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8/11/2019 Systematic Investment Plan- SIP Project Report

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A STUDY ON MANAGING INVESTMENT

PORTFOLIO THROUGH SYSTEMATIC

INVESTMENT PLAN IN MUTUAL FUNDS

By:-

Jyothi Acharya -122601056

Nikita L. DSouza- 122602032

Department of Commerce

BBM (E-Banking and Finance)

&

(Financial Markets)

DEPARTMENT OF COMMERCE,

MANIPAL UNIVERSITY,

MANIPAL- 576104,

KARNATAKA, INDIA.


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DECLARATION

We, Jyothi Acharya (122601056), student of BBM [e-Banking & Finance], and Nikita L.

DSouza(122602032), student of BBM [Financial Markets], Department of Commerce, Manipal

University, declare that the Project Report entitled A Study On Managing Investment Portfolio

Through Systematic Investment Plan In Mutual Funds, being submitted to the Department of

Commerce, Manipal University in partial fulfillment of the requirements for the award of BBM

[e-Banking & Finance] & [Financial Markets], is our original work and the same was not earlier

submitted to any other Degree/Diploma/Fellowship or any other similar title or prizes.

Name: Jyothi Acharya Name: Nikita L. DSouza

Registration No:- 122601056 Registration No:- 122602032

Date:- Date:-


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ACKNOWLEDGEMENT

A summer project is a golden opportunity for learning and self-development. We consider

ourselves very lucky and honored to have so many wonderful people lead us through in

completion of this project.

We Nikita L. DSouza and Jyothi Acharya, students of Department Of Commerce, Manipal

University, BBM (E-Banking & Finance) & (Financial Markets) take this opportunity to express

our profound gratitude and deep regards to Mr. Sandeep Shenoy, Head of Department (HOD),

who has kept the internship as part of our degree which has led to great experience and immense

attained knowledge which has helped us attain corporate experience. And we would like to thank

our guide Mr. Vikram Baliga Sir for his exemplary guidance, monitoring and constant

encouragement throughout the course of this thesis. The blessing, help and guidance given by

him time to time shall carry us a long way in the journey of life on which we are about to

embark.

We are highly indebted to Canara Robecofor their guidance and constant supervision as well as

for providing necessary information regarding the project & also for their support in completing

the project.

We are obliged to the staff members of Canara Robeco, for the valuable information provided

by them in their respective fields. We are grateful for their cooperation during the period of our

assignment.

We express our deepest thanks to the Mrs. Upasna Saboo, Head of Human Resource for giving

us the opportunity to work in this company. Mr. Sharath Shetty Sir, our project guide, Mr. K.Gopi Sir and Mr. Ravi Kumar Sir for taking part in useful decision & giving us necessary

advices and guidance and making the resources available at the right time and providing valuable

insights leading to the successful completion of our project.

We would also like to thank all the faculty membersof Department Of Commerce, Manipal

Universityfor their critical advice and guidance without which this project would not have been

possible.

Last but not the least we place a deep sense of gratitude to our family membersand friends who

have been constant source of inspiration during the preparation of this project work.

With the help of all the people mentioned above we now have greater confidence in the things

that we are capable of achieving in the near future.

Jyothi Acharya Nikita DSouza


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LIST OF TABLES AND CHARTS

Sr. No. Tables and Charts Page No.

1 Structure of Mutual Funds 11

2 Concept of Mutual Funds 16

3 Classification of Mutual Funds on the basis of its structure 21

4 Classification on types of Mutual Funds 26

5 Assets Under Management- Growth Chart 36

6 Table 1: AUM of Indian Mutual Fund Industry 37

7 AUM of Indian Mutual Fund Industry Chart 38

8 Net inflow/outflow of AUM 40

9 Table 2: Resource mobilization by private and public sector by Mutual Fund 41

10 Growth in Mutual Fund 41

11 Market share of leading Mutual Funds 42

12 AUM composition by product category 43

13 AUM composition by investor segment 44

14 Industry AUM comparison 45

15 Mutual Fund Industry 46-47

16 Business module 53

17 Canara Robeco Schemes 59-77

18 Benefit of SIP over Lumpsum 83

19 Canara RobecoEmerging Equities 84-87

20 SIPBuilding wealth 87

21 Comparing SIP with other investment 87

22 Comparing SIP with Lumpsum 88-89

23 Steps in SIP 91-92

24 Case study of SIP 95-97

25 SIP Calculator 97-98

26 Auto Debit Form 99-100


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TABLE OF CONTENTS

Chapters Topics Pages

Chapter 1 Introduction 7

Introduction to Mutual Funds 8

Characteristics of Mutual Funds 10

Structure of Mutual Funds 11

Advantages of Mutual Funds 14

Disadvantages of Mutual Funds 15

Concept of Mutual Funds 16

History of Mutual Funds 17

Chapter 2 Classification of Mutual Fund 20

Classification on the basis of structure 22

Classification on the basis of types of Mutual Funds 26

Classification according to investment objective 27

How investors choose between funds 30

Chapter 3 Mutual Fund Industry trends 34

Mutual Fund Industry trends 35

AUM growth 36

Mutual Fund industry crosses Rs 10 lakh crores in May 39

Market share of leading Mutual Funds 42

AUM distributions by AMCs 45

Chapter 4 Review of Literature 48

Chapter 5 Company Profile 51

Canara Robeco 52

Business Module 53

Performance measure 56Products of Canara Robeco 58

Schemes of Canara Robeco 59

Facilities provided by Canara Robeco 78

Chapter 6 Systematic Investment Plan 81


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Systematic Investment Plan- Introduction 82

Canara Robeco- NAV Emerging Equities 84

Comparing SIP 87

Comparison between sip and Lumpsum investment 88

Why SIP 90

Steps in SIP 91

Benefits of SIP 93

Disadvantages of SIP 94

Case studySIP 95

Sip calculator 97

SIP Auto Debit Form 98

Conditions under which sip would yield /no0t yield positive results 101

Common misconception of SIP 103

Findings from the study 104

Conclusion 105

Bibliography 106


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NEED FOR THE STUDY


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OBJECTIVE OF THE STUDY

To study and understand the workings of Systematic Investment Planning in Mutual

Funds with special reference to Canara Robeco.

To make a comparison of Systematic Investment Planning and Lumpsum investments in

the Portfolio of customers.


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Chapter 1Introduction


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Introduction to Mutual Funds

Mutual fund is a pool of funds which is divided into units of equal value and sold to investing

public and the funds so collected are utilized for collective investments in various capitals and

money market instrument. In todays market people invest money to gain more. So when they

take into account, they mostly look out for Investment Company where they can get more

income.

Investment companies can be classified into closed-end and open-end investment companies.

Closed-end is when it is readily transferable in the market. Open-end funds sell their own shares

to investors and ready to buy back their old shares. If we talk about the investment options today,

in India we have so many investment companies like UTI, LIC etc., all have their own special

ways of servicing the customers. The investors also feel that they are worth to be the part of that

company. These days people mainly look for avoiding tax so normally they look out for some

investments which can help them in doing so. When it comes to this point of view, people

mainly look out for mutual fund.

Mutual fund is a trust at law; it is a special type of managed, pooled portfolio financial company

or financial service organization that sells shares/units/stocks in itself, to the public to obtain its

resources and it invests the savings so mobilized or pooled in a large, diversified, & sound

portfolio of equity shares, bonds, money market instruments etc., Redeemable trust certificates

are sold to investors at net asset value (NAV) plus a small commission. All interest/dividend and

principal repayments are distributed to the holders of the certificates.

Mutual Funds are a vehicle for retail and institutional investors to benefit from the capital

markets. They offer different kinds of schemes to cater to various types of investors, retail,

companies and institutions. Mutual fund schemes are offered to investors for the first time

through a New Fund Offering (NFO). Thereafter, close-ended schemes stop receiving moneyfrom investors, though these can be bought on the stock exchanges where they are listed. Open-

ended schemes sell and re-purchase their units on an ongoing basis. Know Your Client (KYC)

process is centralized in the mutual fund industry. Therefore, the Investor needs to complete the

formalities only once with the designated KYC service provider. The KYC confirmation thus

obtained is valid for investment with any mutual fund.


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A feature of mutual fund schemes is the low minimum investment amountas low as Rs.1,000

for some schemes. This makes it possible for small investors to invest. The expense ratio (which

is not more than 2.5% in many schemes, especially liquid and index funds and goes below 0.05%

in some schemes being low also helps in making mutual funds a good instrument for building

wealth over the long term.

Mutual funds are closely regulated by the Securities & Exchange Board of India (SEBI). The

applicable regulation is the SEBI (Mutual Fund) Regulations, 1996. Under the regulations, the

Board of Trustees performs an important role in protecting the interests of investors in mutual

fund schemes. Another protective feature is the checks and balances in the mutual fund system.

For instance, while the Asset Management Company (AMC) handles the investment

management activity, the actual custody of the investments is with an independent custodian.

Investor records are mostly maintained by the registrar and transfer agents (RTAs), who offer

their services to multiple mutual funds. In some cases, the AMC itself maintains the investor

records.

SEBI also regulates the investments that mutual fund schemes can make. For instance,

commodities other than gold are not permitted. Even within the permissible investments, SEBI

has prescribed limits for different kinds of schemes. Rigorous standards of disclosure and

transparency make sure that investors get a complete view of their investments on a regular

basis. Consolidated Account Statements, mandated by SEBI, ensure that the investors

investments across various mutual funds in the industry are consolidated into a single monthly

statement. Even those investors, who do not transact, receive their statement of accounts every 6

months.


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Characteristics of MF

A mutual fund actually belongs to the investors who have pooled their funds. The

ownership of the MF is in the hands of the investors.

A MF is managed by investment professionals and other service providers, who earn a

fee for their services from the fund.

The pool of funds is invested in a portfolio of marketable investment. The value of the

portfolio is updated every day.

The investors share in the fund is denominated by units. The value of the units changes

with change in the portfolios value, every day. The value of one unit of inv estment is

called as the net assets value or NAV.

The investment portfolio of the Mutual fund is vested according to the stated Investmentobjectives of the fund.

Investors purchase mutual fund shares from the fund itself (or through a broker for the

fund) instead of from other investors on a secondary market such as the New York Stock

Exchange or Nasdaq Stock Market.

Mutual fund shares are redeemable, meaning investors can sell their shares back to the

fund (or tobrokeractingforthefund).

Mutual Funds generally create and sell new shares to accommodate new investors. IN

other words, it sells its shares on a continuous basis, although some funds stop selling

when, for example, they become too large.

The investment portfolios of mutual funds typically are managed by separate entities

known as investment advisers that are registered with the SEC.


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Structure of Mutual Funds

A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset Management

Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor

who is like promoter of a company. The trustees of the mutual fund hold its property for the

benefit of the unit holders. Asset Management Company (AMC) approved by SEBI manages the

funds by making investments in various types of securities. Custodian, who is registered with

SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested

with the general power of superintendence and direction over AMC. They monitor the

performance and compliance of SEBI Regulations by the mutual fund.

SEBI Regulations require that at least two thirds of the directors of trustee company or board of

trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of

the directors of AMC must be independent. All mutual funds are required to be registered with

SEBI before they launch any scheme. However, Unit Trust of India (UTI) is not registered with

SEBI (as on January 15, 2002).

The Structure of Mutual Funds


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Securities Exchange Board of India

Set up in the year 1992, SEBI Act was passed. The objectives of SEBI are to protect the

interest of investors in securities and to promote the development of and to regulate thesecurities

market

Role of SEBI

Formulates policies and regulates the mutual funds to protect the interest of the investors.

SEBI notified regulations for the mutual funds in 1993.

SEBI has also issued guidelines to the mutual funds from time to time to protect the interests

of investors.

All mutual funds whether promoted by public sector or private sector entities including those

promoted by foreign entities are governed by the same set of Regulations.

All mutual funds are subject to monitoring and inspections by SEBI.

Sponsor -

They are the Promoters of the Mutual Fund

They are given the charge to form a Trust and appoint Trustees. They are also responsible for

appointing the Custodian and AMC

Eligibility Criteria for Selection of Sponsors: Over5 year of sound financial Track Record 3

Year Profit making record at least 40% contribution to AMC Capital

He must have net worth in the immediate preceding year more than the capital contribution

in AMC.

Trustees Trustee Company -

Fiduciary Responsibility for investor funds as a Board of Trustees or Trustee Company

Appointed by Sponsor with SEBI approval.

They in turn appoint an Asset Management Company (AMC) to manage the portfolio of

securities registered ownership of investments is with Trust. Trustees hold the Unit Holders

money in fiduciary capacity.

There should be at least 4 Trustees (2/3 should be independent) right to seek regular

information and remedial action. All major decisions need trustee approval.


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Asset Management Company-

The AMC is responsible for the operational aspects of the Mutual Fund. It holds an

Investment Management agreement with Trustees.

It is a SEBI registered entity Requirement of minimum 10 crores of net worth to be

maintained at all times at least 1/2 of the board members to be independent and it cannot

have any other business interest Structured as a private limited company (Sponsors and

Associates hold capital)

AMC of one Mutual Fund cannot be trustee of another Mutual Fund. 75% of the Unit

Holders jointly can terminate the AMC appointment.

To define and maintain high professional and ethical standards in all areas of operation of

mutual fund industry.

To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI

on all matters concerning the mutual fund industry.

To represent to the Government, Reserve Bank of India and other bodies on all matters

relating to the Mutual Fund Industry.

To undertake nationwide investor awareness programme so as to promote proper

understanding of the concept and working of mutual funds.

To disseminate information on Mutual Fund Industry and to undertake studies and research

directly and/or in association with other bodies.

Custodian-

Responsible for the safe keeping of investments of the funds and receipt of all benefits due

to the fund. Participates in Clearing System on behalf of the Fund

Registered with SEBI

Registrar & Transfer Agent

Responsible for unit holders record maintenance and servicing including purchase,

repurchase and transfer of units

Responsible for updating Investor Records and Transactions.


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Advantages of Mutual Funds

Portfolio diversification: is a benefit derived from investment in securities spread across

various companies, industries, issuers and maturities. The portfolio will not be affected by

the performance of one or few of the securities.

Mutual funds feature low transaction costfrom economies of scale. Since the fund invests

large sums of money, the costs of research, broking, demat and custodial services come

down. Small amounts invested in a fund get the benefits of the large pool.

Professional Management by mutual funds offers expertise in managing the investors

funds, bringing the benefits of research, analysis and process-driven approach to investing.

Portfolio diversification and the professional management of funds offer reduction in risk

for the investors. The investment is always in a managed portfolio and not a single stock orsector. Instead of a large outlay of funds to achieve these objectives directly, investors can

choose mutual funds, investing as little as Rs. 500 to get these benefits at a low cost.

Investors can choose their investment to suit their particular needsand preferences.Mutual

funds offer closed and open-ended schemes, offer options to stay invested, receive or reinvest

dividends. These variations offer higher flexibility of when to invest, how to receive the

returns, how to stay invested and when to redeem the units.

Investors interests are protectedwhile investing in mutual funds as they are governed by

the Securities and Exchange Board of India (SEBI) (Under the SEBI mutual funds)

Regulations, 1996, which require extensive disclosures and fair business practices.

Mutual funds encourage systematic investments.Investors can choose systematic

investment plans to invest regularly ,systematic withdrawal plans to withdraw regularly in

order to structure regular cash flow from the investment account or systematic transfer plans

to transfer money from one scheme to another.

Mutual fund transactions are convenient, flexible and easyto conduct. Investors are

assigned a folio when they buy units and they can use transactions slips to conduct various

transactions, including purchasing more units from the folio. Mutual funds also offer

convenience of part withdrawal of investments and make additional investments in the

account.


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Mutual funds structure the portfolio in such a way that they are able to provide liquidityto

the investor. Investors can take their money out when they need it by redeeming their units

with the fund, or by selling units on the stock exchange where they are listed.

Mutual funds investmentsoffer significant tax advantages to investors. Incomes that are

taxable when earned directly, such as interest income, can be left invested in the fund to grow

over years .incidence of tax is only when the investor transacts in a fund and as capital gains

rather than interest income.

Mutual fund distributors have to be registered with AMFI obtain an ARN and abide by the

prescribed code of ethics .The structure of mutual funds is also well regulated,offering a

high level of information disclosure ,investor protection and regulatory controls.

Disadvantages of Mutual Funds

Mutual funds are not customized portfolios:Mutual Funds are like pre-plated meals; there

is no customized assembling of the meal by the customer. Mutual funds are standard

products, managed centrally, offering significant advantages to investors who are not

equipped to make complex investment choices. Investors do not exercise any direct control

on how the portfolio is managed, but participate equitably in it. Customized portfolios are

usually offered as portfolio management services (PMS).

No direct control over cost: investors in a mutual fund participate in the pool of funds,

according to the proportion they have contributed. The costs for managing the fund are

centrally incurred and apportioned to every unit. Investors cannot directly determine what

cost can be incurred and how it would be apportioned. SEBI has however, imposed limits on

the amount and type of cost a mutual fund can incur.

Mutual funds offer too many products: to the investors, making a choice among many

funds become tough when so many variants of the same product are available in the market.

Mutual funds try to vary their products, even if slightly, to provide a choice to customers. If

these are similar in objective and performance, investors may find it tough to differentiate the

products and make the right choice for their needs.


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Concept of Mutual Funds

When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets

of the fund in the same proportion as his contribution amount put up with the corpus (the total

amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit

holder. Any change in the value of the investments made into capital market instruments (such as

shares, debentures etc.) is reflected in the Net Asset Value (NAV) of the scheme. NAV is

Concept of Mutual

Funds

Many investors with common financial objectives

pool their money

Investors, on a proportionate basis, get mutual fund units for the

sum contribution to the pool

The money collected from investors is invested into shares, debentures and

other securities by the fund manager.

the fund manager realizes gains or losses, and collects dividend or interst income.

any capital gains or losses from such investments are passed on to the investors in proportion of

the number of units held by them.


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defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a

scheme is calculated by dividing the market value of scheme's assets by the total number of units

issued to the investors.

History of the Indian Mutual Fund Industry

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

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

be broadly divided into four distinct phases.

First Phase1964-87

An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by the ReserveBank of India and functioned under the Regulatory and administrative control of the Reserve

Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of

India (IDBI) took over the regulatory and administrative control in place of RBI. The first

scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of

assets under management.

Second 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 Can

bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual

Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established

its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end

of 1993, the mutual fund industry had assets under management of Rs.47, 004 crores.


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AMOUNT

MOBILIZED1992-93

ASSETS UNDER

MANAGEMENT

MOBILIZATION AS %

OF GROSS DOMESTIC

SAVINGS

11,057 UTI 38,247 5.2%

1,964PUBLIC

SECTOR8,757 0.9%

13,021 TOTAL 47,004 6.1%

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 andacquisitions. 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.


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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 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, andwith 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 October 31, 2003,

there were 31 funds, which manage assets of Rs.126726 crores under 386 schemes.


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Chapter 2Classification of Mutual Funds


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Mutual funds may be classified on the basis of its structure and its investmentobjective:

.

MUTUAL FUNDS

BY INVESTMENT

GROWTHSCHEME

INCOMESCHEMS

BALANCEDSCHEMES

MONEYMARKET

SCHEMES

OTHERS

SECTORSPECIFICSCHEMES

TAXSAVINGSSCHEMES

SPECIALSCHEMES

INDEXSCHEMES

STRUCTURE

OPEN

ENDEDSCHEMES

CLOSEENDED

SCHEMES

INTERVALSCHEMES


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By Structure

Open-ended Funds

An 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.

Benefits of Open Ended Funds:

i. Liquidity

In 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.

ii. Convenience

An 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.

iii.

Flexibility

Mutual Funds offering multiple schemes allow investors to switch easily between various

schemes. This flexibility gives the investor a convenient way to change the mix of his

portfolio over time.

iv. Transparency

Open-ended mutual funds disclose their Net Asset Value (NAV) daily and the entire

portfolio monthly. This level of transparency, where the investor himself sees the

underlying assets bought with his money, is unmatched by any other financial instrument.

Thus the investor is in the know of the quality of the portfolio and can invest further or

redeem depending on the kind of the portfolio that has been constructed by the

investment manager.


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Closed-ended Funds

A closed-end fund has a stipulated maturity period which generally ranging from 3- 15 years. It

can be subscribed only during a specified period. Investors can invest in the scheme at the time

of initial public issue and then 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, it provides 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 Funds

Interval funds combine the features of open-ended and close-ended schemes. They are open for

sale or redemption during pre-determined intervals at NAV related prices.

By Investment Objective

Growth Funds

Such schemes normally invest a majority of their corpus in equities. It has been proven that

returns from stocks, have outperformed most other kind of investments held over the long term.

It is ideal for investors with long-term outlook seeking growth over a period of time.

Income Funds

The aim of income funds is to provide regular and steady income to investors. Such schemes

generally invest in fixed income securities such as bonds, corporate debentures and Government

securities. Income Funds are ideal for capital stability and regular income.

Balanced Funds

The aim of balanced funds is to provide both growth and regular income. Such schemes

periodically distribute a part of their earning and invest both in equities and fixed income

securities in the proportion indicated in their offer documents. In a rising stock market, the NAV


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of these schemes may not normally keep pace, or fall equally when the market falls. These are

ideal for investors looking for a combination of income and moderate growth.

Money Market Funds

The aim of money market funds is to provide easy liquidity, preservation of capital and moderate

income. These schemes generally invest in safer short-term instruments such as T-bills, C.Ds,

commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending

upon the interest rates prevailing in the market. These are ideal for Corporate and individual

investors to park their surplus funds for short periods.

Load Funds

A Load Fund is one that charges a commission for entry or exit for purchase or sale of units in

the fund. It ranges from 1%- 2%, worth paying if the fund has a good performance history.

No-Load Funds

A No-Load Fund is one that does not charge a commission for entry or exit for the purchase or

sale of units in the fund. The advantage is that the entire corpus is put to work.

Other Schemes

Tax Saving Schemes

These schemes offer tax rebates under specific provisions of the Indian Income Tax laws as the

Government offers tax incentives for investment in specified avenues. Investments made in

Equity Linked Saving Schemes and Pension Schemes are allowed as deduction u/s 88 of the

Income Tax Act, 1961. It also provides opportunities to save capital gains u/s 54EA and 54EB

provided the capital asset has been sold prior to April 1, 2000 and the amount is invested before

September 30, 2000.


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Special Schemes

Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer document. Theinvestment is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc.

Index Schemes

Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or

the NSE 50.

Sectorial Schemes

Sectorial Funds are those, which invest exclusively in a specified industry or a group of

industries or various segments such as 'A' Group shares or initial public offerings.


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Classification or types of mutual fund

Mutual funds in India offer a wide array of schemes that cater to needs suitable to any age,

financial position, risk tolerance and return expectations. Mutual funds may be classified on the

basis of its structure and its investment objective:

BROAD MUTUALFUNDS TYPE

EQUTIY

DIVERSIFIED EQUITY

FUNDS(ELSS)

GROWTHFUNDS

VALUEFUNDS

INDEX FUNDS

SECTORFUNDS

SPECIALITYFUNDS

HYBRID

BALANCEDFUNDS

GROWTH ANDINCOME FUND

ASSETALLOCATTIO

N

DEBT/ INCOMEFUNDS

DIVERSIFIED

DEBT PLAN

FOCUSEDDEBT FUNDS

FIXED TERMPLAN SERIES

HIGHYEILDDEBTFUND

ASSUREDRETURN

FUND

OTHERS

COMMODITYFUNDS

REALESTATEFUNDS

EXCHANGETRADEDFUNDS

FUNDS OFFUNDS


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Classification according to Investment Objective:

The schemes can also be classified as growth scheme, income scheme, or balanced scheme

considering its investment objective. These schemes can be open-ended or close-ended schemes.

Such schemes may be classified mainly as follows:

Equity/Growth Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such

schemes normally invest a major part of their corpus in equities. Such funds have comparatively

high risks. These schemes provide different options to the investors like dividend option, capital

appreciation, etc. and the investors may choose an option depending on their preferences. The

investors must indicate the option in the application form. The mutual funds also allow the

investors to change the options at a later date. Growth schemes are good for investors having a

long-term outlook seeking appreciation over a period of time.

Income Oriented Scheme

The aim of income funds is to provide regular and steady income to investors. Such schemes

generally invest in fixed income securities such as bonds, corporate debentures, Government

securities and money market instruments. Such funds are less risky compared to equity schemes.

These funds are not affected because of fluctuations in equity markets. However, opportunities

of capital appreciation are also limited in such funds. The NAVs of such funds are affected

because of change in interest rates in the country. If the interest rates fall, NAVs of such funds

are likely to increase in the short run and vice versa. However, long term investors may not

bother about these fluctuations.

Balanced Fund

These funds are considered moderate since investors seek growth and stability but with moderate

risk. The aim of balanced funds is to provide both growth and regular income as such schemes

invest both in equities and fixed income securities in the proportion indicated in their offer

documents. These are appropriate for investors looking for moderate growth.


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They generally invest 40-60% in equity and debt instruments. These funds are also affected

because of fluctuations in share prices in the stock markets. However, NAVs of such funds are

likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of

capital and moderate income. These schemes invest exclusively in safer short-term instruments

such as treasury bills, certificates of deposit, commercial paper and inter-bank call money,

government securities, etc. Returns on these schemes fluctuate much less compared to other

funds. These funds are appropriate for corporate and individual investors as a means to park their

surplus funds for short periods.

Gilt Fund

These funds invest exclusively in government securities. Government securities have no default

risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic

factors as is the case with income or debt oriented schemes.

Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P

NSE 50 index (Nifty), etc. These schemes invest in the securities in the same weight age

comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or

fall in the index, though not exactly by the same percentage due to some factors known as

"tracking error" in technical terms. Necessary disclosures in this regard are made in the offer

document of the mutual fund scheme.

There are also exchange traded index funds launched by the mutual funds which are traded on

the stock exchanges.


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Hybrid funds

Hybrid funds invest in both bonds and stocks or in convertible securities. Balanced funds, asset

allocation funds, target date or target risk funds and lifecycle or lifestyle funds are all types of

hybrid funds.

Hybrid funds may be structured as funds of funds, meaning that they invest by buying shares in

other mutual funds that invest in securities. Most fund of funds invest in affiliated funds

(meaning mutual funds managed by the same fund sponsor), although some invest in unaffiliated

funds (meaning those managed by other fund sponsors) or in a combination of the two.

Sector specific funds/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 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. They may also seek advice of an expert

Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act,

1961 as the Government offers tax incentives for investment in specified avenues. E.g. Equity

Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax

benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth

opportunities and risks associated are like any equity-oriented scheme.

Exchange Trade Funds

These are new variety of mutual funds that first became available in 1993. The exchange-traded

fund or ETF is often structured as an open-end investment company, though ETFs may also be

structured as unit investment trusts, partnerships, investments trust, grantor trusts or bonds (as an


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exchange-traded note). ETFs combine characteristics of both closed-end funds and open-end

funds. Like closed-end funds, ETFs are traded throughout the day on a stock exchange at a price

determined by the market. However, as with open-end funds, investors normally receive a price

that is close to net asset value. To keep the market price close to net asset value, ETFs issue and

redeem large blocks of their shares with institutional investors.

Special Schemes

Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer document. The

investment is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc.

Net Asset Value (NAV) of a scheme:

The performance of a particular scheme of a mutual fund is denoted by Net Asset Value

(NAV).Mutual funds invest the money collected from the investors in securities markets. In

simple words, Net Asset Value is the market value of the securities held by the scheme. Since

market value of securities changes every day, NAV of a scheme also varies on day to day basis.

The NAV per unit is the market value of securities of a scheme divided by the total number of

units of the scheme on any particular date. For example, if the market value of securities of a

mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units of Rs. 10

each to the investors, then the NAV per unit of the fund is Rs.20. NAV is required to be

disclosed by the mutual funds on a regular basis - daily or weekly - depending on the type of

scheme.

How do investors choose between funds?

When the market is flooded with mutual funds, its 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 investors. 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


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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 lumpsums 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:

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 capitalappreciation, 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.


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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 havent 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.

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 and

should choose the dividend option. If the capital gain is long-term (where the investment has

been held for more than one year), the growth option is more tax efficient for all investors. This

is because investors can redeem units using the SWP where they will have to pay 10 per cent as

long-term capital gains tax against the 12.50 percent DDT paid by the MF on dividends.

In equity oriented schemes the short term capital gains to Individuals, Domestic Companies and

NRIs is 15%, while schemes other than equity oriented schemes for Individuals, Domestic

Companies an NRIs is 30%.


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In equity oriented schemes, the long term capital gain for Individuals, Domestic Companies and

NRIs is NIL, while schemes other than the equity oriented schemes for Individuals Domestic

Companies and NRIs is 10% without indexation and 20% with indexation. All the tools

discussed over here are used by all the advisors and have helped investors in reducing risk,

simplicity and affordability. Even then an investor needs to examine costs, tax implications and

minimum applicable investment amounts before committing to a service.


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Chapter 3Mutual Fund Industries Trends


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Mutual Fund Industry Trends

Though Indias savings rate has been between 30-35 per cent since last few years, investment in

mutual funds have been minimal as compared to other avenues for investment. Emphatically

speaking, mutual fund business follows a business to business model (B2B) rather than a

business to consumer (B2C) model and hence, distribution is a critical success factor for any

mutual fund. Despite the efforts, the mutual fund products continue to remain a push product

rather than a pull product. Indian mutual fund industry has evolved over the years. Though, it

has grown at a Compounded Annual Growth Rate (CAGR) of 15 per cent from FY07 to FY13,

the growth performance in the recent years have been rather subdued. However, Assets Under

Management (AUM) as a per cent of GDP for India is about 5 to 6 per cent, significantly lower

than some other emerging economies, for example, 40 per cent for Brazil and around 33 per cent

for South Africa. This indicates significant headroom for growth. However, the industry growth

will continue to be characterized by external factors such as volatility and performance of the

capital markets, and macro-economic drivers such as GDP growth, inflation and interest rates.

The Indian Mutual fund industry has evolved over the years from a single player in 1964 to a fast

growing competitive market on the back of strong regulatory framework by Association of

Mutual Funds in India (AMFI). The Assets under Management (AUM) have relatively grown at

14.17% CAGR in last 15 years since March 2000. The AUM growth has been considerable in

terms of debt assets which have risen from 47% to 73% in a span of last 15 years. However,

equity assets have been in the range of 20% to 40% in the last few years. At the same time there

has been drastic fall of other schemes from 24% to as low as 4% currently. Industry recorded an

AUM of INR 8,800 billion. The highest AUM was recorded in August 2013 as INR 9,580

billion. Though on the whole, the mutual fund industry witnessed a decline in AUM in

December 2013, the AUM of equity funds increased by 4.5 per cent3 on account of rising stock

prices.

One could see a shift with the changing demographic profile of the Indian population, with newproducts being launched (for example, products being linked to pensions), coupled with financial

awareness and literacy initiatives for investors both by the industry and the regulator, and with

the onus of expanding the market falling on the distributorsthe first point of contact for

investors. Distributors would have to convince and guide the investors about using mutual funds


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as a tool for financial goals rather than as just mere investments. Technology could definitely act

as an enabler in reaching out to investors in far and distant places.

Assets under Management (AUM) Growth

Equity (Equity, ELSS); Debt (Income, Gilt, Money market); Others (Hybrid, ETFs, Gold ETFS,

FOFs overseas)

For the current financial year the AUM was at Rs. 8,25,240 crore as on 31st March 2014 and

rose by 17.65% or Rs. 1,23,797 crore Y-o-Y vis--vis Rs. 7,01,443 crore the previous financial

year. Currently, there are 44 Asset Management Companies (AMCs) and approx. 2,300+

schemes having equity assets of around Rs. 1,91,107 crore and debt assets of around Rs.

6,00,945 crore.

The quantum of mutual fund assets in financial savings is very low - at less than 5% - as most

Indian savings are locked in bank fixed deposits, small savings (postal savings) and insurance.

With growing disposable incomes, rising inflation (cost of living), improving lifestyles andgrowing aspirations, there is a noticeable shift in preference for mutual funds though it has still a

long way to go.


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TABLE I: ASSET UNDER MANAGEMENT OF INDIAN MUTUAL FUND INDUSTRY

Year AUM in CRORES

Mar-65 25

Mar-87 4,554

Mar-93 47,000

Mar-01 1,21,805

Mar-02 87,190

Mar-03 79,464

Mar-04 1,39,616

Mar-05 1,49,554

Mar-06 2,31,862

Mar-07 3,26,388

Mar-08 50,512

Mar-09 4,17,900

Mar-10 6,13,979

Mar-11 5,92,250

Mar-12 5,87,217

Mar-13 7,01,443

Feb-14 9,16,393

SOURCE: SEBI


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SOURCE: SEBI

Above TABLE-I indicates after privatization in 1993, asset under management increased up to

47,000 crores. In year Mar-01 assets mobilized through mutual funds was 1,21,805 crores and in

year Feb-14 assets mobilized is 9,16,393 crores. During last decade there is growth in assets

under management more than 500 percent, in India.


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Gold

Due to gloomy outlook on gold, investors are continuously moving out of gold ETF. It is evident

from the fact that the AUM of Gold ETFs fell to Rs. 7,781 crore in May from close to Rs. 11,000

crore levels some months back.

India Ratings & Research (Ind-Ra), a part of Fitch group, has predicted that gold prices are

further expected to decline in FY15 in the range of Rs. 25,500 to Rs. 27,500/10 g. It expects gold

prices to fall due to the gradual winding up of unconventional monetary policy (UMP) in US

which would cause interest rates to go up and consequently discourage investments in gold.

Net inflow/outflow and AUM data

Category

Net

inflow/outflow

in May

AUM

Income 10,096 473887

IDF - 1082

Equity 2452 189200

Balanced -83 14728

Liquid/Money

market22010 282700

Gilt -318 5694

ELSS -430 28034

Gold ETFs -341 7781

Other ETFs 576 4829

Fund of Funds - 3167

Total 33962 1011102


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TABLE 2:- RESOURCE MOBILISATION BY PRIVATE AND PUBLIC SECTOR BY

MUTUAL FUNDS

$ indicates as on February 28, 2014.

SOURCE: SEBIAbove TABLE II indicates mobilization of funds from private and public sectors other than UTI

investment to Indian mutual fund industry. Funds mobilized from 54,928 crores in 2009-10 to

1,33,697 crores in 2013-14 by private sector. Public sector contributed from 12,499 crores in

2009-10 to 16,216 crores in 2013-14. Private sector contributed greater than public sector to

mutual funds. As per above data, it is observed that private sector is playing a vital role in

economic development.

Growth in Markets

* Source: BSE Sensex and NSE Nifty data as on December 2013


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In comparison to global markets, Indias AUM penetration as a per cent of GDP is between 5-6

per cent while it is around 77 per cent for the U.S., 40 per cent for Brazil and 31 per cent for

South Africa. Despite the relatively low penetration of mutual funds in India, the market is

highly concentrated. Though, there are 44 AMCs operating in the sector, approximately 80 per

cent of the AUM is concentrated with 8 of the leading players in the market. There have been

recent instances of consolidation in the market and market concentration is expected to remain in

the near-term.

Market Share of leading Mutual Funds (basis AUM)

* SOURCE: AMFI

Products and Investors

Indian stock markets have experienced inconsistent returns in the recent past. Higher inflation

and inconsistent economic growth has worried the retail investor who is now concerned about

assured returns in such a scenario, the investor would divert their funds from the equity market to

liquid/money market and debt AUM as also depicted in Figure 3.


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Fig. 3: AUM Composition by Product Category

SOURCE: AMFI (Data as of September 2013)

The equity-debt mix is determined largely by the performance of the capital markets and interest

rate cycles. AUMs in debt and liquid money market funds have seen an increase in FY14 due to

the anticipation of RBI rate cuts and desire for investors to seek a fixed return. Debt oriented

products (investing in debt instruments with maturity > 3 months) have gained most traction in

terms of absolute net new money, with an absolute increase in AUM of ~INR 1,000 billion

indicating a clear shift in investor interest from equity in recent times. Gold ETFs have grown at

an extremely fast pace over the last few years albeit from a much smaller base (CAGR of over 90

per cent from FY10- FY13). These have gained popularity due to the popularity of gold as an

investment for Indians as well as due to the lowering of administrative charges and distribution

expenses which makes it easier for the product to be distributed as well.

As Figure 4 indicates, industry composition of AUM is driven primarily by the corporate

segment.


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Fig. 4: AUM Composition by Investor Segment

Source: AMFI (Data as of September 2013)

Corporate investments constitute around 49 per cent of AUM with a focus on debt/money market

funds for the purpose of short term returns and liquidity management.

Retail share of AUM is 20 per cent and is expected to rise driven by increased investor

awareness, product penetration and greater distribution reach. High Net worth Individual

(HNIs) have emerged as the fastest growing investor segment growing at a rate of ~ 20 per cent

over the period of FY10- FY13 with a preference for debt oriented funds.

However, AUM growth largely remains restricted to the top 5 cities in India viz. Mumbai, Delhi,

Bangalore, Chennai and Kolkata (contributing ~ 74 per cent of AUM as of September

2013). The top 35 cities continue to contribute around 90-92 per cent of the industry AUM.


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AUM distribution by AMCs

Industry AUM composition by Geography

SOURCE: AMFI (Data as of September 2013)

Despite constant endeavor of the regulator to increase penetration of mutual fund products

beyond top 15 cities, the AUM composition has only marginally changed since

SEBI directive on additional TER on inflows from smaller cities was implemented in October

1st, 2012. Contribution from the B-15 cities has remained at around 13 per cent for the last two

years. Drivers like lack of financial education and awareness, limited distribution network,

cultural bias towards physical assets are some of the key impediments to growth in B-15 cities.

In order to increase the geographical reach of mutual funds, the fund houses are now allowed to

charge an extra load of 30 basis points from existing schemes1 subject to meeting certain

conditions. The regulation has incentivized fund houses to push mutual fund products in cities

beyond the top 15. The term B-15; it is short for beyond top 15 cities

The B-15 cities are: Jaipur, New Delhi, Chandigarh, Kanpur, Lucknow, Hyderabad, Bangalore,

Chennai, Kolkata, Ahmedabad, Surat, Vadodara, Panjim, Pune, Mumbai.


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There are total 44 mutual funds. A brief snapshot of the balance 26 fund houses are listed below

sorted on the AUM.

0Mutual Fund

Industries

No. Of

Schemes

QAAUM

Date QAAUM Prev. Date

Prev.

QAAUM

Inc./

Dec.

HDFC Mutual Fund 1066 Mar-14 109890.71 Dec-13 104326.69 5564.02

Reliance Mutual Fund 809 Mar-14 100979.16 Dec-13 99083.55 1895.61

ICICI Prudential Mutual

Fund

1168 Mar-14 100145.64 Dec-13 89660.6 10485.0

4

Birla Sun Life Mutual

Fund

829 Mar-14 86098.59 Dec-13 79891.01 6207.58

UTI Mutual Fund 752 Mar-14 70587.17 Dec-13 69990.51 596.66

SBI Mutual Fund 515 Mar-14 62631.69 Dec-13 60691.46 1940.23

Franklin Templeton

Mutual Fund

224 Mar-14 46363.88 Dec-13 45212.75 1151.13

IDFC Mutual Fund 593 Mar-14 39777.04 Dec-13 38826.63 950.41

Kotak Mahindra Mutual

Fund

364 Mar-14 31242.11 Dec-13 33671.94 -2429.83

DSP Blackrock Mutual

Fund

456 Mar-14 27968.66 Dec-13 26997.13 971.53

Tata Mutual Fund 412 Mar-14 20028.43 Dec-13 17524.87 2503.56

L&T Mutual Fund 280 Mar-14 17495.33 Dec-13 15941.35 1553.98

Deutsche Mutual Fund 440 Mar-14 17264.66 Dec-13 16938.81 325.85

Axis Mutual Fund 236 Mar-14 16123.6 Dec-13 14470.74 1652.86


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JP Morgan Mutual Fund 155 Mar-14 15196.56 Dec-13 11825.65 3370.91

Sundaram Mutual Fund 391 Mar-14 15153.01 Dec-13 14270.41 882.6

Religare Invesco Mutual

Fund

270 Mar-14 13523.65 Dec-13 12363.52 1160.13

LIC Nomura Mutual

Fund

195 Mar-14 8989.6 Dec-13 8348.48 641.12

Baroda Pioneer Mutual

Fund

104 Mar-14 7701.78 Dec-13 6586.74 1115.04

HSBC Mutual Fund 173 Mar-14 7483.98 Dec-13 7482.17 1.81

Canara Robeco Mutual

Fund

124 Mar-14 6603.96 Dec-13 7009.99 -406.03

JM Financial Mutual

Fund

125 Mar-14 5977.56 Dec-13 7068.66 -1091.1

IDBI Mutual Fund 131 Mar-14 5698.74 Dec-13 4829.82 868.92

Principal Mutual Fund 128 Mar-14 4121.49 Dec-13 4526.72 -405.23

Peerless Mutual Fund 56 Mar-14 3924.29 Dec-13 3297.74 626.55

Goldman Sachs Mutual

Fund

24 Mar-14 3764.11 Dec-13 3846.74 -82.63


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Chapter 4Review of literature


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Literature on mutual fund performance evaluation is enormous. A few research studies that have

influenced the preparation of this paper substantially are discussed in this section.

Sharpe, William F. (1966) suggested a measure for the evaluation of portfolio

per fo rmance.

Drawing on results obtained in the field of portfolio analysis, economist Jack L.

Treynor has suggested a new predictor of mutual fund performance, one that differs from

virtually all those used previously by incorporating the volatility of a fund's return in a

simple yet meaningful manner.

Michael C. Jensen (1967) derived a risk-adjusted measure of portfolio performance

(Jensens alpha) that estimates how much a managersforecasting ability contributes to funds

returns.

As indicated by Statman (2000), the e SDAR of a fund portfolio is the excess return of the

portfolio over the return of the benchmark index, where the portfolio is leveraged to have the

benchmark indexsstandard deviation.

S. Narayan Rao , evaluated performance of Indian mutual funds in a bear market through

relative performance index, risk return analysis, Treynors ratio, Sharpes ratio, Sharpes

measure , Jensensmeasure, and Famasmeasure. The study used 269 open-ended schemes (out

of total schemes of 433) for computing relative performance index. Then after excluding funds

whose returns are less than risk-free returns, 58 schemes are finally used for further analysis. The

results of performance measures suggest that most of mutual fund schemes in the sample of

58were able to satisfy investors expectations by giving excess returns over expected returns

based on both premium fo r sys temat ic ri sk and total ri sk .

Bijan Roy, et. al., conducted an empirical study on conditional performance of

Indian mutual funds. This paper uses a technique called conditional performance

evaluation on a sample of eighty-nine Indian mutual fund schemes .This paper measures the

performance of various mutual funds with both unconditional and conditional

f o r m o f C A P M , T r e y n o r - M az u y m o d e l a n d H e n r i k s o n M e r t o n

m o d e l .

T h e e f f e c t o f i n c o r p o ra t i n g l a g g e d i n f o rm a t i on v a r ia b l e s i n t o t h e e v al u a t


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i on o f mut ua l f und manager s performance is examined in the Indian context. The

results suggest that the use of conditioning lagged information variables improves the

performance of mutual fund schemes, causing alphas to sh if t towards right and reducing

the number of negative timing coefficients.

Mishra, et al., (2002) measured mutual fund performance using lower partial moment. In this

paper, measures of evaluating portfolio performance based on lower partial moment are

developed. Risk from the lower partial moment is measured by t aking in to account only

those states in which return is below a pre-specified targetratelike risk-free rate.

Kshama Fernandes (2003) evaluated index fund implementation in India. In this paper,

tracking error of index funds in India is measured. The consistency and level of tracking

errors obtained by some well-run index fund suggests that it is possible to attain low levelsof tracking error under Indian conditions. At the same time, there do seem to be

per iods where cer ta in index funds ap pear to depart from the di sci pl ine of indexation.

K. Pendaraki et al. studied construction of mutual fund portfolios, developed a multi-

c r i t e r i a m e t h o d o l o gy a n d a p p l i e d i t t o t h e G r e e k m a r k e t o f e q u i t y

m u t u a l f u n d s . T h e methodology is based on the combination of discrete and continuous

multi-criteria decision aid methods for mutual fund selection and composition. UTADIS multi-

criteria decision aid method is employed in order to develop mutual fundsperformance models.Goal programming model is employed to determine proportion of selected mutual funds in the

final portfolios


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Chapter 5Company Profile


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Canara Robeco

Canara Bank

Canara Bank is one of the most prominent commercial banks of India. Canara Bank is an

Indian bank headquartered in Bangalore, Karnataka. It was established in 1906, making it

one of the oldest banks in the country. Widely known for customer centricity, Canara Bank

was founded in 1906 by Shri Ammembal Subba Rao Pai, a great visionary and

philanthropist, at Mangalore, then a small port in Karnataka. The bank was nationalised in

1969. Today, Canara Bank occupies a premier position in the comity of Indian banks with

an unbroken record of profits since its inception.

Robeco-

Robeco was established in Rotterdam (the Netherlands) in 1929. Today the company is one

of the largest European asset management firms, with a solid pan-European presence,

prominence in the US, and offices throughout Asia. The company offers investment

products and services to institutional and private investors worldwide. It manages $255

billion USD in assets under management (as of March 31, 2013).

About Canara Robeco

Canara Robeco Asset Management Company Limited (CRAMC), the investment managers

of Canara Robeco Mutual Fund, is a joint venture between Canara Bank andRobecoof the

Netherlands, a global asset management company that manages about US$180 Billion

worldwide. The joint venture brings together Canara Bank's experience in the Indian market

and Robeco's global experience in asset management. Canara Robeco Mutual Fund is the

oldest Mutual Fund in India, established in December 1987 as Canbank Mutual Fund.

Subsequently, in 2007, Canara Bank partnered Robeco and the mutual fund was renamed as

Canara Robeco Mutual Fund. Canara Robeco AMC manages the assets of Canara Robeco

Mutual Fund by virtue of an Investment management agreement dated 16th June 1993 (as

amended from time to time).The equity shareholding of the AMC consists of Canara bank

having 51% and Robeco having 49%
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Business Module of Canara Robeco

Asset Management Company

AMC is responsible for the operational aspects of the mutual funds.

It holds an investment management agreement with trustees

AMC educate the distributors about the market events and about their products.

AMC is a SEBI registered entity

AMC of one mutual fund cannot be trustee of another mutual fund.

Canara Robeco educates the Third Party Distributors and the Core banking Channels.

ASSET MANAGEMENT COMPANY(CANARA ROBECO)

THIRD PARTY DISTRIBUTOR

BANKS

NATIONAL DISTRIBUTORS/ REGIONAL DISTRIBUTORS

INDIVIDUAL FINANCIAL ADVISORS

INSTITUTIONAL

CORE BANKING CHANNEL


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Professional managers run an AMC. The AMC conducts the necessary research &

based on it, manages the fund or portfolio. It is responsible for floating, managing,

redeeming the schemes; it receives the fees for the services rendered by it.

Core banking channel

Banks collect money through investors and sells the money to AMCs to give to the

fund managers.

For Canara Robeco the core banking channel is Canara Bank.

Canara bank collects the money and sells mutual fund products.

Canara Bank has 4750 branches all over India in 33 states.

It has 51 branches in the rural district of Bangalore and 220 in the urban district.

Third Party Distributors

These are channels other than their main bank through which they sell the Canara

Robeco Mutual Fund products.

The Third Party Distributors includes:

Banks

National distributors/ Regional Distributors

Individual Financial Advisor.

Banks

The AMC educates private, local or regional banks on information regarding Canara

Robecos mutual fund products. These banks are then expected to sell and promote

their mutual fund products on a certain management fee (such as revenues).

Banks are managing about 11875 crs of AUM in Bangalore as on 30thApril14

They are:


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Private Banks

Public Sector Undertakings (PSUs)

Multi-National Companies (MNCs)

Domestic Banks

There are 31 private and MNCs in Bangalore.

The PSUs manages about 148 crs of AUM in Bangalore as on 30thApril14

ND /RD /CD

National Distributors and Regional Distributors and Corporate Distributors sell

financial products like:

Insurance

Mutual funds

FDs

Demat a/c

Portfolio Management Services (PMS)

There are 111 National, Regional and Corporate distributors in Bangalore.

They manage about 11,963 crs of AUM as on 30thApril14

Individual Financial Advisors

They are individual entities who sell and promote mutual funds to customers.

There are 665 IFAs in Bangalore.

IFAs manage 6,922 crs of AUM as on 30thApril14


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Institutions

They are organisations which pool large sums of money and invest them in securities,

real property and other investment assets.

They have about 20613 crs of AUM.

Credit recognitions and awards:

CNBC TV 18CRISIL Mutual Fund award 2011

ICRA Mutual Fund Award 2011

NDTV Profit Mutual Fund Award 2011 (Equity Diversified)

NDTV Profit Mutual Fund Award 2011 (Equity Tax Saver)

Lipper Fund Award 2010

ICRA Mutual Fund Award 2010

CNBC TV 18CRISIL Mutual Fund of the year Award for 2009

Lipper Award 2009

Performance measures:

Equity funds: the performance of equity funds can be measured on the basis of: NAV Growth,

Total Return; Total Return with Reinvestment at NAV, Annualized Returns and Distributions,

Computing Total Return (Per Share Income and Expenses, Per Share Capital Changes, Ratios,

Shares Outstanding), the Expense Ratio, Portfolio Turnover Rate, Fund Size, Transaction Costs,

Cash Flow, Leverage.

Hybrid Funds:Funds that a combination of asset and classes such as debt ,equity and in some

cases gold in their portfolio are called hybrid funds .they may serve the needs of investors who

look for a combination of income oriented and growth oriented investments.

Monthly Income Plans

These funds invest a larger proportion of the portfolio in debt securities ,with a smaller

allocation to equity .they are pre-dominantly debt oriented hybrids , generating income from the

debt securities and adding equity to generate some benefits of long term growth to the portfolio.


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These funds also feature periodic(monthly, quarterly ,or annual) distribution of dividends

,through there is no assurance of the same.

Balanced Funds

Balanced funds are equity- oriented hybrids that invest at least 65% in equity and the rest in debt

securities to offer a cushion from the risk of an all equity portfolio. They are sought by investor

who seeks growth with some protection from volatility. They balance between equity and debt.

Asset Allocation Funds

Also called as dynamic funds, these funds invest in both equity and debt ,but can change the

proportion of equity and debt in their portfolio depending on the fund managers perception of

the market .they have the flexibility to invest up to 100% in debt or in equity ,depending on theview of the manager.

Capital Protection- Oriented Funds

These are closedend hybrids that club debt securities with a derivative instrument or equity

shares. The portfolio is structured such that a large portion of the principle amount is invested

in debt instruments .the interest that accumulates during the period of the scheme would grow to

the amount that the investor invested at the start . for example ,rs 90 may be invested for 3 years

to grow into rs 100 at maturity .A small portion of the principle amount (RS 100RS 90 in our

example ) is invested in equity or derivatives .even if the equity or derivative component return

a loss ,the investor will get back the principle invested in the debt securities

Debt fund: likewise the performance of debt funds can be measured on the basis of: Peer Group

Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs, besides NAV

Growth, Total Return and Expense Ratio.

Liquid funds: the performance of the highly volatile liquid funds can be measured on the basisof: Fund Yield, besides NAV Growth, Total Return and Expense Ratio.


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Various Products of Canara Robeco

Equity Schemes

Canara Robeco Infrastructure

Canara Robeco Equity Diversified

Canara Robeco Emerging Equities

Canara Robeco Nifty Index

Canara Robeco Equity Tax Saver

Canara Robeco F.O.R.C.E Fund

Canara Robeco Large Cap+ Fund

Hybrid schemes

Canara Robeco Balance

Canara Robeco INDIGO Fund

Canara Robeco Monthly Income Plan

Canara Robeco Yield Advantage Fund

Debt Schemes

Canara Robeco Floating Rate

Canara Robeco Liquid

Canara Robeco Treasury Advantage Fund

Canara Robeco Gilt Advantage Fund

Canara Robeco Income

Canara Robeco Gilt PGS

Canara Robeco Dynamic Bond Fund

Canara Robeco Short Term Fund

Canara Robeco Interval Scheme

Fund OF Fund

Canara Robeco Gold Saving Fund
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SCHEME DETAILS OF CANARA ROBECO

1. Canara Robeco Equity Diversified :

Category: Open Ended Equity Scheme

Scheme Objective: To generate capital appreciation by investing in equity and equity

related securities.

Avg Aum: Rs. 614.82 crs.

NAV: Direct Plan- Dividend Option- Rs. 30.56

Regular Plan- Dividend Option - Rs. 28.28

Direct Plan- Growth Option- Rs. 70.64

Regular Plan- Growth Option- Rs. 70.20

Date of allotment: September 16,2003

Asset Allocation: Equity and Equity related instruments: 85% - 100%.

Money market instruments: 0% - 15%.

Minimum Investment:

Lumpsum:

SIP/SWP/STP:

RS. 5000 in multiples of Re. 1 thereafter

For monthly frequencyRs. 1000 and multiples of re.1 thereafter

For quarterly frequencyRs. 2000 in multiples of re. 1 thereafter

Plans/ Options: Regular Plan- Growth Option

Regular Plan- Dividend Reinvestment Option/ Payout Option

Direct Plan- Growth Option

Direct Plan- Dividend Reinvestment Option/ Payout Option.

Entry Load: NIL.

Exit Load: 1% - if redeemed/switched out within 1 year from the date of

allotment,

Nil - if redeemed/switched out after 1 year from the date of

allotment.

Benchmark: S&P BSE 200


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2. Canara Robeco F.O.R.C.E Fund :


Scheme Objective: The objective of the fund is to provide long-term capital

appreciation by primarily investing in equity and equity relatedsecurities of companies in finance, Retail and Entertainment

sectors.




Institutional option- Growth Option- Rs 16.79


Regular Plan- Growth Option- Rs. 16.77Date of allotment: September 14,2009

Asset Allocation: Equity and Equity related instruments of companies in finance,

Retail and Entertainment sector: 65% - 100%. Other Equity and

equity related instruments: 0% - 35%. Domestic debt and money

market instruments: 0% - 35%.

Minimum Investment:

Lumpsum:

Subsequent Purchases:

SIP/SWP/STP:


Minimum amount of Rs. 1000 and in multiples of Re. 1 thereafter.







Entry Load: NIL.


allotment,

Nil - if redeemed/switched out after 1 year from the date of

allotment.

Benchmark: CNX nifty.


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3. CANARA ROBECO INFRASTRUCTURE :


Scheme Objective: To generate Income/capital appreciation by investing in equity andequity related instruments of companies in the infrastructure sector.






Date of allotment: December 2, 2005Asset Allocation: Equity and Equity related instruments of companies in the

infrastructure sector including derivative of such companies: 75% -

100%. Domestic debt and money market instruments: 0% - 25%.

Minimum Investment:

Lumpsum:

SIP/SWP/STP:








Entry Load: NIL.


allotment,Nil - if redeemed/switched out after 1 year from the date of

allotment.



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4. Canara Robeco Equity Tax Saver:

Category: Open Ended Equity linked Tax Saving Scheme.

Scheme Objective: ELSS seeking to provide long term capital appreciation by

predominantly investing in equities and to facilitate the subscribers

to seek tax benefits as provided under section 80 C of the income

Tax Act 1961.






Date of allotment: March 31, 1993

Asset Allocation: Equity and Equity related instruments: 80% - 100%. Money market

instruments: 0% - 25%.

Minimum Investment:

Lumpsum:

SIP/SWP/STP:








Entry Load: NIL.

Exit Load: NIL.



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5. Canara Robeco Emerging Equities:


Scheme Objective: To generate capital appreciation by primarily investing indiversified mid-cap stocks.






Date of allotment: March 11, 2005Asset Allocation: Mid & small cap equity and equity related instruments: 65%-100%.

Equ

Download - Systematic Investment Plan- SIP Project Report

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