rs. 6700 crores Launch of First Scheme - US 64 Followed by ULIP in 1971, CGGA (1986), Mastershare (1987) UTI was the only player in the market enjoying monopoly position huge mobilization on

funds.

SECOND PHASE1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non-

UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of

India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first

non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87),

Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India

(Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989


14/61

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.

Establishment of SBI MFthe first non UTI MF. Followed by Canbank MF, LIC MF, BOI MF. Change in the mindset of the investors UTI was still the undisputed leader of the market.

THIRD PHASE1993-2003 (Entry of Private Sector Funds) with the entry of private sector

funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a

wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund

Regulations came into being, under which all mutual funds, except UTI were to be registered and

governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first

private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations

were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The

industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual

fund houses went on increasing, with many foreign mutual funds setting up funds in India and

also the industry has witnessed several mergers and acquisitions. As at the end of January 2003,

there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with

Rs.44, 541 crores of assets under management was way ahead of other mutual funds.

Entry of the Pvt. Sector funds in 1993 JV of foreign fund management companies with Indian promoters Competition increased investors servicing techniques Investors started becoming selective.

FOURTH PHASESINCE FEBRUARY 2003 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


15/61

by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund

Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than

Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund,

conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among

different private sector funds, the mutual fund industry has entered its current phase of

consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage

assets of Rs.153108 crores under 421 schemes.

SEBI -the regulatory authority UTI comes under SEBI regulation voluntarily Governments step for investors protection

FIFTH PHASE - Growth and Consolidation - 2004 Onwards The industry has also

witnessed several mergers and acquisitions recently, examples of which are acquisition of

schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual

Fund by Principal Mutual Fund. Simultaneously, more international mutal fund players have

entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the

end of March 2006. This is a continuing phase of growth of the industry through consolidation

and entry of new international and private sector players.

2.6 HOW DOES MUTUAL FUND WORK

The working of Mutual Funds can be briefly stated in the form of the points below: -

A draft offer document is prepared at the time of launching the fund. Typically, it prespecifies the investment objectives of the fund, the risk associated, the costs involved in

the process and the broad rules for entry into and exit from the fund and other areas of

operation. In India, as in most countries, these sponsors need approval from a regulator,

SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the


16/61

sponsor and its financial strength in granting approval to the fund for commencing

operations.

A sponsor then hires an asset management company to invest the funds according to theinvestment objective.

It also hires another entity to be the custodian of the assets of the fund and perhaps a thirdone to handle registry work for the unit holders (subscribers) of the fund.

In the Indian context, the sponsors promote the Asset Management Company also, in which it

holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset

Management Company (AMC). E.g. Birla Global Finance is the sponsor of the Birla Sun LifeAsset Management Company Ltd., which has floated different mutual funds schemes and also

acts as an asset manager for the funds collected under the schemes.


17/61

2.6 TYPES OF MUTUAL FUNDS:

I. Closed-end or Open-end

Open-end Funds:An open-end fund is one that has units available for sale and repurchase at all

time. An investor can buy or redeem units from the fund itself at a price based on the Net Asset

Value (NAV) per unit.

Close-end Funds:A close ended fund makes a one-time sale of a fixed number of unit. It does

not allow investors to buy or redeem units directly from the funds. However, to provide liquidity

to investors many closed-end funds get themselves listed on stock exchange. Funds do offer

buy-back of funds/units thus offering another avenue for liquidity to closed-end fund investor.

II. Load vs. No Load: Marketing of a new mutual fund scheme involves initial expense. These

expenses may be recovered from the investors in different ways at different times. Three usual

ways in which a funds sales expenses may be recovered from the investors are:

1. At the time of investors entry into the fund/scheme, by deducting a specific amount from his

initial contribution: front-end or entry load.

2. By charging the fund/scheme with a fixed amount each year, during the stated number of

years: deferred load.

3. At the time of the investors exit from the fund/scheme, by deducting a specific amount from

the redemption proceeds payable to the investor: back end or exit load These charges made by

the fund managers to the investors to cover distribution/sales/marketing expenses are often called

loads. Funds that charge front-end, back-end or deferred loads are called load funds. Funds

that make no such charges or loads for sales expenses are called no-load funds.

In India, SEBI has defined a load as the one-time fee payable by the investor to allow the fund

to meet initial issue expenses including brokers/agents/distributors commissions, advertising

and marketing expenses.

A load funds declared NAV does not include load charges

III. Tax-exempt vs. Non-Tax exempt Funds: Generally, when a fund invests in tax-exempt

securities, it is called a tax-exempt fund. In India, after the 1999 Union Government Budget, all

of the dividend income received from any of the mutual funds is tax-free in the hands of the


18/61

investors. However, funds other than Equity Funds have to pay a distribution tax, before

distributing income to investors. In other words, equity mutual fund schemes are tax-exempt

investment avenues, while other funds are taxable for distributable income.

Different types of mutual fund

Fund schemes Portfolio objectivesGrowth & Income High Risk & High ReturnBalanced Moderate Risk & ReturnLiquid & Money Market Fixed ReturnGilt Zero RiskELSS Tax SavingFund of funds Additional diversification

Types of Mutual Fund:

Once we have reviewed the fund classes, we are ready to discuss more specific fund types. Funds

are generally distinguished from each other by their investment objectives and types of securities

they invest in.

A. Broad Fund Types by Nature of Investments

Mutual funds may invest in equities, bonds or other fixed income securities, or short-term money

market securities. So we have Equity, Bonds and Money Market Funds. All of them invest in


19/61

financial assets. But there are funds that invest in physical assets. For example, we may have

Gold or other Precious Metal Funds, or Real Estate Funds .

B.Broad Fund Types by Investment Objective

Investors and hence the mutual funds pursue different objectives while investing. Thus,

Growth Funds invest for medium to long term capital appreciation.

Income Funds invest to generate regular income, and less for capital appreciation.

Value Funds invest in equities that are considered under-valued today, whose value will be

unlocked in the future.

C.Broad Fund Types by Risk Profile

The nature of a funds portfolio and its investment objective imply different levels of risk

undertaken. Funds are therefore often grouped in order of risk. Thus, Equity Funds have a greater

risk of capital loss than a Debt Fund that seeks to protect the capital while looking for income.

Money Market Funds are exposed to less risk than even the For internal use by Training

Department of Prudential ICICI Mutual Fund Bond Funds, since they invest in short-term fixed

income securities, as compared to longer-term portfolios of Bond Funds.

Money Market Funds: Lowest rung in the order of risk level, Money Market Funds invest in

securities of a short-term nature, which generally means securities of less than one-year maturity.

Gilt Funds: Gilts are government securities with medium to long-term maturities, typically of

over one year (under one-year instruments being money market securities).

Debt Funds (or Income Funds): Next in the order of risk level, we have the general category

Debt Funds. Debt funds invest in debt instruments issued not only by governments, but also by

private companies, banks and financial institutions and other entities such as infrastructure

companies/utilities.

Diversifies Debt Funds: A debt fund that invests in all available types of debt securities, issued

by entities across all industries and sectors is a properly diversified debt fund . A diversified debt

fund is less risky than a narrow-focus fund that invests in debt securities of a particular sector or

industry.

Focused Debt Funds: Some debt funds have a narrow focus, with less diversification in its

investment. Examples include sector, specialized and offshore debt funds. Other examples of

focused funds include those that invest only in Corporate Debentures and Bonds or only in Tax

Free Infrastructure or Municipal Bonds.


20/61

High yield Debt Funds: There are funds which seek to obtain higher interest rates by investing

in debt instruments that are considered below investment grade. e.g. Junk Bond Funds.

Assured Return Funds an Indian Variant: The SEBI permits only those funds whose

sponsors have adequate net-worth to offer assurance of return. For e.g. MIPs. Investors have

some lock-in period.

Fixed Term Plan Series Another Indian Variant: These are essentially closed-end. These

plans do not generally offer guaranteed returns. This scheme is for short-term investors who

otherwise place money as fixed term bank deposits or inter corporate bonds.

Equity Fund: As investors move from Debt Fund category to Equity Funds,

they face increased risk level.

No guarantee returns High potential for growth of capital

Types of Equity Fund

a) Aggressive Growth Fund

Maximum capital appreciation Invests in less researched or speculative shares. Very volatile & riskier.

b) Growth Fund

Growth fund invest in companies whose earnings are expected to Rise above average rate. e.g. Technology Fund Capital appreciation in 35 years Less volatile then aggressive growth fund.

c) Specialty Fund


21/61

They invest in companies that meet predefined criteria.

i) Sector Funds

Technology Fund Pharmaceutical Fund FMCG Fund

ii) Offshore Funds

Invest in equities in one or more foreign countries.

iii) Small-Cap equity Funds

Invest in shares of companies with relative lower market capital.

d) Diversified Equity Funds

A fund that seeks to invest only in equities, except for a very small portion in liquid money

market securities, bur is not focused on any one or few sectors or shares, may be termed a

diversified equity fund. While exposed to all equity price risks, diversified equity funds seek to

reduce the sector or stock specific risks through diversification.

1.)Equity Linked Savings Schemes: An Indian Variant

Investment in these schemes entitles the investor to claim an income tax rebate, but usually has a

lock-in period before the end of which funds cannot be withdrawn.

e) Equity Index Funds

An index fund tracks the performance of a specific stock market index. The objective is to match

the performance of the stock market by tracking an index that represents the overall market. The

funds invest in share that constitute the index and in the same proportion on the index.

f) Value Funds

Value Funds try to seek out fundamentally sound companies whose shares are currently under-

prices in the market. Value Funds will add only those shares to their portfolios that are selling at

low price-earnings ratios, low market to book value ratios and are undervalued by other

yardsticks. Fund concentrate on future growth prospect having good potential.

g) Equity Income Funds

There are equity funds that can be designed to give the investor a high level of current income

along with some steady capital appreciation, investing mainly in shares of companies with high

dividend yields.


22/61

Hybrid Funds Quasi Equity/Quasi Debt: Many mutual funds mix these (moneymarket, debt and equity) different types of securities in their portfolios. Such funds are

termed hybrid funds as they have a dual equity/bond focus.

Commodity Funds: While all of the debt/equity/money market funds invest in financialassets, the mutual fund vehicle is suited for investment in any other- for examples-

physical assets.

Real Estate Funds: Specialized Real Estate Funds would invest in Real Estate directly,or may fund real estate developers, or lend to them, or buy shares of housing finance

companies or may even buy their securities assets.


23/61

2.7 FUND STRUCTURE & CONSTITUENTS

In USA Mutual Funds are investment companies In UK, its unit trust or investment trusts

In India, there is only unit trust (i.e. trust form) They are all under SEBI regulations

SponsorPerson or a body who sets up or form the trust Appoints board of trustees, AMC, custodian, Qualification

Contribution 40 % net worth of AMC Should have firm financial track record for 5 years Hands over trust deed to trustees. TrusteesThere can be a trustee company (comes under companies act, too) or board of

trustees (comes under Indian Trust Act only)

The role of the Trustees is to safeguard the interest of the investor/unit-holder of the fundFiduciary Capacity

The trustees make sure that the funds are invested according to the investors mandateand objective.

The board of trustees is appointed by Sponsor with SEBI approval At least 4 trustees ofwhich at least 2/3rd of the board of trustees should be independent


24/61

Trustees of one mutual fund cannot be trustee of another mutual fund Right to seek regular information and remedial action All major decisions need trustee

approval

The board of trustees are required to meet at least 4 times in a year to review the AMC Trust created through a document called the Trust Deed, executed by the Fund Sponsor

in favor of the Trustees.

2.8 Asset Management Company:

An AMC is involved in the daily administration and also acts as investment advisor for the fund.

An asset management company is promoted by a sponsor which usually is a reputed corporateentity with sound record of profits. An AMC typically has three departments:

Fund Management Sales & Marketing Operations & Accounting

AMCs are fund managers Registered with SEBI

The AMC is also formed as a private limited company Responsible for operational aspects of the MF Investment management agreement with trustees The AMC gets fee for managing the funds according to the mandate of the investors. An AMCs net worth (Share Capital + Reserves & Surplus) should be at least Rs.10

crores at all times

At least 40% of AMC capital must be contributed by the Sponsor At least half (50%) of the directors of the AMC must be independent Appoints other constituents - Custodian , Registrar & Transfer Agent Cannot have any other business interest AMC of one MF cannot be trustee/AMC of another MF Quarterly reporting to Trustees


25/61

An AMC cannot engage in any business other than portfolio advisory and management CustodianAppointed by board of trustees for safe keeping of securities as independent

entity of sponsors

Transfer Agents Issue and redeem units and other related services such as preparationof transfer documents and updating investor records

Distributors Are appointed by AMC and may act on behalf of different fundsIndependent individuals are appointed as agent

In merger of two AMCs, SEBI approval and consent of 75% unit holders are required.

AMC takeover by another sponsor

SEBI approval required Inform the unit holders

Scheme takeover

SEBI approval required Investors should be given option to redeem units incase they do not consent for it

REGULATORS IN INDIA

SEBI - The capital markets regulators also regulates the mutual funds in India. SEBIrequires all mutual funds to be registered with them. SEBI issues guidelines for all

mutual funds operations - investment, accounts, expenses etc.

RBI as supervisor of banks owned mutual funds - As banks in India came under theregulatory jurisdiction of RBI, bank owned funds to be under supervision of RBI and

SEBI.

RBI as supervisor of Money Market Mutual Funds - RBI has supervisory responsibilityover all entities that operate in the money markets. Hence in the past Money Market

Mutual Funds scheme of Mutual funds had to be abide by policies laid down by RBI.

Recently, it has been decided that Money Market Mutual Funds of registered mutual funds will

be regulated by SEBI through SEBI (Mutual Fund) Regulations 1996.


26/61

Distribution Model

AMC

Direct Sales

Distribution Channels

In highly competitive environment, product innovation or development has become a necessity

for mutual fund players to stay ahead. Increasing commoditization and growing needs of the

customers are forcing players to shift to solution based models from production based ones. In

either model, the role of distribution channel remains critical as it helps stave off competition by

maintaining relationships, providing advisory services and customizing need-based solution

Relationship plays a vital role while selling mutual fund products. An agent is essential channel

between investors and mutual fund products. However it is difficult for AMCs to manage and

monitor large agent force. So they take shelter in third-party distribution AMCs like KARVY,

BAJAJ Capital, and Integrated Enterprises etc. These AMCs in turn, appoint their agents to sell

the MF to AMCs products. Agents advise the customer on the kind of product that caters to the

needs of the client. To unload their work, the companies bear a huge market expense in the form

of higher commission to lure investors.


27/61

To control increasing operational costs, AMCs are opting for the service s of large distributors to

sell their products by leveraging their value chain, which comprises of a brokers, sub brokers and

agents. However mutual fund players have to bear splurging marketing expenses to push their

product against others. In addition mutual fund AMCs are also using banks and Non Banking

Financial AMCs (NBFC) as distribution channels to leverage their reach and huge client base.

UTI is distributing its offerings through selected branches of Indian Bank, Corporation Bank,

Bank of India an Allahabad Bank, besides, they are also appointing sales personnel to meet

investors, educate them and sell their products.

The contribution of direct marketing to the total sales is miniscule, but the cost burden is huge.

The post office is also used as a channel of Distribution by mutual funds AMCs, given the fact

that the post office has the largest network then many other institution or bank in the country. As

far as retail penetration is concerned, the post office plays a vital role because its offices are

distributed through the country. Mutual fund industry is also using the internet to distribute their

products because of the cost advantages and increased communication. However, the fact is thatinternet has its limits in providing customized advice to individuals; restrict its use on large scale.

Challenges in Distribution

Lack of awareness Risk aversion Extensive availability of the central govt. assured return Delay (in Liquidity) Tardy inter-city payment system Transaction cost of establishing contact centers

It has been a big challenge for the Mutual Fund Industry. As most of the investors are still not

aware how it functions. They sometime feel that it is a costly affair. Educating investors about

the advantages of investing in mutual funds compared to risk-free savings instrument is a big

task for the industry. According to the Securities Market Infrastructure- Leveraging Expert

(SMILE), the transaction cost of establishing contact centers, delay in fund transfer and tardy


28/61

inter-city payment system are the major impediments. So enhancing the reach through the

existing distribution model will require more investments.

As of now, mutual fund investments are confined to the metros, tier 1 and 2 cities (about 50

cities). A major reason for this is high cost of developing retail infrastructure. So, scaling up the

operation by increasing investment in other cities doesnt seem feasible.

There is also a regulatory entanglement in fund realization. Allotment of units Net Asset Value

(NAVs) is done before realization of funds, except in liquid and money market schemes. Such

delay is quite pervasive in smaller towns, where it can be 3-5 days or more. Such hassle could

prevent investors from investing in mutual funds. However, these problems are being resolved

with appointment of registrars to meet the time-lines of recording the transactions. In addition,

technological advancements of remittance instruments such as Electronic clearing Services

(ECS), Electronic Funds Transfer (FT) and Real- Time Gross settlement System (RTGS), is a

making the process fast and reducing delay in fund transfer across cities.

The extensive availability of the central govt. assured return on small products are restricting the

competition as well as penetration of wide variety of mutual fund products, particularly in the

smaller towns where investors are not willing to take risk. This poses a great challenge for the

industry to realize its potential.

Curbing unethical practices

The industry faces challenge to control certain practices. AMCs are wooing the distributors by

offering more commission to push their products. In the hope of getting more incentives,

distributors may opt for unfair practices like false projections to sell unsuitable products,

motivate the investors to shift from one fund to another, namely high net worth investors and

persuade them to over invest. However, the clients concern and his needs should be of prime

importance while selling. To curb such unethical practices, the Association of Mutual Funds in

India (AMFI) has prescribed that agents/distributors must have AMFI certification. And to

control the huge market expenses the authority has prescribed that the commission rates also

shouldnt be more than mutual funds expense limit of 2.5% for equity and 2.25 % for debt. Such

regulations are required to be more effective to stop such unethical practices.

Spreading the Mutual Fund Culture

Though the Indian Mutual Fund industry has a huge potential, it is yet to be realized. To realize

its growth potential, industry will have to focus on its reach in the retail segment. According to

Chairman of AMFI there are more than 180 million households in India, of which just 11.8

millions invest in mutual funds, making it penetration of 6.7% in the urban areas 13.7% of the


29/61

households invest in mutual funds; in rural areas this percentage is just 3.8%. So there is a need

to focus on rural penetration for future growth. To achieve its growth, educating the customer

about the mutual funds as a saving vehicle will be critical. More efforts are required from the

regulators and the industry to manage the wealth of individuals to further propel the growth of

the industry by popularizing the use of mutual funds. The govt. should properly regulate and

monitor the regulation so that a favorable climate can be created. Regulations should be

tightened to curb unethical practices. They should also develop a comprehensive risk

management system so that it can induce more investment. The industry should focus on product

innovation and maintain transparency, flexibility, service and innovation to realize its potential.

Offer Document

When an AMC or a Fund Sponsor wishes to launch a new mutual fund scheme, they are required

to formulate the details of the schemes and register it with SEBI before announcing the scheme

and inviting the investors to subscribe to the fund. Launch of a new mutual fund scheme is called

a New Fund Offer (NFO). The document containing the details of the new fund offer that the

AMC or the Sponsor prepares and circulates to the prospective investors is called the OfferDocument.

Offer Document issued by mutual funds serve the same purpose of inviting investors and giving

them the information about the new fund offer. The offer document of the closed-end fund is

issued only once at the time of issue, as the units are normally not re-purchasable for investors.

But, the open-end fund could issue and repurchase units on an ongoing basis. This means that the

offer document of the open-end funds is valid for all the time, until amended, though it will be

first issued at the time of launch of the scheme. SEBI requires the offer document of the open-

end fund to be revised every two years.

Options Offered to Investors:

Dividend Option: The investor can choose to receive a part of the profits of the mutualfund at some intervals before their redemption. This option is Dividend Option. Investors

who choose dividend option can again have 2 sub options:

Dividend Payout Option: Investors who choose the dividend payoutoption on their investments will receive dividends as and when such


30/61

dividends are declared by the scheme. Dividends are paid out to the

investors in the form of warrants or are directly credi ted to the investors

bank account.

Dividend Re-investment Option: Investors who opt for the dividendreinvestment option do not take the amount of dividend out of the

scheme. They re-invest the dividends that are declared by the mutual

funds back into the mutual funds itself, at a NAV that is prevalent

immediately after the declaration of dividend or the NAV at the time of

re-investment. This NAV is known as ex-div NAV.

Growth Option: The investors who do not want to receive any part of profits of the mutualfund before its redemption. Rather they want to retain the profits made in the pool and

want their returns to grow by being compounded. Whenever they need to get somemoney or profits back, they would sell a part of their units. This is Growth Option.

Investor Earning Opportunities:

Dividend Payout DividendReinvestment

Growth Option

Dividend Yes Yes NoChange in NAV Yes Yes Yes

Lock-in Period Options:

Mutual funds usually do not have lock-in periods, during which investors cannot exit the fund.

Mutual funds may create products with lock-in periods. Repurchase information can be found in

the offer document. There are 2 normal situations when investors are restricted from exiting the

fund:

An open-ended fund may announce an initial offer period, during which time it will onlysell units. There may be no repurchase during that period. The fund will announce a date

from which further sales and repurchases will take place.

Some specific funds scheme can be designed to have a minimum period of investment.Example: Investments in special Equity Linked Savings Scheme are eligible for tax

rebates. In order to enjoy the tax rebate, the investor is required to stay invested for a

period of 3 years.


31/61

In extra-ordinary situations, mutual funds can, with notice to the investors through a

national daily, impose temporary lock-in periods. Investors have to check the offer

document to see if the mutual fund has sought such a right for itself.

Regulations regarding Cutoff Timings:

All funds except liquid funds Purchases:

In respect of valid applications received upto 3 p.m. by the Mutual Fund, same

days closing NAV shall be applicable.

In respect of valid applications received after 3 p.m. by the Mutual Fund, the

closing NAV of the next business day shall be applicable.

Redemption:In respect of valid applications received upto 3 p.m. by the Mutual Fund, same

days closing NAV shall be applicable.

In respect of valid applications received after 3 p.m. by the Mutual Fund, the

closing NAV of the next business day shall be applicable.

Liquid funds Purchases:

In respect of valid applications, closing NAV of the day immediately before the

day on which funds are available for utilization by the fund shall be applicable.

However, in respect of any application received after 1 p.m. by the Mutual Fund

and the funds are available for utilization by the fund on the same day, closing

NAV of the same day shall be applied.

Redemption


32/61

In respect of valid applications received upto 10:00 a.m. by the Mutual Fund,

previous days closing NAV shall be applicable. In respect of valid applications

received after 10:00 a.m.by the Mutual Fund, same days NAV shall be

applicable.

Net Asset Value

Net Asset Value (NAV) represents a fund's per share market value. This is the price at which

investors buy (bid price) fund shares from a fund company and sell them (redemption price)

to a fund company. Dividing the total value of all the cash and securities in a funds

portfolio, less any liabilities, by the number of shares outstanding, derives it. The

NAV computation is undertaken once at the end of each trading day based on the closing

market prices of the portfolio's securities.

NAV: Net Assets of the Scheme/ Number of Units Outstanding

Or

(Market Value of Investment + Receivables + Other Accrued Income + Other Assets

Accrued ExpensesOther PayablesOther Liabilities)/Number of Units Outstanding

on the Valuation Date

For the purpose of NAV calculation, the day on which NAV is calculated by a fund is known

as the Valuation Date. NAV of all schemes must be calculated and published at least every

Wednesday for Closed-end schemes and daily for Open-end schemes. The days NAV must

be posted on AMFI website by 8:00 p.m. that day. This applies to both Open-end & Closed-

end schemes.

The funds NAV is affected by these 4 factors:

Purchase & Sale of investment securities Valuation of all investment securities held Other assets & liabilities Units sold or redeemed

Pricing Of Units

Although NAVper unit defines the fair value of the investors holding in the fund, the fund may

not repurchase the investors units at the same price as NAV. There can be entry or exit loads.

The Sale price is NAV + Entry Load and the Repurchase price is NAV Exit Load. SEBI

requires that fund must ensure that repurchase price is not lower than 93% of NAV (95% in the


33/61

case of a closed-end fund). On the other side, the fund may sell new units at a price that is

different from the NAV, but the sale price cannot be higher than 107% of NAV. Also, the

difference between the repurchase price and the sale price of the unit is not permitted to exceed

7% of the sale price.

Sale Price: Applicable NAV * (1 + Entry Load)

Repurchase Price: Applicable NAV * (1Exit Load)

Fees & Expenses:

An AMC may charge the scheme with Investment Management & Advisory Fees that are fully

disclosed in the offer document subject to the following limits:

1.25% of the first Rs.100 Crores of weekly average net assets outstanding in theaccounting year, and @ 1% of weekly average net assets in excess of Rs.100 Crores.

For no load schemes, the AMC may charge an additional management fee up to 1% ofweekly average net assets outstanding in the accounting year.

Initial Issue Expenses

Initial Issue Expenses will be permitted for Closed Ended Scheme only and such schemewill not charge entry load.

Initial Issue Expenses of launching schemes (not to exceed 6% of initial resources raisedunder the scheme)

Total Expenses:

Total Expenses charged by the AMC to a scheme, excluding issue or redemption

expenses but including investment management & advisory fees, are subject to the

following limits:

On the first Rs.100 Crores of daily or average weekly net assets 2.5%On the next Rs.300 Crores of daily or average weekly net assets 2.25%On the next Rs.300 Crores of daily or average weekly net assets 2.0%On the balance of daily or average weekly net assets 1.75%

For Bond Funds:


34/61

On the first Rs.100 Crores of daily or average weekly net assets 2.25%On the next Rs.300 Crores of daily or average weekly net assets 2.0%On the next Rs.300 Crores of daily or average weekly net assets 1.75%On the balance of daily or average weekly net assets 1.5%

Investment Plans

The term investment plans generally refers to the portfolio flexibility that the funds to

investors offering different ways to invest or reinvest. The different investment plans are an

important consideration in the investment decision, because they determine the level of

flexibility available to the investor. Also, the investment plan offered by a fund allows the

investors freedom with respect to investing one time or at regular intervals, making transfers to

different schemes within the same fund family, or receiving income at specified intervals or

accumulating distributions. These are some of the investment plans offered by mutual funds in

India:

Automatic Reinvestment Plans (ARP):


35/61

Many funds offer 2 options under the same scheme- the Dividend Option & the Growth

Option. The ARP allows the investor to reinvest the amount of dividends or other

distributions made by the fund in the same fund & receive additional units, instead of

receiving them in cash.

Systematic Investment Plan (SIP):These require the investor to invest a fixed sum periodically, thereby letting the investor

save in a disciplined and phased manner. The mode of investment could be though

direct debit to the investors salary or bank account. A modified version of SIP is the

Voluntary Accumulation Plan (VAP) that allows the investor flexibility with respect to

the amount and frequency of investment.

Systematic Withdrawal Plan (SWP):Such plans allows the investor to make systematic withdrawals from his fund

investment account on a periodic basis, thereby providing the same benefit as regularincome. The investor must withdraw a specific minimum amount with the facility to

have withdrawal amounts sent to his residence by a cheque or credited directly into the

bank account. The amount withdrawn is treated as redemption of units at the applicable

NAV as specified in the offer document. The investor is usually required to maintain a

minimum balance in his fund account under this plan.

Systematic Transfer Plan (STP):These plans allow the investor to transfer on a periodic basis a specified amount from

one scheme to another with the same fund family- meaning two schemes managed by

the same AMC and belonging to the same mutual fund. A transfer will be treated asredemption of units from the scheme from which the transfer is made, and as

investment in units of the scheme into which the transfer is made. Such redemption or

investment will be at the applicable NAV for the respective schemes as specified in the

offer document. The investor is usually required to maintain a minimum balance in his

fund account under this plan for which the transfer is made.

Tax Provisions

Income earned by any mutual fund registered with SEBI (Mutual Fund) Regulation, 1996is fully exempt from tax under section 10 (23D) of the IT act.

However, income distributed to unit-holders by a closed-end or debt fund is liable to adividend distribution tax at a rate stipulated by the Government. This tax is not applicable

to distributions made by open-end-equity-oriented funds (funds with more than 50% of

their portfolio in Equity).


36/61

Dividend Distribution Tax is payable by the fund on its distributions and out of itsincome, the investor pays indirectly since the funds NAV and the value his investment

will come down by the amount of tax paid by the fund.

Example: If a closed-end or a debt fund declares a dividend distribution of Rs.100,

Rs.10.20 (Tax Rate 10.2%) will be the tax in the hands of the fund. While the investorwill get Rs.100, the fund will have Rs.10.20 less to invest. The funds current cash flow

diminish by Rs.10.20 paid as tax, and its impact will be reflected in the lower value of the

funds NAV and hence investors investment on a compound basis in future periods.

Since the tax is on distributions, it makes income schemes less attractive in comparison togrowth schemes, as the objective of income schemes is to pay regular dividends.

The fund cannot avoid the tax even if the investor chooses to reinvest the distributionback into the fund.

Example: The fund will still pay Rs.10.20 tax on the announced distribution, even if the

investor chooses to reinvest his dividends in the concerned scheme.

Tax Benefits to the Investor

Dividends Received from Mutual Funds: Income distributed by a fund is exempted in the hands of investors No TDS on any income distribution by mutual fund

Capital Gains on Sale of Units: If the investor sells his units and earn Capital Gains, theinvestor is subject to the Capital Gains Tax as under:

If units are held for more than 12 months, they will be treated as short termcapital asset, otherwise as long term capital asset.


37/61

Tax law definition of Capital Gains: Sale Consideration(Cost of Acquisition+ Cost of Improvements + Cost of Transfer)

If the units were held for over one year, the investor gets the benefit ofIndexation, which means his purchase price is marked up by an inflation

index, so his capital gain amount is less than otherwise. Purchase Price of along term capital asset after indexation is computed as:

Cost of Acquisition or Improvement:

Actual Cost of Acquisition or Improvement * Cost Inflation Index for year of

transfer/ Cost Inflation Index for year of Acquisition or Improvement or for

1981, whichever is later.

Restrictions on Investments

A mutual fund scheme shall not invest more than 15% of its NAV in debt instrumentsissued by a single issuer, which are rated not below investment grade by a credit rating

agency authorized to carry out such activity under the Act. Such investment limit may be

extended to 20% of the NAV of the scheme with the prior approval of the Board of

Trustees and the Board of Asset Management Company.

A mutual fund scheme shall not invest more than 10% of its NAV in unrated debtinstruments issued by a single issuer and the total investment in such instruments shall

not exceed 25% of the NAV of the scheme. All such investments shall be made with the

prior approval of the Board of Trustees and the Board of Asset Management Company.

No mutual fund under all its schemes should own more than 10% of any company's paidup capital carrying voting rights.

Such transfers are done at the prevailing market price for quoted instruments on spotbasis. The securities so transferred shall be in conformity with the investment objective of

the scheme to which such transfer has been made.

A scheme may invest in another scheme under the same asset management company orany other mutual fund without charging any fees, provided that aggregate inter scheme

investment made by all schemes under the same management or in schemes under the

management of any other asset management company shall not exceed 5% of the net

asset value of the mutual fund.


38/61

The initial issue expenses in respect of any scheme may not exceed 6% of the fundsraised under that scheme.

Every mutual fund shall buy and sell securities on the basis of deliveries and shall in allcases of purchases, take delivery of relative securities and in all cases of sale, deliver the

securities and shall in no case put itself in a position whereby it has to make short sale orcarry forward transaction.

Every mutual fund shall, get the securities purchased or transferred in the name of themutual fund on account of the concerned scheme, wherever investments are intended to

be of long-term nature.

No mutual fund scheme shall make any investment in; Any unlisted security of an associate or group company of the

sponsor; or

Any security issued by way of private placement by anassociate or group company of the sponsor; or

The listed securities of group companies of the sponsorwhich is in excess of 30% of the net assets (of all the

schemes of a mutual fund)

No mutual fund scheme shall invest more than 10 per cent of its NAV in the equityshares or equity related instruments of any company. Provided that, the limit of 10% shall

not be applicable for investments in index fund or sector or industry specific scheme.

A mutual fund scheme shall not invest more than 5% of its NAV in the equity shares or equity

related investments in case of open-ended scheme and 10% of its NAV in case of close-endedscheme.

Model Portfolios (By Jacobs)In preparing an Investment Portfolio, the advisor would have to deal with

investors at different stages of their life-cycle and with different needs.

Therefore, Jacobs gives 4 different models:


39/61

Investor Recommended Model PortfolioYoung, Unmarried

Professional50% in Aggressive Equity Funds

25% in High Yield Bond Funds, Growth &

Income Funds

25% in Conservative Money Market Funds

Young Couple with 2

Incomes & 2 Children10% in Money Market

30% in Aggressive Equity Funds

25% in High Yield Bond Funds & Long

Term Growth Funds

35% in Municipal Bond Funds

Other Couple, Single Income 30% in Short-Term Municipal Funds35% in Long-Term Municipal Funds

25% in Moderately Aggressive Equity

10% in Emerging Growth Equity

Recently Retired Couple 35% in Conservative Equity Funds forCapital Preservation/Income

25% in Moderately Aggressive Equity for

Modest Capital Growth

40% in Money Market Funds

Wealth Cycle ClassificationStage Financial Needs Investment PreferencesAccumulation Investing for long term Growth options and long term


40/61

Stage identified financial goals products. High risk appetite.

Transition Stage Near term needs for funds aspre-specified needs drawcloser

Liquid and medium term

investments. Lower riskappetite

Reaping Stage Higher Liquidityrequirement

Liquid and medium term

investments. Preference for

income and debt products

Inter-Generational

StageLong term investment of

inheritance

Low liquidity needs. Ability

to take risk and invest for long

term

Sudden Wealth

StageMedium to Long term Wealth preservation.

Preference for low risk

products.

Comparison of Investment Products:

Investors tend to constantly compare one form of investment with another. There

are 2 kinds of comparisons possible among different investment options.


41/61

By Nature of Investment: Investor look for the Best returns on differentoptions. However, to determine which option is better, the comparison

should be made in terms of other benefits that the investor ought to look for

in any investment.

Return SafetyConvenience

Volatility Liquidity

Equity High Low High HighFI Bonds Moderate High Moderate ModerateCorporate

DebenturesModerate Moderate Moderate Low

Company

Fixed

Deposits

Moderate Low Low Low

Banks

DepositsLow High Low High

PPF Moderate High Low ModerateLife

InsuranceLow High Low Low

Gold Moderate High Moderate ModerateReal Estate High Moderate High LowMutual

FundsHigh High Moderate High

By Performance: The comparison on the basis of performance highlights theflexibility offered by mutual funds from the investors perceptive. An


42/61

investor can choose from a wide variety of funds to suit his risk tolerance,

investment horizon & investment objective.

Investment

ObjectiveRisk Tolerance Investment

HorizonEquity Capital

Appreciation

High Long Term

FI Bonds Income Low Medium-LongTerm

CorporateDebentures Income High-Medium-Low Medium-LongTermCompany Fixed

DepositsIncome High-Medium-

Low

Medium

Bank Deposits Income Generally Low Flexible-AllTimes

PPF Income Low Long TermLife Insurance Risk Cover Low Long TermGold Inflation Hedge Low Long TermReal Estate Inflation Hedge Low Long TermMutual Funds Capital Growth,

Income

High-Medium-

Low

Flexible-All

Times

RISK RETURN GRID


43/61

Risk

Tolerance/Return

Expected

Focus Suitable Products Benefits offeredby MFs

Low Debt Bank/ CompanyFD, Debt based

Funds

Liquidity, BetterPost-Tax returns

Medium Partially Debt,Partially Equity

Balanced Funds,

Some Diversified

Equity Funds and

some debt Funds,

Mix of shares andFixed Deposits

Liquidity, Better

Post-Tax returns,

Better

Management,

Diversification

High Equity Capital Market,Equity Funds

(Diversified as

well as Sectoral)

Diversification,

Expertise in stock

picking, Liquidity,

Tax free dividends

BANKS V/S MUTUAL FUNDS

BANKS MUTUAL FUNDSReturns Low BetterAdministrative High Low


44/61

Expenses

Risk Low Moderate

Investment Options Less MoreNetwork High penetration Low but improvingLiquidity At a cost BetterQuality of Assets Not transparent TransparentInterest calculation Minimum balance

between 10th

& 30th. of every month

Everyday

Guarantee Maximum Rs.1 lakh ondeposits

None

CHAPTER 3: COMPANY PROFILE

(IDFC ASSET MANAGEMENT COMPANY)

Sponsor

Infrastructure Development Finance Company Limited (IDFC).


45/61

Trustee

IDFC AMC Trustee Company Private Limited.

Chairman

Dr. Rajiv Lall.

CEO / MD

Mr. Naval Bir KumarPresident

Compliance Officer

Ms. Jyothi Krishnan

Investor Service Officer

Mr. Praveen Bhatt

Assets Managed

Rs. 19,266.05 crore (Jun-25-2010)

COMPANY OVERVIEW

IDFC AMC (ASSET MANAGEMENT COMPANY)

IDFC is a leading private sector diversified financial institution established by a consortium of

strong global and local institutions with the support and sponsorship of the Government of India.

A majority of IDFCs shareholding (67% as of March 31, 2008) is held by reputed globalstalwarts that include respectable names like Government of India, International Finance

Corporation (IFC) - a member of the World Bank Group, Government of Singapore, AIG,


46/61

Morgan Stanley, Goldman Sachs, Citigroup, JP Morgan among others. The best Indian

financial institutions such as HDFC, LIC, SBI, and IDBI are owners in IDFC, making it aninstitution of high repute and standing.

We are determined to construct a comprehensive asset management business that consists of:

(i) private equity investments through IDFC Private Equity Company Limited

(ii) project equity through IDFC Project Equity Company Limited, and

(iii) public markets investment advisory services through IDFC Investment Advisors

Limited.

IDFC Private Equity manages a corpus of US$ 630 million and is Indias largest and most activeprivate equity fund focused on infrastructure. The two funds under management are India

Development Fund (IDF) and IDFC Private Equity Fund II.

HISTORY

IDFC Mutual Fund (the Mutual Fund or the Fund) previously known as Standard CharteredMutual Fund (which was earlier known as ANZ Grindlays Mutual Fund) had been constituted asa Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) vide a Trust

Deed dated December 29, 1999.

IDFC AMC Trustee Company Private Limited, the Trustee.

IDFC / its nominees acquired 100% equity shares of the Asset Management Company and theTrustee Company and further contributed an amount of Rs.10,000/- to the corpus of the Fund

(the total contribution of the sponsors till date including this contribution, stands at Rs. 30,000).

The Trust has been formed for the purpose of pooling of capital from the public for collective

investment in securities / any other property for the purpose of providing facilities forparticipation by persons as beneficiaries in such properties/ investments and in the profits /

income arising there from.

PRODUCTS

Open Ended

IDFC All Seasons Bond Fund IDFC Arbitrage Fund IDFC Arbitrage Plus Fund IDFC Asset Allocation FundAggressive plan
http://www.indobase.com/markets/mtfi-india/idfc-all-seasons-bond-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-all-seasons-bond-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-arbitrage-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-arbitrage-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-all-seasons-bond-fund.php


47/61

IDFC Asset Allocation FundConservative Plan IDFC Asset Allocation FundModerate plan IDFC Monthly Income Plan IDFC All Seasons Bond Fund IDFC Cash Fund IDFC Classic Equity Fund IDFC Dynamic Bond Fund IDFC Government Securities Fund Investment Plan IDFC Government Securities Fund Short Term Plan IDFC Imperial Equity Fund IDFC Liquidity Manager IDFC Enterprise Equity Fund IDFC Nifty Fund IDFC India GDP Growth Fund IDFC Strategic Sector(50-50) Equity Fund IDFC Small and Midcap Equity (SME) Fund IDFC Premier Equity Fund IDFC Super Saver Income Fund Investment Plan IDFC Super Saver Income Fund Medium Term Plan IDFC Super Saver Income Fund Short Term Plan IDFC Tax Advantage (ELSS) Fund

Close Ended

IDFC Tax Saver (ELSS) Fund IDFC Small & Mid Cap Equity (SME) Fund IDFC Enterprise Equity Fund

COMPETITIVE ADVANTAGES

Research

IDFC have our roots in equity research. Their original business model was to provide research

and information services on Indian business and capital markets to institutional customers. IDFC

executive directors have equity research and investment experience in leading banks and

brokerage houses

Experienced management team
http://www.indobase.com/markets/mtfi-india/idfc-cash-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-cash-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-classic-equity-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-classic-equity-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-dynamic-bond-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-dynamic-bond-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-government-securities-fund-investment-plan.phphttp://www.indobase.com/markets/mtfi-india/idfc-government-securities-fund-investment-plan.phphttp://www.indobase.com/markets/mtfi-india/idfc-government-securities-fund-short-term-plan.phphttp://www.indobase.com/markets/mtfi-india/idfc-government-securities-fund-short-term-plan.phphttp://www.indobase.com/markets/mtfi-india/idfc-imperial-equity-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-imperial-equity-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-liquidity-manager.phphttp://www.indobase.com/markets/mtfi-india/idfc-liquidity-manager.phphttp://www.indobase.com/markets/mtfi-india/idfc-premier-equity-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-premier-equity-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-super-saver-income-fund-investment-plan.phphttp://www.indobase.com/markets/mtfi-india/idfc-super-saver-income-fund-investment-plan.phphttp://www.indobase.com/markets/mtfi-india/idfc-super-saver-income-fund-medium-term-plan.phphttp://www.indobase.com/markets/mtfi-india/idfc-super-saver-income-fund-medium-term-plan.phphttp://www.indobase.com/markets/mtfi-india/idfc-super-saver-income-fund-short-term-plan.phphttp://www.indobase.com/markets/mtfi-india/idfc-super-saver-income-fund-short-term-plan.phphttp://www.indobase.com/markets/mtfi-india/idfc-tax-advantage-elss-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-tax-advantage-elss-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-tax-advantage-elss-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-super-saver-income-fund-short-term-plan.phphttp://www.indobase.com/markets/mtfi-india/idfc-super-saver-income-fund-medium-term-plan.phphttp://www.indobase.com/markets/mtfi-india/idfc-super-saver-income-fund-investment-plan.phphttp://www.indobase.com/markets/mtfi-india/idfc-premier-equity-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-liquidity-manager.phphttp://www.indobase.com/markets/mtfi-india/idfc-imperial-equity-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-government-securities-fund-short-term-plan.phphttp://www.indobase.com/markets/mtfi-india/idfc-government-securities-fund-investment-plan.phphttp://www.indobase.com/markets/mtfi-india/idfc-dynamic-bond-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-classic-equity-fund.phphttp://www.indobase.com/markets/mtfi-india/idfc-cash-fund.php


48/61

Management team has hands on experience in financial services, especially targeted at retail

sales and relationship management.

Customer Relationship Management

IDFC MUTUAL FUND ,ASSET MANAGEMENT COMPANY have developed a team of

Customer Relationship Managers across India to handle key customer accounts. These people

are experienced in financial services and have undergone in-house training. This allows them to

offer unbiased advice on investment products like mutual funds and other investment products.

Robust Risk Management Systems:

IDFC asset management company manage the risks associated with their risk management

procedures rely primarily on internally developed Risk Management System and systems

provided by their vendors.

Business Decisions

An employee must not permit a decision about whether IDFC Asset Management Company Pvt.

Ltd. will do business with a current or prospective customer or supplier to be influenced by

unrelated interests. Decisions relating to placing IDFC Asset Management Company Pvt. Ltd.'s

business with current or prospective customers and suppliers, and the volume of such business,must be based upon business considerations.

SWOT ANALYSIS

STRENGTHS

Research. Customer Relationship Management. Risk Management System.

WEAKNESS


49/61

Lack of banking arm to complete the bank broker depositary chain

Insignificance presence in institutional segments.

OPPORTUNITIES Changing demographic with higher disposable income and increasing complex financial

instruments will drive the demand for investment advisory services

Rapid penetration of internet and computer needs that technology enabled services willgain market share.

THREATS

Economic slowdown Stock market fall will have a cascading effect on mutual fund mobilization Increase or decrease in interest rates can effect debt or income mobilizations Future changes in personal taxation rules can impact mutual funds sales Increasing competition from large and particularly foreign players

DIFFERENT METHODS OF SALES AND PROMOTION OF MUTUAL FUND

DIFFERENT METHODS ADOPTED BY VARIOUS ASSET MANAGEMENT

COMPANIES TO SELL THEIR MUTUAL FUNDS

1. Get in touch with Customers

Various AMC directly contact the customers through various database. Then the AMC convince

the client to invest in their mutual fund. Many of the times due to promotion the customers also

contact AMC for investment.

ABN AMRO Mutual Fund,
https://www.assetmanagement.abnamro.co.in/https://www.assetmanagement.abnamro.co.in/https://www.assetmanagement.abnamro.co.in/


50/61

Birla Sun Life Mutual Fund Cholamandalam Mutual Fund Kotak Mahindra Mutual Fund Reliance Mutual Fund Sundaram Mutual Fund Tata Mutual Fund

2.THROUGH DISTRIBUTORS

Each AMCs sell its products through various distribution channels. The distributor in turn gets a

variable commission from the AMC.The distributor have a client base of their own in which they

promote the mutual fund. Some of the major distributors are listed below:

Indiainfoline Limited Karvy Sherkhan Religare Blue Chip India Limited.

3 .THROUGH BANKS

Some of the AMCs are sister concern of the bank. These AMCs aggressively promote their

mutual fund to their client and develop a interest in them to invest in mutual fund in order to get

higher returns and also through relationship managers .

METHODS ADOPTED BY AMCs PROMOTION AND CAMPAIGNING OF

MUTUAL FUNDS

1. Through Advertisement

Each AMCs spends a lot of money in order to advertise for its Mutual Fund. The amount spend

is high in case New Fund Offers i.e NFOs. Various mediums of advertisement use are given

below:

Television Radio Print Media
http://www.birlasunlife.com/http://www.birlasunlife.com/http://www.cholamutualfund.com/http://www.cholamutualfund.com/http://www.kotakmutual.com/http://www.kotakmutual.com/http://www.reliancemutual.com/mutual/home.jsphttp://www.reliancemutual.com/mutual/home.jsphttp://www.sundaramfinance.com/products/mutualfunds/mutualfunds.asphttp://www.sundaramfinance.com/products/mutualfunds/mutualfunds.asphttp://www.tatamutualfund.com/http://www.tatamutualfund.com/http://www.tatamutualfund.com/http://www.sundaramfinance.com/products/mutualfunds/mutualfunds.asphttp://www.reliancemutual.com/mutual/home.jsphttp://www.kotakmutual.com/http://www.cholamutualfund.com/http://www.birlasunlife.com/


51/61

Hoardings2. Online Blogs:

Various AMCs promote their product through online blogs. They advertise their product on

various online sites.

3. Telephonic Calls:

Almost all the distributors promote the Mutual Fund with the help of telephone. They have the

phone numbers of existing clients and potential clients. A trained person makes a call to the

clients and promotes the Mutual Fund.

4. By Providing More Commission to Distributors:

The distributor gets a variable commission from the AMC when they sell their Mutual Fund. The

commission varies from 0.5% to 5%. Thus by providing more commission to the distributor, the

AMCs influence the distributor to promote their products only.

5. By Putting Canopies: This method is adopted by both distributor and AMCs in order to

campaign for the product. They put canopy at a place where they could interact with maximum

number of probable clients.

CHAPTER 4

4.1 RESEARCH

ARN NO. - ________________ Date :Name -

Company Name -

In your set of choice which are the 5 top AMCs you promote( Ranking doesnt matter) ?


52/61

What are the factors that influence your decission while selecting an AMC ?

Where does IDFC stands in your set of choice?

In top 5 In top 10 In top 15 None of the above

What as per you are the Areas of Improvement for us ?


53/61

Kindly specify the category of our following schemes:-(Large-Cap,Mid-Cap or Small-Cap)

Scheme Name Category

IDFC Premier Equity Fund IDFC Imperial Equity Fund

Kindly give us the following dates about yourself:- Date of Birth Date of Anniversary PAN No.


54/61

4.2 RESULT AND ANAYSIS OF FEEDBACK FORM

Effect of entry and exit load while investing in mutual fund:

We can conclude that there is a significance difference between the responses of the investors

who take into consider entry and exit load while investing in a mutual fund

Effect of performance similar mutual fund scheme


55/61

we can conclude that there is significance differences between the responses of the investors who

take into consider performance of similar mutual fund schemes while investing in a mutual fund.

EFFECT OF REPUTATION OF AMC


56/61

Majority of the respondents consider reputation of AMC as an important factor while taking

decision of investing in a mutual fund.

EFFECT OF ADDITIONAL SERVICE (SIP, SWP, STP)

.

There iscomparatively less effect of additional schemes on the customers while taking their

investment decision. But it provides an edge over the other investment options.

EFFECT OF STOCK MARKET FLUCTUATION


57/61

Majority of the respondents decision is affected by stock market fluctuations while investing in

a particular mutual fund

.

EFFECT OF DEGREE OF DEVIATION FROM BENCHMARK INDEX

Majority of the respondents does not consider degree of deviation from benchmark index as an

important factor while taking decision of investing in a mutual fund.

EFFECT OF PASS BACK


58/61

Majority of the respondents does not consider pass back as an important factor while taking


EFFECT OF FRIENDS AND FAMILY RECOMMENDATION

Majority of the respondents does not consider pass back as an important factor while taking


AMC Priorities

SBI Mutual Fund Reliance Mutual Fund IDFC Mutual Fund Birla Sun Life Kotak Mahindra

HDFC Mutual Fund Franklin Templeton DSP Mutual Funds


59/61

Conclusion: Out of the total respondent most of them invest in reliance mutual

fund as compared to the other mutual fund companies.

FINDINGS

CONCLUSION

Mutual Fund industry is growing at a brisk pace. But there are some hurdles which the industry has to overcome. The biggest hurdle is to

change the mind set of people and have to increase the awareness.

A lot of skills are required to convince a person in order to invest in Mutual Fund. Every customer has different needs i.e whether he wants higher returns or safety of his

capital. Depending on his appetite towards risk a particular fund was suggested to him.


60/61

Past return is the most important factor considered by the investors while investing in themutual fund scheme.

Pass back plays an important role for well know how customers in choosing thedistributor for buying any mutual fund. Pass back is the amount which the distributor

gives to the customer from the commission which a distributor gets from the AMCs.

Most of the respondents are mainly look for the profitability in the mutual funds whichbecomes difficult for them because they normally invest their larger proportion of their

amount in debt instruments as compared to equity which gives less return.

RECOMMENDATIONS

The commission which the distributor gets from AMCs is variable and may evenvary from different Mutual Funds of same AMCs. SEBI (Security Exchange

Board of India) should make guidelines in fixing or setting the limits of

commission.

There should be transparency in case of commission between AMC anddistributor.

Majority of the customers are unaware of the pass back option. The distributorshould give a fixed pass back to each client who invest more than 2 lakhs rupees.

LIMITATIONS


61/61

GEOGRAPHICAL LIMITATIONThe sample size was confined to Delhi and National Capital Region only.

TIME LIMITATIONTime period was confined to two months only.

SEASONAL LIMITATIONThe demand of mutual funds varies according to different months. The project was

carried out in the month of May and June. The demand may vary in other months.

REFERENCES

And

BIBLOGRAPHY

www.moneycontrol.com

www.mutualfundsindia.com

www.valueresearch.com

www.bseindia.com

www.nseindia.com
http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.mutualfundsindia.com/http://www.mutualfundsindia.com/http://www.valueresearch.com/http://www.valueresearch.com/http://www.bseindia.com/http://www.bseindia.com/http://www.nseindia.com/http://www.nseindia.com/http://www.nseindia.com/http://www.bseindia.com/http://www.valueresearch.com/http://www.mutualfundsindia.com/http://www.moneycontrol.com/

Documents

Final Report-Idfc Mutual Funds Honey