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ANAND RATHI 2012
“MUTUAL FUNDS IS THE BETTER
INVESTMENTS PLAN”
Undertaken at
ANAND RATHI SHARES AND STOCK BROKER LTD.
PUNE, MAHARASHTRA
SUBMITTED BYPIYUSH CHAUHANPGDM (FIN + MKT )01110031
ANAND RATHI 2012
ACKNOWLEDGEMENT
With regard to my Project with Mutual Fund I would like to thank each and every one
who offered help, guideline and support whenever required.
First and foremost I would like to express gratitude to Manager Aplit
Jaiswal, Pune and other staffs for their support and guidance in the Project work.. I am
extremely grateful to my guide, Mangesh sir for their valuable guidance and timely
suggestions. I would like to thank all faculty members of Anandrathi shares and stock
broker ltd for the valuable guidance& support.
I would also like to extend my thanks to my members and friends for their
support .And lastly, I would like to express my gratefulness to the parent’s for seeing
me through it all.
PIYUSH CHAUHAN
ANAND RATHI 2012
DECLERATION
I hereby declare that this Project Report entitled “THE MUTUAL FUND IS BETTER
INVESTMENT PLAN in Anand Rathi Shares and Stock Broker ltd ,Pune submitted in
the partial fulfillment of the requirement of Post Graduate Diploma in Management
(PGDM) FIN+MKT,is based on primary & secondary data found by me in various
departments, books, magazines and websites & Collected by me in under guidance of
MANGESH KUKADHAR.
PIYUSH CHAUHAN
PGDM (FIN+MKT)
ANAND RATHI 2012
EXECUTIVE SUMMARY
In few years Mutual Fund has emerged as a tool for ensuring one’s financial well
being. 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 nine
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 and advice 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 investors’ Preferences in Mutual Fund means Are
ANAND RATHI 2012
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 two 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 Fund and its basics through the Project.
The second part of the Project consists of data and its analysis collected through survey
done on 200 people. For the collection of Primary data I made a questionnaire and
surveyed of 200 people. I visited other AMCs in Pune to get some knowledge related
to my topic. I studied about the products and strategies of other AMCs in Pune to know
why people prefer to invest in those AMCs. This Project covers the topic “THE
MUTUAL FUND IS BETTER INVESTMENT PLAN.” The data collected has been
well organized and presented. I hope the research findings and conclusion will be of
use.
ANAND RATHI 2012
CONTENTS
Acknowledgement
Declaration
Executive Summary
Chapter - 1 COMPANY PROFILE
Chapter - 2 INTRODUCTION
Chapter - 3 OBJECTIVES AND SCOPE
Chapter - 4 RESEARCH METHODOLOGY
Chapter - 5 DATA ANALYSIS AND INTERPRETATION
Chapter - 6 CONCLUSIONS
Chapter - 7 SUGGESTIONS & RECOMMENDATIONS
Chapter-8 BIBLIOGRAPHY
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Company ProfileORGANIZATION HISTORY
a. Company Profile
b. Milestones
c. AR Core Strengths
d. Management Team
About Anand Rathi
AnandRathi shares and stock brokers ltd. (AR) is a leading full service securities firm providing the entire gamut of financial services. The firm, founded in 1994 by M r . A n a n d R a t h i , t o d a y h a s a p a n I n d i a p r e s e n c e a s w e l l a s a n i n t e r n a t i o n a l presence through offices in Dubai and Bangkok. AR provides a breadth of financial and advisory services including wealth management, investment banking, corporate advisory, brokerage & distribution of equities, commodities, mutual funds and insurance, structured products - all of which are supported by powerful research teams. The firm's philosophy is entirely client centric, with a clear focus on providing longt e r m v a l u e a d d i t i o n t o c l i e n t s , w h i l e m a i n t a i n i n g t h e h i g h e st s t a n d a r d s o f excellence, ethics and professionalism. The entire firm activities are divided across distinct client groups: Individuals, Private Clients, Corporate and Institutions and was recently ranked by Asia Money 2006 poll amongst South Asia's top 5 wealth managers for the ultra-rich
.In year 2007 Citigroup Venture Capital International joined the group as a financial partner.
MILESTONES:-
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1994: Started activities in consulting and Institutional equity sales with staff of 15
1995: Set up a research desk and empanelled with major institutional investors
1997: Introduced investment banking businessesRetail brokerage services launched
1999: Lead managed first IPO and executed first M & A deal
2001: Initiated Wealth Management Services
2002: Retail business expansion recommences with ownership model
2003: Wealth Management assets cross Rs1500 croresRetail Branch network exceeds 50Insurance broking launched Launch of Wealth Management services in Dubai
2004: Retail Branch network expands across 100 locations within IndiaCommodities brokerage and real estate services introducedWealth Management assets cross Rs3000crores Institutional equities business relaunched and senior research team put in place
2005: Retail Branch network expands across 130 locations within India
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Real Estate Private Equity Fund Launched
2006: AnandRathi Middle East, WOS acquires membership of Dubai Gold & Commodity Exchange (DGCX) Ranked amongst South Asia's top 5 wealth managers for the ultra-rich by Asia Money 2006 poll Ranked 6th in FY2006 for All India Broker Performance in equity distribution in the High Networth Individuals (HNI) Category Ranked 9th in the Retail Category having more than 5% market share Completes its presence in all States across the country with offices at 300+ locations within India
2007: Citigroup Venture Capital International picks up 19.9% equity stake Retail customer base crosses 100 thousand Establishes presence in over 350 locations
AR Core Strengths
Breadth of Services
In line with its client-centric philosophy, the firm offers to its clients the entire spectrum of financial services ranging from brokerage services in equities and commodi t ies , d is t r ibut ion of mutual funds , IPO’s and insurance products , rea le s t a t e , i n v e s t m e n t b a n k i n g , m e r g e r a n d ac q u i s i t i o n s , c o r p o r a t e f i n a n c e a n d corporate advisory.
Clients deal with a relationship manager who leverages and brings together the product specialists from across the firm to create an optimum solution to the client needs.
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Management Team
The senior Management comprises a diverse talent pool that brings together rich experience from across industry as well as financial services.
Mr. Anand Rathi - Group ChairmanChartered AccountantPast President, BSEHeld several Senior Management positions with one of India's largest industrial groups
Mr. Pradeep Gupta - Vice ChairmanPlus 17 years of experience in Financial Services
Mr. Amit Rathi - Managing Director Chartered Accountant & MBAPlus 11 years of experience in Financial Services
ACQUISITION:
ANZ Grind lays : $1.34 bn from August 2000.Hong Kong Consumer Bank : $ 1.32 bnThailand Nakornthan Bank : $ 320 millionIndonesians Bank Per-Mata : $ 366 million from Oct. 2004Korea First Bank : $ 3.3 bn from Apr. 2005
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Introduction
INTRODUCTION TO MUTUAL FUND AND ITS VARIOUS
ASPECTS.
Mutual fund is a trust that pools the savings of a number of investors who
share a common financial goal. This pool of money is invested in
accordance with a stated objective. The joint ownership of the fund is thus
“Mutual”, i.e. the fund belongs to all investors. 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 appreciations realized are shared by its unit holders in proportion
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. A Mutual Fund is an investment tool that allows small
investors access to a well-diversified portfolio of equities, bonds and other
securities. Each shareholder participates in the gain or loss of the fund.
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Units are issued and can be redeemed as needed. The funds Net Asset
value (NAV) is determined each day.
Investments in securities are spread across a wide cross-section of
industries and sectors and thus the risk is reduced. Diversification reduces
the risk because all stocks may not move in the same direction in the same
proportion at the same time. Mutual fund issues units to the investors in
accordance with quantum of money invested by them. Investors of mutual
funds are known as unit holders.
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What Is Mutual Fund
A mutual fund is just the connecting bridge or 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 gathered money into specific securities (stocks or bonds). When you
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invest in a mutual fund, you are buying units or portions of the mutual fund and thus on
investing becomes a shareholder or unit holder of the fund.
Mutual funds are considered as one of the best available investments as compare
to others they are very cost efficient and also easy to invest in, thus 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, by minimizing risk & maximizing returns.
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
Unit Trust of India is the first Mutual Fund set up under a separate act, UTI Act
in 1963, and started its operations in 1964 with the issue of units under the scheme
US-64.
Type of Mutual Fund Schemes
BY STRUCTURE
Open Ended SchemesAn open-end fund is one that is available for subscription all through the year.
These do not have a fixed maturity. Investors can conveniently buy and sell units at
Net Asset Value ("NAV") related prices. The key feature of open-end schemes is
liquidity.
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Close Ended SchemesA closed-end fund has a stipulated maturity period which generally ranging from
3 to 15 years. The fund is open for subscription only during a specified period.
Investors can invest in the scheme at the time of the initial public issue and thereafter
they can buy or sell the units of the scheme on the stock exchanges where they are
listed. In order to provide an exit route to the investors, some close-ended funds give an
option of selling back the units to the Mutual Fund through periodic repurchase at
NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes
is provided to the investor.
Interval SchemesInterval Schemes are that scheme, which combines the features of open-ended
and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices
BY NATURE
1. Equity fund: These funds invest a maximum part of their corpus into equities holdings. The
structure of the fund may vary different for different schemes and the fund manager’s
outlook on different stocks. The Equity Funds are sub-classified depending upon their
investment objective, as follows:
Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS)
Equity investments are meant for a longer time horizon, thus Equity funds rank high
on the risk-return matrix.
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2. Debt funds:
The objective of these Funds is to invest in debt papers. Government authorities,
private companies, banks and financial institutions are some of the major issuers of
debt papers. By investing in debt instruments, these funds ensure low risk and provide
stable income to the investors. Debt funds are further classified as:
Gilt Funds: Invest their corpus in securities issued by Government, popularly
known as Government of India debt papers. These Funds carry zero Default risk
but are associated with Interest Rate risk. These schemes are safer as they invest
in papers backed by Government.
Income Funds: Invest a major portion into various debt instruments such as
bonds, corporate debentures and Government securities.
MIPs: Invests maximum of their total corpus in debt instruments while they take
minimum exposure in equities. It gets benefit of both equity and debt market.
These scheme ranks slightly high on the risk-return matrix when compared with
other debt schemes.
Short Term Plans (STPs): Meant for investment horizon for three to six
months. These funds primarily invest in short term papers like Certificate of
Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is
also invested in corporate debentures.
Liquid Funds: Also known as Money Market Schemes, These funds provides
easy liquidity and preservation of capital. These schemes invest in short-term
instruments like Treasury Bills, inter-bank call money market, CPs and CDs.
These funds are meant for short-term cash management of corporate houses and
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are meant for an investment horizon of 1day to 3 months. These schemes rank
low on risk-return matrix and are considered to be the safest amongst all
categories of mutual funds.
3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds.
They invest in both equities and fixed income securities, which are in line with pre-
defined investment objective of the scheme. These schemes aim to provide investors
with the best of both the worlds. Equity part provide growth and the debt part provides
stability in returns.
Further the mutual funds can be broadly classified on the basis of investment
parameter viz,
Each category of funds is backed by an investment philosophy, which is pre-defined in
the objectives of the fund. The investor can align his own investment needs with the
funds objective and invest accordingly.
BY INVESTMENT OBJECTIVE Growth Schemes: Growth Schemes are also known as equity schemes. The aim
of these schemes is to provide capital appreciation over medium to long term.
These schemes normally invest a major part of their fund in equities and are
willing to bear short-term decline in value for possible future appreciation.
Income Schemes: Income Schemes are also known as debt schemes. The aim of
these schemes is to provide regular and steady income to investors. These
schemes generally invest in fixed income securities such as bonds and corporate
debentures. Capital appreciation in such schemes may be limited.
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Balanced Schemes: Balanced Schemes aim to provide both growth and income
by periodically distributing a part of the income and capital gains they earn.
These schemes invest in both shares and fixed income securities, in the
proportion indicated in their offer documents (normally 50:50).
Money Market Schemes: Money Market Schemes aim to provide easy
liquidity, preservation of capital and moderate income. These schemes generally
invest in safer, short-term instruments, such as treasury bills, certificates of
deposit, commercial paper and inter-bank call money.
OTHER SCHEMES
Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors
under tax laws prescribed from time to time. Under Sec.88 of the Income Tax
Act, contributions made to any Equity Linked Savings Scheme (ELSS) are
eligible for rebate.
Index Schemes: Index schemes attempt to replicate the performance of a
particular index such as the BSE Sensex or the NSE 50. The portfolio of these
schemes will consist of only those stocks that constitute the index. The
percentage of each stock to the total holding will be identical to the stocks index
weightage. And hence, the returns from such schemes would be more or less
equivalent to those of the Index.
Sector Specific Schemes: These are the funds/schemes which invest in the
securities of only those sectors or industries as specified in the offer documents.
e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG),
Petroleum stocks, etc. The returns in these funds are dependent on the
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performance of the respective sectors/industries. While these funds may give
higher returns, they are more risky compared to diversified funds. Investors need
to keep a watch on the performance of those sectors/industries and must exit at
an appropriate time.
Types of returns
There are three ways, where the total returns provided by mutual funds can be enjoyed
by investors:
Income is earned from dividends on stocks and interest on bonds. A fund pays
out nearly all income it receives over the year to fund owners in the form of a
distribution.
If the fund sells securities that have increased in price, the fund has a capital
gain. Most funds also pass on these gains to investors in a distribution.
If fund holdings increase in price but are not sold by the fund manager, the
fund's shares increase in price. You can then sell your mutual fund shares for a
profit. Funds will also usually give you a choice either to receive a check for
distributions or to reinvest the earnings and get more shares.
Pros & cons of investing in mutual funds:
For investments in mutual fund, one must keep in mind about the Pros and cons of investments in mutual fund.
Advantages of Investing Mutual Funds:
1. Professional Management - The basic advantage of funds is that, they are
professional managed, by well qualified professional. Investors purchase funds because
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they do not have the time or the expertise to manage their own portfolio. A mutual fund
is considered to be relatively less expensive way to make and monitor their
investments.
2. Diversification - Purchasing units in a mutual fund instead of buying individual
stocks or bonds, the investors risk is spread out and minimized up to certain extent. The
idea behind diversification is to invest in a large number of assets so that a loss in any
particular investment is minimized by gains in others.
3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time,
thus help to reducing transaction costs, and help to bring down the average cost of the
unit for their investors.
4. Liquidity - Just like an individual stock, mutual fund also allows investors to
liquidate their holdings as and when they want.
5. Simplicity - Investments in mutual fund is considered to be easy, compare to other
available instruments in the market, and the minimum investment is small. Most AMC
also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with
just Rs.50 per month basis.
Disadvantages of Investing Mutual Funds:
1. Professional Management- Some funds doesn’t perform in neither the market, as
their management is not dynamic enough to explore the available opportunity in the
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market, thus many investors debate over whether or not the so-called professionals are
any better than mutual fund or investor himself, for picking up stocks.
2. Costs – The biggest source of AMC income, is generally from the entry & exit load
which they charge from an investors, at the time of purchase. The mutual fund
industries are thus charging extra cost under layers of jargon.
3. Dilution - Because funds have small holdings across different companies, high
returns from a few investments often don't make much difference on the overall return.
Dilution is also the result of a successful fund getting too big. When money pours into
funds that have had strong success, the manager often has trouble finding a good
investment for all the new money.
4. Taxes - when making decisions about your money, fund managers don't consider
your personal tax situation. For example, when a fund manager sells a security, a
capital-gain tax is triggered, which affects how profitable the individual is from the
sale. It might have been more advantageous for the individual to defer the capital gains
liability.
Guidelines of the SEBI for Mutual Fund Companies :
To protect the interest of the investors, SEBI formulates policies and regulates the mutual
funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to
time.
SEBI approved Asset Management Company (AMC) manages the funds by making
investments in various types of securities. Custodian, registered with SEBI, holds the securities
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of various schemes of the fund in its custody.
According to SEBI Regulations, two thirds of the directors of Trustee Company or board of
trustees must be independent.
The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual
funds that the mutual funds function within the strict regulatory framework. Its objective is to
increase public awareness of the mutual fund industry. AMFI also is engaged in upgrading
professional standards and in promoting best industry practices in diverse areas such as
valuation, disclosure, transparency etc.
Documents required (PAN mandatory):
Proof of identity :
1. Photo PAN card
2. In case of non-photo PAN card in addition to copy of PAN card any one of the following:
driving license/passport copy/ voter id/ bank photo pass book.
Proof of address (any of the following ) :latest telephone bill, latest electricity bill, Passport,
latest bank passbook/bank account statement, latest Demat account statement, voter id, driving
license, ration card, rent agreement.
Offer document: An offer document is issued when the AMCs make New Fund Offer(NFO).
Its advisable to every investor to ask for the offer document and read it before investing. An
offer document consists of the following:
Standard Offer Document for Mutual Funds (SEBI Format)
Summary Information
Glossary of Defined Terms
Risk Disclosures
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Legal and Regulatory Compliance
Expenses
Condensed Financial Information of Schemes
Constitution of the Mutual Fund
Investment Objectives and Policies
Management of the Fund
Offer Related Information.
Key Information Memorandum: a key information memorandum, popularly known as KIM,
is attached along with the mutual fund form. And thus every investor get to read it. Its contents
are:
1 Name of the fund.
2. Investment objective
3. Asset allocation pattern of the scheme.
4. Risk profile of the scheme
5. Plans & options
6. Minimum application amount/ no. of units
7. Benchmark index
8. Dividend policy
9. Name of the fund manager(s)
10 . Expenses of the scheme: load structure, recurring expenses
11. Performance of the scheme (scheme return v/s. benchmark return)
12. Year- wise return for the last 5 financial year.
Costs associated:
Expenses:
AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries,
advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges
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Rs1.50 for every Rs100 in assets under management. A fund's expense ratio is typically to the
size of the funds under management and not to the returns earned. Normally, the costs of
running a fund grow slower than the growth in the fund size - so, the more assets in the fund,
the lower should be its expense ratio
Loads:
Entry Load/Front-End Load (0-2.25%)- its the commission charged at the time of buying
the fund to cover the cost of selling, processing etc.
Exit Load/Back- End Load (0.25-2.25%)- it is the commission or charged paid when an
investor exits from a mutual fund, it is imposed to discourage withdrawals. It may reduce to
zero with increase in holding period.
Why has it become one of the largest financial instruments?
If we take a look at the recent scenario in the Indian financial market then we can find the
market flooded with a variety of investment options which includes mutual funds, equities,
fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life
insurance, gold, real estate etc. all these investment options could be judged on the basis of
various parameters such as- return, safety convenience, volatility and liquidity. measur
Return Safety Volatility Liquidity Convenienc
e
Equity High Low High High Moderate
Bonds Moderate High Moderate Moderate High
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Co.
Debentures
Moderate Moderate Moderate Low Low
Co. FDs Moderate Low Low Low Moderate
Bank
Deposits
Low High Low High High
PPF Moderate High Low Moderate High
Life
Insurance
Low High Low Low Moderate
Gold Moderate High Moderate Moderate Gold
Real Estate High Moderate High Low Low
Mutual
Funds
High High Moderate High High
We can very well see that mutual funds outperform every other investment option. On three
parameters it scores high whereas it’s moderate at one. comparing it with the other options, we
find that equities gives us high returns with high liquidity but its volatility too is high with low
safety which doesn’t makes it favourite among persons who have low risk- appetite. Even the
convenience involved with investing in equities is just moderate.
Now looking at bank deposits, it scores better than equities at all
fronts but lags badly in the parameter of utmost important ie; it scores low on return , so it’s
not an happening option for person who can afford to take risks for higher return. The other
option offering high return is real estate but that even comes with high volatility and moderate
safety level, even the liquidity and convenience involved are too low. Gold have always been a
favourite among Indians but when we look at it as an investment option then it definitely
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doesn’t gives a very bright picture. Although it ensures high safety but the returns generated
and liquidity are moderate. Similarly the other investment options are not at par with mutual
funds and serve the needs of only a specific customer group. Straightforward, we can say that
mutual fund emerges as a clear winner among all the options available.
The reasons for this being:
I)Mutual funds combine the advantage of each of the investment products: mutual fund is
one such option which can invest in all other investment options. Its principle of diversification
allows the investors to taste all the fruits in one plate. just by investing in it, the investor can
enjoy the best investment option as per the investment objective.
II)dispense the shortcomings of the other options: every other investment option has more
or les some shortcomings. Such as if some are good at return then they are not safe, if some are
safe then either they have low liquidity or low safety or both….likewise, there exists no single
option which can fit to the need of everybody. But mutual funds have definitely sorted out this
problem. Now everybody can choose their fund according to their investment objectives.
III) Returns get adjusted for the market movements: as the mutual funds are managed by
experts so they are ready to switch to the profitable option along with the market movement.
Suppose they predict that market is going to fall then they can sell some of their shares and
book profit and can reinvest the amount again in money market instruments.
IV) Flexibility of invested amount: Other then the above mentioned reasons, there exists one
more reason which has established mutual funds as one of the largest financial intermediary
and that is the flexibility that mutual funds offer regarding the investment amount. One can
start investing in mutual funds with amount as low as Rs. 500 through SIPs and even Rs. 100
in some cases.
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How do investors choose between funds?
When the market is flooded with mutual funds, it’s a very tough job for the investors to choose
the best fund for them. Whenever an investor thinks of investing in mutual funds, he must look
at the investment objective of the fund. Then the investors sort out the funds whose investment
objective matches with that of the investor’s. Now the tough task for investors start, they may
carry on the further process themselves or can go for advisors like SBI . Of course the
investors can save their money by going the direct route i.e. through the AMCs directly but it
will only save 1-2.25% (entry load) but could cost the investors in terms of returns if the
investor is not an expert. So it is always advisable to go for MF advisors. The mf advisors’
thoughts go beyond just investment objectives and rate of return. Some of the basic tools
which an investor may ignore but an mf advisor will always look for are as follow:
1. Rupee cost averaging:
The investors going for Systematic Investment Plans(SIP) and Systematic Transfer Plans(STP)
may enjoy the benefits of RCA (Rupee Cost Averaging). Rupee cost averaging allows an
investor to bring down the average cost of buying a scheme by making a fixed investment
periodically, like Rs 5,000 a month and nowadays even as low as Rs. 500 or Rs. 100. In this
case, the investor is always at a profit, even if the market falls. In case if the NAV of fund falls,
the investors can get more number of units and vice-versa. This results in the average cost per
unit for the investor being lower than the average price per unit over time.
The investor needs to decide on the investment amount and the frequency. More frequent the
investment interval, greater the chances of benefiting from lower prices. Investors can also
benefit by increasing the SIP amount during market downturns, which will result in reducing
the average cost and enhancing returns. Whereas STP allows investors who have lump sums to
park the funds in a low-risk fund like liquid funds and make periodic transfers to another fund
to take advantage of rupee cost averaging.
2. Rebalancing:
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Rebalancing involves booking profit in the fund class that has gone up and investing in the
asset class that is down. Trigger and switching are tools that can be used to rebalance a
portfolio. Trigger facilities allow automatic redemption or switch if a specified event occurs.
The trigger could be the value of the investment, the net asset value of the scheme, level of
capital appreciation, level of the market indices or even a date. The funds redeemed can be
switched to other specified schemes within the same fund house. Some fund houses allow such
switches without charging an entry load.
To use the trigger and switch facility, the investor needs to specify the event, the amount or the
number of units to be redeemed and the scheme into which the switch has to be made. This
ensures that the investor books some profits and maintains the asset allocation in the portfolio.
3. Diversification:
Diversification involves investing the amount into different options. In case of mutual funds,
the investor may enjoy it afterwards also through dividend transfer option. Under this, the
dividend is reinvested not into the same scheme but into another scheme of the investor's
choice.
For example, the dividends from debt funds may be transferred to equity schemes. This gives
the investor a small exposure to a new asset class without risk to the principal amount. Such
transfers may be done with or without entry loads, depending on the MF's policy.
4. Tax efficiency:
Tax factor acts as the “x-factor” for mutual funds. Tax efficiency affects the final decision of
any investor before investing. The investors gain through either dividends or capital
appreciation but if they haven’t considered the tax factor then they may end loosing.
Debt funds have to pay a dividend distribution tax of 12.50 per cent (plus surcharge and
education cess) on dividends paid out. Investors who need a regular stream of income have to
choose between the dividend option and a systematic withdrawal plan that allows them to
redeem units periodically. SWP implies capital gains for the investor.
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If it is short-term, then the SWP is suitable only for investors in the 10-per-cent-tax bracket.
Investors in higher tax brackets will end up paying a higher rate as short-term capital gains .
Objectives and scope
1. To find out the Preferences of the investors for Asset Management
Company.
2. To know the Preferences for the portfolios.
3. To know why one has invested or not invested in SBI Mutual fund
4. To find out the most preferred channel.
5. To find out what should do to boost Mutual Fund Industry.
Scope of the study
A big boom has been witnessed in Mutual Fund Industry in resent times. A large
number of new players have entered the market and trying to gain market share in this
rapidly improving market.
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The research was carried on in Pune. The study will help to know the preferences of
the customers, which company, portfolio, mode of investment, option for getting return
and so on they prefer. This project report may help the company to make further
planning and strategy
Research Methodology
Objective of research ;
The main objective of this project is concerned with getting the opinion of people regarding
mutual funds and what they feel about availing the services of financial advisors.
I have tried to explore the general opinion about mutual funds. It also covers why/ why not
investors are availing the services of financial advisors.
Scope of the study:
The research was carried on in the Pune Region of India. I have visited people randomly nearby my
locality, different shopping malls, small retailers etc.
Data sources:
Research is totally based on primary data. Secondary data can be used only for the reference.
Research has been done by primary data collection, and primary data has been collected by
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interacting with various people. The secondary data has been collected through various journals and
websites and some special publications of Anandrathi.
Sampling:
Sampling procedure:
The sample is selected in a random way, irrespective of them being investor or not or availing
the services or not. It was collected through mails and personal visits to the known persons, by
formal and informal talks and through filling up the questionnaire prepared. The data has been
analyzed by using the measures of central tendencies like mean, median, mode. The group has
been selected and the analysis has been done on the basis statistical tools available.
Sample size:
The sample size of my project is limited to 200 only.
Sample design:
Data has been presented with the help of bar graph, pie charts, line graphs etc.
Limitation:
Time limitation.
Research has been done only at Pune.
Some of the persons were not so responsive.
Possibility of error in data collection.
QUESTIONNAIRE
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1. Personal Details:
(a). Name:- (b). Add: - Phone:- (c). Age:- (d). Qualification:-
(e). Occupation. Pl tick (√)
Govt. Ser Pvt. Ser Business Agriculture Others
(g). What is your monthly family income approximately? Pl tick (√).
Up to Rs.10,000
Rs. 10,001 to 15000
Rs. 15,001 to 20,000
Rs. 20,001 to 30,000
Rs. 30,001 and above
2. What kind of investments you have made so far? Pl tick (√). All applicable.
a. Saving account b. Fixed deposits c. Insurance d. Mutual Fund
e. Post Office-NSC, etc f. Shares/Debentures g. Gold/ Silver h. Real Estate
3. While investing your money, which factor will you prefer? .
(a) Liquidity (b) Low Risk (c) High Return (d) Trust
4. Are you aware about Mutual Funds and their operations? Pl tick (√). Yes No
5. If yes, how did you know about Mutual Fund?
a. Advertisement b. Peer Group c. Banks d. Financial Advisors
6. Have you ever invested in Mutual Fund? Pl tick (√). Yes No
Graduation/PG Under Graduate Others
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7. If not invested in Mutual Fund then why?
(a) Not aware of MF (b) Higher risk (c) Not any specific reason
8. If yes, in which Mutual Fund you have invested? Pl. tick (√). All applicable.
a. SBIMF b. UTI c. HDFC d. Reliance e. Kotak f. Other. Specify
9. If invested in SBIMF, you do so because (Pl. tick (√), all applicable).
a. SBIMF is associated with State Bank of India.
b. They have a record of giving good returns year after year.
c. Agent’ Advice
10. If NOT invested in SBIMF, you do so because (Pl. tick (√) all applicable).
a. You are not aware of SBIMF.
b. SBIMF gives less return compared to the others.
c. Agent’ Advice
11. When you plan to invest your money in asset management co. which AMC will you prefer?
Assets Management Co.
a. SBIMF
b. UTI
c. Reliance
d. HDFC
e. Kotak
f. ICICI
12. Which Channel will you prefer while investing in Mutual Fund?
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(a) Financial Advisor (b) Bank (c) AMC
13. When you invest in Mutual Funds which mode of investment will you prefer? Pl. tick (√).
a. One Time Investment b. Systematic Investment Plan (SIP)
14. When you want to invest which type of funds would you choose?
a. Having only debt portfolio
b. Having debt & equity portfolio.
c. Only equity portfolio.
15. How would you like to receive the returns every year? Pl. tick (√).
a. Dividend payout b. Dividend re-investment c. Growth in NAV
16. Instead of general Mutual Funds, would you like to invest in sectorial funds? Please tick (√). Yes No
Data analysis:
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Have you ever invested/ interested to invest in mutual funds?
YES 135
NO 65
.what is the most important reason for not investing in mutual funds? (only for above 65 participants)
Lack of knowledge about mutual funds 25
Enjoys investing in other options 10
Its benefits are not enough to drive you
for investment
18
No trust over the fund managers 12
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.where do you find yourself as a mutual fund investor?
Totally ignorant 28
Partial knowledge of MFs 37
Aware of only scheme in which invested 46
Good knowledge of MFs 24
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.where from you purchases mutual funds?
Directly from the AMCs 33
Brokers only ( large intermediaries) 28
Broker/ sub-brokers 59
Other sources 15
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Data Analysis &
Interpretation
(a). Educational Qualification of investors of Pune
Educational Qualification Number of Investors
Graduate/ Post Graduate 95
Under Graduate 28
Others 12
Total 135
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Interpretation:
Out of 135 Mutual Fund investors 71% of the investors in pune are Graduate/Post
Graduate, 23% are Under Graduate and 6% are others .
b). Occupation of the investors of pune
Occupation No. of Investors
Govt. Service 20
Pvt. Service 65
Business 35
Agriculture 4
Others 11
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.
Interpretation:
In Occupation group out of 120 investors, 38% are Pvt. Employees, 25% are
Businessman, 29% are Govt. Employees, 3% are in Agriculture and 5% are in
others.
(c) . Preference of factors while investing
Interpretation:
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Out of 135 People, 32% People prefer to invest where there is High Return, 30% prefer
to invest where there is Low Risk, 20% prefer easy Liquidity and 18% prefer Trust
(d) Source of information for customers about Mutual Fund
Source of information No. of Respondents
Advertisement 18
Peer Group 25
Bank 30
Financial Advisors 62
Interpretation:
From the above chart it can be inferred that the Financial Advisor is the most
important source of information about Mutual Fund. Out of 135 Respondents, 46%
know about Mutual fund Through Financial Advisor, 22% through Bank, 19%
through Peer Group and 13% through Advertisement.
(e). Channel Preferred by the Investors for Mutual Fund Investment
Channel Financial Advisor Bank AMC
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No. of Respondents 80 19 36
Interpretation:
Out of 135 Investors 60% preferred to invest through Financial Advisors, 25% through
AMC and 15% through Bank.
(f). Mode of Investment Preferred by the Investors
Mode of Investment One time Investment Systematic Investment Plan (SIP)
No. of Respondents 88 47
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Interpretation:
Out of 135 Investors 65% preferred One time Investment and 35 % Preferred through
Systematic Investment Plan.
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Findings and Conclusion
In Pune most of the Investors were Graduate or Post Graduate and
below HSC there were very few in numbers.
In Occupation group most of the Investors were pvt. employees, the
second most Investors were govt. employees and the least were
associated with Agriculture.
In family Income group, between Rs. 20,001- 30,000 were more in
numbers, the second most were in the Income group of more than
Rs.30,000 and the least were in the group of below Rs. 10,000..
Mostly Respondents preferred High Return while investment, the
second most preferred Low Risk then liquidity and the least preferred
Trust.
Only 67% Respondents were aware about Mutual fund and its
operations and 33% were not.
Most of the Investors had invested in Reliance or UTI Mutual Fund,
ICICI Prudential has also good Brand Position among investors,
SBIMF places after ICICI Prudential according to the Respondents.
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For Future investment the maximum Respondents preferred Reliance
Mutual Fund, the second most preferred ICICI Prudential, SBIMF
has been preferred after them.
60% Investors preferred to Invest through Financial Advisors, 25%
through AMC (means Direct Investment) and 15% through Bank.
65% preferred One Time Investment and 35% preferred SIP out of
both type of Mode of Investment
The most preferred Portfolio was Equity, the second most was
Balance (mixture of both equity and debt), and the least preferred
Portfolio was Debt portfolio.
Maximum Number of Investors Preferred Growth Option for returns,
the second most preferred Dividend Payout and then Dividend
Reinvestment.
Most of the Investors did not want to invest in Sectoral Fund, only
21% wanted to invest in Sectoral Fund.
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Conclusion
Running a successful Mutual Fund requires complete understanding of the
peculiarities of the Indian Stock Market and also the psyche of the small
investors. This study has made an attempt to understand the financial
behavior of Mutual Fund investors in connection with the preferences of
Brand (AMC), Products, Channels etc. I observed that many of people
have fear of Mutual Fund. They think their money will not be secure in
Mutual Fund. They need the knowledge of Mutual Fund and its related
terms. Many of people do not have invested in mutual fund due to lack of
awareness although they have money to invest. As the awareness and
income is growing the number of mutual fund investors are also growing.
“Brand” plays important role for the investment. People invest in those
Companies where they have faith or they are well known with them. There
are many AMCs in Pune but only some are performing well due to Brand
awareness. Some AMCs are not performing well although some of the
schemes of them are giving good return because of not awareness about
Brand. Reliance, UTI, SBIMF, ICICI Prudential etc. they are well known
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Brand, they are performing well and their Assets Under Management is
larger than others whose Brand name are not well known.
Distribution channels are also important for the investment in mutual fund.
Financial Advisors are the most preferred channel for the investment in
mutual fund. They can change investors’ mind from one investment option
to others. Many of investors directly invest their money through AMC
because they do not have to pay entry load. Only those people invest
directly who know well about mutual fund and its operations and those
have time.
Suggestions
And
Recommendations
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The most vital problem spotted is of ignorance. Investors should be
made aware of the benefits. Nobody will invest until and unless he
is fully convinced. Investors should be made to realize that
ignorance is no longer bliss and what they are losing by not
investing.
Mutual funds offer a lot of benefit which no other single option
could offer. But most of the people are not even aware of what
actually a mutual fund is? They only see it as just another
investment option. So the advisors should try to change their
mindsets. The advisors should target for more and more young
investors. Young investors as well as persons at the height of their
career would like to go for advisors due to lack of expertise and
time.
Mutual Fund Company needs to give the training of the Individual
Financial Advisors about the Fund/Scheme and its objective,
because they are the main source to influence the investors.
Before making any investment Financial Advisors should first
enquire about the risk tolerance of the investors/customers, their need
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and time (how long they want to invest). By considering these three
things they can take the customers into consideration.
Younger people aged under 30 will be a key new customer group
into the future, so making greater efforts with younger customers
who show some interest in investing should pay off.
Customers with graduate level education are easier to sell to and
there is a large untapped market there. To succeed however,
advisors must provide sound advice and high quality.
Systematic Investment Plan (SIP) is one the innovative products
launched by Assets Management companies very recently in the
industry. SIP is easy for monthly salaried person as it provides the
facility of do the investment in EMI. Though most of the prospects
and potential investors are not aware about the SIP. There is a large
scope for the companies to tap the salaried persons.
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BIBLIOGRAPHY
OUTLOOK MONEY
TELEVISION CHANNEL (CNBC AAWAJ)
MUTUAL FUND HAND BOOK
FACT SHEET AND STATEMENT
WWW.SBIMF.COM
WWW.MONEYCONTROL.COM
WWW.AMFIINDIA.COM
WWW.ONLINERESEARCHONLINE.COM
WWW. MUTUALFUNDSINDIA.COM
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.