investement planning through nj india invest pvt ltd
TRANSCRIPT
A
TPP Report
On
‘INVESTMENT AVENUE AND FINANCIAL PLANNING IN MUTUAL FUND’
For the training undergone at
Subject – TPP (IMS-703, MBA-4th year)
Under the Supervision of
Mr. Lovish Pujani
(Business manager)
Submitted to: Submitted By:
Dr. Mk Jain Amanpreet
(Director of IMS) Roll no. 36
INSTITUTE OF MANAGEMENT STUDIES
KURUKSHETRA UNIVERSITY, KURUKKSHETRA
August – Decenber 2013
1
2
DECLARATION
I, Amanpreet hereby declare that I have completed the report entitled assigned to me by
the Institute, to be submitted in the partial fulfillment of the MBA 5 Year Degree from
Kurukshetra University. Further, I declared that this is original work done by me and the
information provided in the study is authentic to the best of my knowledge and belief.
Signature
Amanpreet singh
Class 7th sem.
Roll no. 36
ACKNOWLEDGEMENT
2
3
In this project, I have made an honest and dedicated attempt to make the Project Report
so easy to understand for a person who is willing to get knowledge about the Mutual
fund as an investment avenue and fulfilling the objectives through financial
planning in mutual fund
I am deeply indebted to my esteemed teacher & our chairman Prof. M.K. JAIN,
K.U.K., because he gave me opportunity of making project report. I am also thankful to
my lecturer as well as my supervisor (Guide) Dr. Jai Kishan Chandel for their kind
support & suggestion for making project report.
Signature
Amanpreet
MBA 5 yrs 7th sem.
Roll no. 36
Contents
3
4
Chapter
No.
Title of the Chapter Page No.
1. Mutual fund Industry 6-22
1.1 Introduction
1.2 Industry profile
i. Evolution
ii. Concept
iii. Mutual fund structure
iv. Types
1.3 Players in the sector
2. NJ India Invest Pvt. Ltd 23-32
2.1 Introduction
2.2 Organization structure
2.3 Divisions
2.4 Philosophy
2.5 Financial Products And Distribution
network
3. Discussion and Analysis 33-68
3.1 Research Methodology
3.2 Mutual fund as an investment avenue
3.3 Financial Planning in mutual fund
3.4 Results of the Survey Conducted
4
5
4. SWOT Analysis, Suggestions and Conclusion 68-72
4.1 SWOT Analysis
4.2 Findings and recommendation
4.3 Conclusion
References 73
Annexure 74-76
CHAPTER: 1
MUTUAL FUNDS INDUSTRY
5
6
1.1 Introduction
Practical training imbibes an integral part of management studies. One cannot
merely depend upon the theoretical knowledge. It is to be coupled with practical
experience for it to be fruitful. Classroom lectures make the fundamental concept of
management clear and they also facilitate the learning of practical things. However class
lectures when correlated with practical training in the company has a significant role to
play in the subject in business management. To hone the managerial and administrative
skill in us -- future managers, it is imperative for us to enhance our analytical skills, have
a hands-on experience working in the industry and inculcate flexible traits of an amiable
team player. This is how we combine our classroom learning with the knowledge of real
business environment.
After liberalization Indian Economy Scene is really a buzz with activity. Lots and
lots of multinational companies are coming in with their technical expertise and proven
management concepts. Industrial activity in Indian has become a thing to watch and I
really wanted to be a part of it and it was essential for me being a management student.
I consider myself lucky to have got my summer internship project in the Indian Mutual
Fund Industry. It helped me to get a practical insight into the actual business
environment.
It is difficult to elaborate everything, which I learned during the survey however, I
have endeavored to incorporate a comprehensive picture of the details about my working
and the subsequent findings and suggestions in the following pages.
I have accumulated the desired information through personal observations, study of
documents and discussions.
A Mutual Fund is a trust that pools the savings of a number of investors who shares a
common financial goal. The money is invested by the fund manager in different types of
securities depending upon the objectives of the schemes.
Mutual Fund plays a very vital role in the growth and development of the investment
industry. Mutual Fund is the right product in which investors invest their money securely
and get more benefits as compare o other investments.
6
7
Basic aim of the project is to understand Mutual Fund as an Investment Avenue. The
Methodology used was collection using Questionnaire, financial reports of company. The
target customers were salaried, professionals and business class people. The area of
survey was restricted to people residing in Ambala.
1.2 Industry Profile
A mutual fund is a type of professionally managed collective investment vehicle that
pools money from many investors to purchase securities. A common pool of money into
which investor put their contribution. This money is to be invested according to the pre-
stated objectives of the fund. Ownership of the fund is joint or mutual amongst all in-
vestors -equivalent to the contribution made as a proportion of the overall fund Owner-
ship through holding of units at NAV
I. Evolution of Mutual Fund Industry in India
The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Reserve Bank of Government of India. The objective then
was to attract the small investors and introduce them to market investments. Since then,
the history of mutual funds in India can be broadly divided into six distinct phases.
Phase 1- 1964-87: Growth of Unit Trust of India:
In 1963, UTI was established by an Act of Parliament. As it was the only entity offering
mutual funds in India, it was a monopoly. Operationally, UTI was set up by the Reserve
Bank India, but was later de-linked from the RBI. The first scheme, and for long one of
the largest, launched by UTI was Unit Scheme 1964. Over the years, US-64 attracted the
largest number of investors in any single investment scheme. It was also at least partially
the first open-end scheme in the country.
Later in 1970s and 80s, UTI started innovating and offering different schemes to suit
the needs of different classes of investors. Unit Linked Insurance Plan (ULIP) was
launched n 1971. Six new schemes were introduced between 1981 and 1984. During
1984-87, new schemes such as Children Gift Growth fund (1986) and Mastershare (1987)
were launched. Mastershare could be termed as the first diversified equity investment
scheme in India. The first Indian offshore fund, India fund, was launched in August 1986.
7
8
During 1990s, UTI catered to the demand for income-oriented schemes by launching
Monthly Income Schemes, a somewhat unusual mutual fund product offering “assured
returns”. In absolute terms, the investible funds corpus of UTI was about Rs. 600cr in
1984, by 1987-88, assets under management of UTI had grown ten times of Rs. 6,700 cr.
Phase 2-1987-1993: Entry of Public Sector Funds:
1987 marked the entry of other public sector mutual funds. With the opening up of the
economy, many public sector banks and financial institutions were allowed to establish
mutual funds. State Bank of India established the first non-UTI mutual fund- SBI Mutual
Fund – in November 1987. This was followed by Canbank Mutual Fund, LIC Mutual
Fund. These funds helped in enlarging the investor community and the investible funds.
From 1987-88 to 1992-93, the assets under management increased from Rs. 6,700 cr. To
Rs. 47,004 cr., nearly seven times.
Table 1.1
1992-93
Amount Mobilized
(Rs.cr)
Assets Under
Management
(Rs.cr)
Mobilization as % of
Gross Domestic
Savings
UTI 11,507 38,247 5.2%
Public Sector 1,964 8,757 0.9%
Total 13,021 47,004 6.1%
During this period, investors showed a marked interest in mutual funds, allocating a
larger part of their savings to investments in the funds (5.2% n 1992, 3.1% in 1988). UTI
was still the largest segment of the industry, with about 80% market share.
Phase 3 – 1993-1996: Emergence of Private Funds:
A new era in the mutual fund industry began in 1993 with the permission granted for the
entry of private sector funds. This gave the Indian investors a broader choice of ‘fund
families’ and increasing competition to the existing public sector funds. Quite
significantly, foreign management companies were also allowed to operate mutual funds,
most of them coming into India through their joint ventures with Indian promoters. These
8
9
private funds have brought in with them the latest produce innovations, investment
management techniques and investor-servicing technology that make the Indian mutual
fund industry today a vibrant and growing financial intermediary.
During the year 1993-94, five private sector mutual funds launched their schemes
followed by six others in 1994-95. Initially, mobilization of funds by the private mutual
funds was slow. But, this segment of the fund industry began to witness much greater
investor of several fund houses. Investors in India now clearly saw the benefits of
investing through mutual funds and became discerning and selective.
Phase 4 – 1996-99: Growth and SEBI Regulation:
Since 1996, the mutual fund industry in India saw tighter regulation and higher growth. It
scaled new heights in terms of mobilization of funds and number of players. Deregulation
and liberalization of the Indian economy had introduced competition and provided
impetus to the growth of the industry. Finally, most investors, - small or large – started
showing interest in mutual funds.
Measures were taken both by SEBI to protect the investor, and by the Government of
enhance investors’ returns through tax benefits. A comprehensive set of regulations for
all mutual funds operating in India was introduced with SEBI (Mutual Fund)
Regulations, 1996. These regulations set uniform standards for all funds. The erstwhile
UTI voluntarily adopted SEBI guidelines for its new schemes. Similarly the budget of
Union Government in 199 took a big step in exempting al mutual fund dividends from
income tax in the hands of investors. Both 1996 regulations and the 1999 Budget must be
considered of historic importance, given their far-reaching impact on the fund industry.
Phase 5 – 1999 – 2004: Emergence of a large and uniform industry:
The other major development in the fund industry has been the creation of a level playing
field for all mutual funds operating in India. This happened in February 2003, when the
UTI Act was repealed. Unit Trust of India no longer has a special legal status as a trust
established by an Act of Parliament. Instead, it has also adopted the same structure as any
other fund in India – a Trust and an Asset Management Company. UTI Mutual Fund is
the present name of the erstwhile Unit Trust of India. All SEBI complaint schemes of the
erstwhile UTI are under its charge. All new schemes offered by UTI Mutual Fund are
9
10
SEBI approved. Other schemes (US 64, Assured Return Schemes) of erstwhile UTI have
been placed with a special undertaking administered by the Government of India. These
schemes are being gradually wound up. Consider the data below:
Table 1.2
GROSS FUND MOBILISTION (RS.cr)
FROM TO UTI PUBLIC
SECTOR
PRIVATE
SECTOR
TOTAL
01-April-98 31-March-
99
11,679 1,732 7,966 21,377
01-April-99 31-March-
00
13,536 4,039 42,173 59,748
01-April-00 31-March-
01
12,413 6,192 74,352 92,957
01-April-01 31-March-
02
4,643 13,613 1,46,257 1,64,523
01-April-02 31-Jan-03 5,505 22,923 2,20,551 2,48,979
01-Feb-03 31-March-
03
* 7,259* 58,435 65,694
01-April-03 31-March-
04
68,558 5,21,632 5,90,190
01-April-04 31-March-
05
1,03,246 7,36,416 8,39,662
01-April-05 31-March-
06
1,83,446 9,14,712 10,98,158
Table 1.3
ASSETS UNDER MANAGEMENT (RS.cr)
10
11
AS ON UTI PUBLIC
SECTOR
PRIVATE
SECTOR
TOTAL
31-March-99 53,320 8,292 6,860 68,472
31-March-00 76,547 11,412 25,046 113,005
31-March-01 58,017 6,840 25,730 90,587
31-March-02 51,434 8,204 40,956 100,594
31-Jan-03 44,541 12,228 65,036 121,805
31-March-03 * 23,942* 55,522 79,464*
31-March-04 34,642 1,04,992 1,39,616
31-March-05 32,113 1,17,441 1,49,554
31-March-06 50,348 1,81,514 2,31,862
11
12
*UTI was re-organized into two parts: one, the specified Undertaking; two, The UTI
Mutual Fund. In the above tables, UTI Mutual Fund’s data is included under “public
sector.”
Between 1999 and 2005, the size of the industry has doubled in terms of assets under
management which have gone from about Rs. 68,000cr to over Rs. 150,000cr. Within the
growing industry, the relative market shares of different players in terms of amount
mobilized and assets under management have also undergone changes. The other major
development in the fund industry has been the creation of a level playing field for all
mutual funds operating in India.
UTI Mutual fund is also now fully governed by SEBI with the same regulations as
for all regulations make it easier for the distributors and investors to deal with any fund
house in India. UTI Mutual Fund is still the largest player in the Indian fund industry. All
SEBI compliant schemes of the erstwhile UTI are under its charge. Other schemes (US
64, Assured Return Schemes) of erstwhile UTI have been placed with a special
undertaking administered by the government of India.
12
13
Phase 6 – From 2004 onwards: Consolidation and Growth
The industry had lately witnessed a spate of mergers and acquisitions, most recent ones
being the acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C
Mutual fund by Principal and PNB Mutual fund by Principal. At the same time more
international players continue to enter India, including Fidelity, one of the largest funds
in the world. The stage is set now for growth through consolidation and entry of new
international and private sector players. As at the end of JUNE 2012, there were 44 fund
players.
II. Concept of Mutual Fund
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is invested by the fund manager in
different types of securities depending upon the objective of the scheme. These could
13
14
range from shares to debentures to money market instruments. The income earned
through these investments and the capital appreciations realized by the scheme are shared
by its unit holders in proportion to the number of units owned by them (pro rata). 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 portfolio at a relatively low
cost. Anybody with an inventible surplus of as little as a few thousand rupees can invest
in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and
strategy
A Mutual fund is the ideal investment vehicle for today’s complex and modern financial
scenario. Markets for equity shares, bonds and other fixed income instruments, real
estate, derivatives and other assets have become mature and information driven. Price
changes in these assets are driven by global events occurring in faraway places. A typical
individual is unlikely to have the knowledge, skills, inclination and time to keep track of
events, understand their implications and act speedily. An individual also finds it difficult
to keep track of ownership of his assets, investments, brokerage dues and bank
transactions etc.
A draft offer document is to be prepared at the time of launching the fund. Typically,
it pre specifies the investment objectives of the fund, the risk associated, the costs
involved in the process and the broad rules for entry into and exit from the fund and other
areas of operation. In India, as in most countries, these sponsors need approval from a
regulator, SEBI (Securities exchange Board of India) in our case. SEBI looks at track
records of the sponsor and its financial strength in granting approval to the fund for
commencing operations.
A sponsor then hires an asset management company to invest the funds according
to the investment objective. It also hires another entity to be the custodian of the assets of
the fund and perhaps a third one to handle registry work for the unit holders (subscribers)
of the fund. In the Indian context the sponsors promote the Asset Management Company
also, in which it holds a majority stake. In many cases a sponsor can hold a 100% stake in
the Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor of the
Birla Sun Life Asset Management Company Ltd., which has floated different mutual
14
15
funds schemes and also acts as an asset manager for the funds collected under the
schemes.
Characteristics:
A mutual fund actually belongs to the investors who have pooled their funds.
A mutual fund 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 investments. The value
of the portfolio is updated every day.
The investor’s share in the fund is denominated by ‘units’. The value of the units
changes with change in the portfolio’s value, every day. The value of one unit of
investment is called the Net Asset Value or NAV.
III. Mutual Fund structure
The structure of mutual funds in India is governed by the SEBI Regulations, 1996. These
regulations make it mandatory for mutual funds to have a 3-tier structure of Sponsors-
Trustee-AMC (Asset Management Company).
Sponsor
Sponsor is the person who acting alone or in combination with another body corporate
establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the
15
16
Investment Managed and meet the eligibility criteria prescribed under the Securities and
Exchange Board of India (Mutual Funds) Regulations, 1996.
Trust
The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian
Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian
Registration Act, 1908.
Trustee
Trustee is usually a company (corporate body) or a Board of Trustees (body of
individuals). The main responsibility of the Trustee is to safeguard the interest of the unit
holders and inter-alia ensure that the AMC functions in the interest of investors and in
accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations,
1996, the provisions of the Trust Deed and the Offer Documents of the respective
Schemes. At least 2/3rd directors of the Trustee are independent directors who are not
associated with the Sponsor in any manner.
Asset Management Company (AMC)
The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund.
The AMC is required to be approved by the Securities and Exchange Board of India
(SEBI) to act as an asset management company of the Mutual Fund. At least 50% of the
directors of the AMC are independent directors who are not associated with the Sponsor
in any manner. The AMC must have a net worth of at least 10cr at all times.
Registrar and Transfer Agent
The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent
to the Mutual Fund. The Registrar processes the application form, redemption requests
and dispatches account statements to the unit holders.
Custodian
A custodian handles the investment back office of a mutual fund. Its responsibilities
include receipt and delivery of securities, collection of income, distribution of dividends,
and segregation of assets between schemes. The sponsor of a mutual fund cannot act as a
custodian to the fund. For example, Deutsche Bank is a custodian, but it cannot service
Deutsche Mutual Fund, its mutual fund arm.
Fee Structure
16
17
Custodian charges range between 0.15% -0.20% on the net value of the customer’s
holding for custodian services space is one important factor which has fixed cost
elements.
Responsibility of custodians: -
1. Receipt and delivery of securities
2. Holding of securities.
3. Collecting income
4. Holding and processing cost
5. Corporate actions etc.
Rate of return on mutual funds:-
An investor in mutual fund earns return from two sources:
1. Income from dividend paid by the mutual fund.
2. Capital gains arising out of selling the units at a price higher than the acquisition
price.
Formation and regulations:
1. Mutual funds are to be established in the form of trusts under the Indian trusts act
are to be operated by separate asset management companies (AMC s)
2. AMC’s shall have a minimum Net worth of Rs. 5cr;
3. AMC’s and Trustees of Mutual Funds are to be two separate legal entities
4. AMC or its affiliate cannot act as a manager in any other fund; mutual funds
dealing exclusively with money market instruments are to be regulated by the
Reserve Bank Of India, mutual fund dealing primarily in the capital market and
also partly money market instruments are to be regulated by the Securities
Exchange Board Of India (SEBI)
5. All schemes floated by Mutual funds are to be registered with SEBI
Depository
Indian capital markets are moving away from having physical certificates for securities,
to ownership of these securities in ‘dematerialized’ form with a Depository.
17
18
MUTUAL FUND OPERATION
IV. Types of Mutual fund
There are many types of ‘schemes’ of mutual funds available to the Indian investor.
However, these different types of schemes can be grouped into certain classification for
better understanding. From the investors’ perspective, we would follow three basic
classifications.
Firstly, schemes are usually classified in accordance with their structure – as closed-end
or open-end.
Schemes can also be grouped in terms of whether the fund collect from investors any
charges at the time of entry or exit or both.
Schemes are also be classified as being tax-exempt or non-tax-exempt.
Under each broad classification, we may them distinguish between several types of funds
(schemes) on the basis of the composition of their portfolios.
Open-end Vs. Closed-end Funds:
An open-end fund is one that sells and repurchases units at all times. When the fund sells
units, the investor buys them from the fund. When the investor redeems the units, the
fund repurchases the units from the investor. An investor can buy units or redeem units
from the fund itself at a price based on the net asset value (NAV) per unit.
Closed-end fund is fixed, as it makes a one-time sale of a fixed number of units. After
the offer closes, closed-end funds of not allow investors to buy or redeem units directly
18
19
from the funds. However, to provide the much-needed liquidity to investors, closed-end
funds a list on a stock exchange.
Load and No-load Funds:
Marketing of a new mutual fund scheme involves initial expenses. These expenses may
be recovered from the investors in different ways at different times. Three useful ways in
which a fund’s marketing expenses may be recovered from the investors are:
1. At the time of investor’s entry into the fund/scheme by deducting a specific
amount from his contribution.
2. By charging the fund/scheme with a fixed amount each year, during a specified
number of years.
3. At the time of investor’s exit from the fund/scheme with a fixed amount each
year, during a specified amount from the redemption proceeds payable to the in-
vestor.
Tax-exempt vs. Non-Tax-exempt Funds:
Generally, when a fund invests in tax-exempt securities, it is called a tax-exempt fund. In
the U.S.A., for example, municipal bonds pay interest that is tax-free. After the 1999
Union Government Budget, all of the dividend income received from any of the mutual
funds is tax-free in the hands of the distributing income to investors
Money Market/Liquid Funds:
Liquid Funds are often considered to be the lowest rung in the order of risk level. Liquid
funds invest in debt securities of a short-term nature, which generally means securities of
less than one-year maturity.
Gilt Funds:
Gilts are government securities with medium to long-term maturities, typically of over
one year (under one-year instruments being money market securities). In India, we have
Government Securities or Gilt Funds that invest in government paper called dated
securities (unlike Treasury Bills that mature in less than one year).
Debt Funds (or Income Funds):
19
20
Next in the order of risk level, we have the general category Debt Funds. Debt funds
invest in debt instruments issued not only by governments, but also by private companies,
banks and financial institutions and other entities such as infrastructure
companies/utilities.
Equity Funds:
As investors move from Debt Fund category to Equity Funds, they face increased risk.
However, there is a large variety of Equity Funds each with a slightly different risk
profile. Investors and their advisors need to sort out and select the right equity fund that
suits their risk appetite. In the following section, we have presented the types of Equity
Funds going from the highest risk level to the lowest level within this category.
Sector Funds:
Sector funds’ portfolios consist of investments in only one industry or sector of the
market such as Information Technology, Pharmaceuticals or Fast Moving Consumer
Goods. Since sector and company specify risk than diversified equity funds.
Mid-Cap or Small-Cap Equity Funds:
These funds invest in shares f companies with relatively lower market capitalization that
that of big, blue chip companies. They may thus be more volatile than other funds, as
mid-size or smaller companies’ shares are not very liquid in the markets. We can think of
these funds as a segment of specialty funds. In terms of risk characteristics, small
company funds may be aggressive-growth or just growth type. In terms of investment
style some of these funds may also be “vale investors”.
Balanced Funds:
A balanced fund is one that has a portfolio comprising debt instruments, convertible
securities, and preference and equity shares. Their assets are generally held in more or
less equal proportions between debt/money market securities and equities. By investing
in a mix of this nature, balanced funds seek to attain the objectives of income moderate
capital appreciation and preservation of capital, and are ideal for investors with a
conserve
ative and long-term orientation.
20
21
Fund of Funds:
A Fund of Funds invests in other mutual funds. Just as a normal mutual fund invest in a
portfolio of securities such as debt or equity, a fund of funds invests in a portfolio of the
units of t\other mutual fund schemes. Availability of a fund of funds to an investor helps
him select the right funds from a wide variety of schemes, offered by different asset
management companies.
It also helps the investor diversify his risk not only in terms of the types of
securities held in the portfolio but also in terms of schemes of different fund managers
and investment styles. For example, a fund of funds can invest in top performing equity
funds of different AMCs and offer the most widely diversified portfolio to the investor. It
can also invest in equity and income schemes of other AMCs simultaneously offering the
investor balanced or diversified portfolios across asset classes.
1.3 PLAYERS IN THE SECTOR
NJ INDIA INVEST is the leading company dealing in the Mutual Funds. Following are
the competitors of NJ:-
Karvy:
The Karvy Group was formed in 1983 in Hyderabad, India. Karvy ranks among the
top players in almost all the fields it operates. Karvy Computershare limited is India’s
largest registrar and transfer agents with a client base of nearly 500 blue chips
corporate, managing over 2cr accounts.Karvy Stock Brokers Limited, member of
National Stock Exchange of India and Bombay Stock Exchange ranks among the top
5 stock brokers of India.
AnandRathi:
AnandRathi is a leading full service securities firm providing the entire gamut of
financial services. The firm, founded in 1994 by Mr. AnandRathi, today has a pan
India presence as well as an international presence through offices in Dubai and
Bangkok.AnandRathi provides a breadth of financial and advisory services
including wealth management, investment banking, corporate advisory, brokerage
& distribution of equities, commodities, mutual funds and insurance
21
22
India Infoline:
India Infoline (IIL) is engaged in business of equities broking, wealth advisory
services and portfolio management services. The company was incorporated in
October 1995 as Probity Research & Services and later in April 2000 the name
was changed to India Infoline.com. Then in March 2001 the company again
changed its name to India Infoline. The company is part of India Infoline Group.
It has pan- India presence through its distribution network of 607 branches, 151
franchisees located in 346 cities. The company also has presence in Dubai, New
York and Singapore.
Edelweiss:
Edelweissis one of India's leading Financial Services Groups, with operations that
span more than forty different lines of business and subsidiaries. Our operations
straddle the entire spectrum of financial services in the wholesale and retail
market segments including Asset Management, Capital Markets, Credit, Housing
Finance and Insurance services. With a net worth of over INR 28bn, Edelweiss is
adequately capitalized to exploit the opportunities emerging from this robust
economic growth. Edelweiss employs over 2900 professionals across 297 offices
and branches spread across 144 cities of India.
Trustline:
Trustline made a humble beginning in 1989 as a proprietary stock broking
company and recently got converted into a public limited company in the name
of Trustline securities limited. With the advent of newer exchanges coming into
play in the financial market of India, Trustline groups’ foray into the commodity,
currency, and depository was but natural. Today Trustline group is into all major
areas of financial services.
India Bulls:
In middle of 1999, when e-commerce was just about starting in India, Sameer
Gehlaut and his close IIT Delhi friend Rajiv Rattan got together and bought a
defunct securities company with a NSE membership and started offering
brokerage services. A Few months later, their friend Saurabh Mittal also joined
22
23
them. By December 1999, the company embarked on its journey to build one of
the first online platforms in India for offering internet brokerage services. In
January 2000, the 3 founders incorporated India bulls Financial Services and
made it as the flagship company.
UTI Mutual Funds:
January 14, 2003 is when UTI Mutual Fund started to pave its path following the
vision of UTI Asset Management Co. Ltd. (UTIAMC), which was appointed by
UTI Trustee Co, Pvt. Ltd. for managing the schemes of UTI Mutual Fund and the
schemes transferred/migrated from the erstwhile Unit Trust of India.
DWS Investment:
DWS Investments is the mutual fund arm of Deutsche Asset Management, with
more than EUR 139 bn.1 the largest mutual fund company in its home country,
Germany; with EUR 193 bn. Aum number four of the leading retail mutual fund
companies across Europe2 and with EUR 270 bn. within the top 10 globally3.
Founded in 1956, DWS’s activities span beyond Europe.
PRUDENT:
The Prudent Insurance Brokers team is the key driving force of the company. We are
driven by intense professional pride to excel and deliver. Our team comprises of over
160 professionals from diverse backgrounds, bringing with them rich experience to
understand better our clients’ businesses and risks.
Bajaj capital
The Bajaj Capital Group is one of India’s leading Investment Advisory and Financial
Planning companies. Bajaj Capital is also SEBI-approved Category I Merchant
Bankers. Bajaj Capital offers personalized investment Advisory and Financial
Planning services to individual investors, corporate houses, institutional investors,
Non-Residents Indians (NRIs) and High Net worth Clients, among others.
BONANZA-
Bonanza is a leading Financial Services & Brokerage House. It also distributes
mutual funds of various AMCs.
23
24
CHAPTER 2
NJ INDIA INVEST
2.1 Introduction
NJ INDIAINVEST Pvt. Ltd. is one of the leading advisors and distributors of financial
products and services in India. Established in year 1994, NJ has over a decade of rich
exposure in financial investments space and portfolio advisory services. From a humble
beginning, NJ, over the years has evolved out to be a professionally managed, quality
conscious and customer focused financial / investment advisory & distribution firm. We
are headquartered in Surat, India, and have more than INR 10,000cr.plus of mutual fund
assets under advice, with a wide presence at over 104 locations in 21 states in India. The
numbers are reflections of the trust, commitment and value that NJ shares with 11 Lac
plus customer base with over 14000+ Advisors.
NJ prides in being a professionally managed, quality focused and customer centric
organization. The strength of NJ lies in the strong domain knowledge in investment
consultancy and the delivery of sustainable value to clients with support from cutting-
edge technology platform, developed in-house by NJ.
At NJ, we believe in.
Having single window, multiple solutions that are integrated for simplicity and
sapience
Making innovations, accessions, value-additions, a constant process
Providing customers with solutions for tomorrow which will keep them above the
curve, today
Technology has traditionally been NJ's key strength. Our offering on the technological
front is unmatched, vibrant, and comprehensive in nature. Our focus & commitment on
technology can be gauged from the fact that we have set-up distinct entity with a very
strong, talented work-force for the sole purpose of providing the best to NJ in terms of
technology and support. Finlogic Technologies (India) Pvt. Ltd. does all the development
& support work in-house on a continuous basis. It has successfully developed &
implemented a powerful support system for the mutual fund distribution business at NJ
24
25
with a provision for integrating the same with other investment products as well as the
financial accounting system. Today Finlogic Technologies has more than 100 employees
for its IT development.
2.2 Organization structure
The management at NJ brings together a team of people with wide experience and
knowledge in the financial service domain. The management provides direction and
guidance to the whole organization. The management has strong visions for NJ as a
globally respected company providing comprehensive services in financial sector.
The aim of the management is to bring the best to the customers in terms of
Range of products and services offered
Quality Customer Service
All the key members of the organization put in great focus on the processes & systems
under the diverse functions of business. The management also focuses on utilizing
technology as the key enabler for all the activities and to leverage the technology for
enhancing overall customer experience.
A. Management Team
Mr. Neeraj Choksi & Mr. Jignesh Desai (R) are two first generation entrepreneurs who
began the journey of 'NJ' in 1994. The promoters of the NJ Group were friends since
their college years and the bond between Mr. Neeraj & Mr. Jignesh has been instrumen-
tal in the success of NJ.
Sales and product team
Table no. 2.1
Mr. Misbah baxamusa National sales head
Mr. Huasian kanchwala Product head for investment
Mr. Jigesh desai Product head for real estate
25
26
Functional team
Table no. 2.2
Mr. Abhishek dulbey Head of strategic business development
Col.CM dixit Head of administration function
Mr. Dhawal desai Head of human resources function
Mr. Janak patel Head of audit function
Mr. Jagnesh bhatt Head of IT
Mr. Rakesh tokarka Head of compliance function
Mr. shirish patel Head of technology
Mr. Vinayak rajput Head of operations function
2.3 Our Divisions
A. NJ Fundz Network
NJ Fundz Network has been playing a pioneering role in India in providing independent
advisors/advisory firms with integrated, comprehensive and practical business solutions
for ensuring continuous growth & continuity of business. It provides the financial
advisors and the institutions that serve them with insights, strategies and tools to help
them significantly grow their businesses. How do we do it? That’s because we understand
26
27
how financial & wealth management businesses work and what is needed to manage,
monitor and grow the practice...
With the 360° Advisory platform, NJ has managed to successfully transform the business
of many advisory / distribution houses, bringing them on equal footing or even better
than the toughest competitors in the industry in the concerned domain. With a vast
experience & strong delivery mechanism, we at NJ Fundz Network, help & ensure
transformation and the exploitation of the opportunities available.
First in the Indian Mutual Fund Industry to offer a Complete Business Platform to
Advisors
With this philosophy, we try to offer all possible products, services and support which an
Advisor would need in his business.
The support functions are generally in the following areas:
Business Planning and Strategy
Training and Development – Self and of employees
Products and Service Offerings
Business Branding
Marketing
Sales and Development
Technology
Advisors Resources - Tools, Calculators, etc.
Research
Communications
With this comprehensive supporting platform, the NJ Funds Partners stays ahead of the
curve in each respect compared to other Advisors/competitors in the market.
B. NJ Realty Services
This is an integrated service model offering solutions for meeting the diverse real-estate
needs of Corporate & retail customers in transacting properties.
Finding the right property at the right value and the best buyer for a property is the crux
of any realty solution. The scope of properties embraces both commercial & residential
projects / properties. The integrated value-added services ensure that the solutions are
feasible, authentic, secure & profitable.
27
28
Today NJ Realty Services has tied up with over 40 developers with over 150 projects
across India.
2.4 Philosophy
At NJ our Service and Investing philosophy inspire and shape the thoughts, beliefs,
attitude, actions and decisions of our employees. If NJ would resemble a body, our
philosophy would be our spirit which drives our body.
A. Service Philosophy:
Our primary measure of success is customer satisfaction.
We are committed to provide our customers with continuous, long-term improvements
and value-additions to meet the needs in an exceptional way. In our efforts to consistently
deliver the best service possible to our customers, all employees of NJ will make every
effort to:
Think of the customer first, take responsibility, and make prompt service to the
customer a priority
Deliver upon the commitments & promises made on time
Anticipate, visualize, understand, meet, exceed our customer’s needs
Bring energy, passion & excellence in everything we do
Be honest and ethical, in action & attitude, and keep the customer’s interest
supreme
strengthen customer relationships by providing service in a thoughtful &
proactive manner and meet the expectations, effectively
B. Investing Philosophy:
We aim to provide Need-based solutions for long-term wealth creation
We aim to provide all customers of NJ, directly or indirectly, with true, unbiased, need-
based solutions and advices that best meets their stated & un-stated needs. In our efforts
to provide quality financial & investment advice, we believe that
Clients want need-based solutions, which fits them
Long-term wealth creation is simple and straight
Asset-Allocation is the ideal & the best way for long-term wealth creation
28
29
Educating and disclosing all the important facets which the customer needs to be
aware of, is important
The solutions must be unbiased, feasible, practical, executable, measurable and
flexible
Constant monitoring and proper after-sales service is critical to complete the on-
going process.
2.5 NJ Wealth – Financial Products Distributors Network
NJ Wealth - Financial Products Distributor Network is one of India's leading and most
successful networks of distributors in the financial services industry. Started in 2003, the
NJ Wealth seeks to reach out to the common man and extend the opportunity to create
wealth through an empowered network of financial product distributors – the NJ Wealth
Partners. The NJ Wealth family has grown steadily and today it has over 16,000 NJ
Wealth Partners, spread across 98 branches in 19 states in India with over 12 lac investors
and over INR 12,000 crores of mutual fund assets under advice. Irrespective of the
numbers though, it is trust in us which fuels the passion for creating solutions with
excellence that touch many lives, day after day.
The key offerings of the NJ Wealth Distributor platform are briefly mentioned here.
Product basket
Domestic mutual funds (all AMCs)
Capital Markets - direct equity and ETFs
Fixed Deposits of companies
PMS products (Third party & NJ)
Government/ RBI/ Infrastructure bonds
Residential & commercial properties
29
30
Partner Services
Dedicated Relationship Manager
Marketing & Sales support
Research support
Training & Education support
Dedicated Customer Care / Query management support
Technological support, including online business / 'Partners Desk' with CRM &
Employee Management modules
1) Asset Management
NJ has ventured in asset management business with NJ Advisory Services Pvt. Ltd., a
group company, launching its discretionary PMS products. At the heart of NJ Advisory
Services is the idea to provide customers with solutions that give them the freedom from
active management of investments while having an assurance that we would be doing so
in the best possible manner. The PMS products currently offered are aimed at meeting
investor's need for successful long-term wealth creation by following strategies that
control risk and optimize returns in a mutual fund portfolio. NJ Advisory Services
leverages upon with its rich experience in portfolio management with in-depth
knowledge & expertise in mutual funds. The decisions on the mutual fund portfolio also
combine results of time tested proprietary research models, extensive due-diligence of
fund houses, interactions with fund managers & internal risk controls.
Products:
Freedom Portfolio:
Objective: To stay invested in equity mutual fund schemes at all times, deliver su-
perior portfolio returns by selecting better performing schemes and encashing on
opportunities offered by markets.
30
31
Dynamic Asset Allocation Portfolio
Objective: To give better risk adjusted returns by deciding right proportion of Eq-
uity and Debt asset classes from time to time, and selecting consistently better
performing mutual fund schemes.
Key customer services:
Online Client PMS Desk with daily update reports
Reporting on monthly, quarterly & annual basis through email and hard copies
2) Real Estate
The NJ Realty venture offers an integrated service model offering end-to-end services to
various stake-holders in realty program management & execution. The idea is to
associate with stakeholders and engage actively in various stages of program
management, viz. market survey, and legal due diligence, land acquisition, planning &
execution of projects and managing sales & distribution through NJ Wealth Advisors
Network.
3) Insurance Broking
NJ Insurance Brokers Pvt. Ltd., a licensed insurance broker by IRDA, seeks to provide
customers with comprehensive solutions catering to their insurance needs. At the heart of
NJ Insurance is the strong vision for continued financial well-being for customers -
individuals and families, regardless of any circumstances. The key is to offer 'right'
advice which is unbiased and customer centric and encompasses the right risk to insure,
31
32
the right coverage, the right product and at the right time. NJ Insurance leverages from
the rich experience of NJ group in financial planning and investment management for
customers. NJ Insurance Brokers has appointed Certified Insurance Advisors (CIAs) who
work with customers in identifying, fulfilling & managing their insurance needs. NJ
offers a comprehensive basket of products both in life & non-life insurance space and
makes exhaustive use of technology to deliver great value to customers.
Product basket:
Life insurance products from leading life insurers
General insurance products, especially Health, Motor & Personal Accident, from
leading general insurers
4) Global Wealth Advisory
NJ Global Invest (Ltd.) is a new venture wherein NJ seeks to offer a Global Wealth
Advisory platform to advisors for offshore funds across the globe. The vision at Global
Wealth Advisory platform is to offer a single window for investment opportunities across
the globe to customers. The idea is to bring to customers a wide range of offshore fund
schemes (domiciled in Mauritius, Luxembourg, Dublin and other jurisdictions), through
advisors on the Global Wealth Advisory platform. NJ Global Invest seeks to provide an
offshore fund distribution platform & offshore Portfolio Advisory services under a B2B
distribution model.
5) Information Technology
32
33
NJ Technologies is a latest venture by NJ wherein we aim to provide quality technology
solutions to businesses in a wide range of domains. NJ started its journey in technology
with the start of Fin logic Technologies (India) Pvt. Ltd., a group company, in year 2000.
The idea then was to develop software applications to support the growing (financial
services) distribution business and manage the IT infrastructure. Over the years, the
captive IT team, gained strong domain expertise and skills in diverse areas and
technology domains. Today, Finlogic team boasts of over 250 employees with skills &
rich experience in product development, software testing, infrastructure management,
R&D, project management & information security.
6) Training & Development
The NJ Gurukul is a venture aimed at providing valuable training & education support to
the young, emerging talent pool in India. Started in year 2007, NJ Gurukul today offers a
very wide range of training programs across India in all major cities. NJ Gurukul is about
a vision that aspires to nurture the young talent in India and to transform them into
individuals with knowledge & skills for employment and enterprise. With special focus
on the financial advisors community. NJ Gurukul has an institutionalised, process driven
approach to training with focus on delivering uniformity in quality & content. The NJ
Gurukul has a Board of Trainers with over 35 well qualified, professional trainers
empanelled across India for delivering training programs. Within a short time, NJ
Gurukul has trained over 30,000 participants in over 50 locations across India. NJ
Gurukul is an authorised Education Provider (EP) with FPSB India to deliver training for
the prestigious Certified Financial Planner - CFPCM Certification. NJ Gurukul is also
amongst the largest trainers of Mutual Fund Distributors in India.
Key Training Programs:
33
34
Mutual Fund Distributors Certification by NISM for prospective NJ Wealth Advi-
sors
Certified Financial Planner (CFPCM) Certification by FPSB India
CHAPTER 3
DISCUSSION AND ANALYSIS
3.1 Research Methodology
In common words research is known as a search for knowledge. Research is also known
as a movement, a movement from the known to the unknown. According to Redman and
Mory, “It is a systematized effort to gain new knowledge.”
It is said, "A PROBLEM WELL DEFINED IS HALF SOLVED". The step is to define
the project under study and deciding the research objective.
Scope of study
A big boom has been witnessed in mutual fund industry in recent times. A large number
of new players have entered the market and trying to gain market share in this rapidly
improving market. The research was carried on in Ambala. I had been sent at one of the
branch of NJ INDIA INVEST in Ambala where I completed my project work. I surveyed
on my project topic “Investment avenue and Financial planning in mutual fund” on
the visiting customers and distributors of NJ INDIA and advisors office. The study will
help to know the preferences of the customers, which company, portfolio, mode
of investment, and option for getting return and so on they prefer. This project report may
help the company to make further planning and strategy.
Objective of study
The project’s idea is to project Mutual Fund as a better avenue for investment on a
long-term or short-term basis. Mutual Fund is a productive package for a lay-investor
with limited finances, this project creates an awareness that the Mutual Fund is a
worthy investment practice. Mutual Fund is a globally proven instrument. Mutual
Funds are ”Unit Trust” as it is called in some parts of the world has a long and
34
35
successful history, of late Mutual Funds have become a hot favorite of millions of
people all over the world.
The driving force of Mutual Funds is the ‘safety of the principal’ guaranteed, plus the
added advantage of capital appreciation together with the income earned in the form of
interest or dividend. The various schemes of Mutual Funds provide the investor with a
wide range of investment options according to his risk bearing capacities and interest
besides; they also give handy return to the investor. Mutual Funds offers an investor to
invest even a small amount of money, each Mutual Fund has a defined investment
objective and strategy. Mutual Funds schemes are managed by respective asset
managed companies sponsored by financial institutions, banks, private companies or
international firms. A Mutual Fund is the ideal investment vehicle for today’s complex
and modern financial scenario.
A. Research objectives
. Primary:
To know investor’s behavior regarding mutual fund as an investment avenue.
Secondary
To identify the objectives of the investors for investing in a mutual fund.
To find out earning of mutual fund advisor and compare with other financial
advisors
To identify the investment patterns of investors.
To find out which scheme is better according to investors.
To study investors’ perceptions about level of satisfaction while investing in
mutual funds.
B. Research plan
Data source
We have used primary data source to collect the data regarding investors’ behavior for
mutual fund as an investment avenue. The survey was conducted across Ambala.
Research instruments
35
36
Questionnaire, company websites, reports & past researches were the instrument of
collecting data.
4.4 Mutual Fund As An Investment Avenue
4.4.1 Types
There are many types of ‘schemes’ of mutual funds available to the Indian investor.
However, these different types of schemes can be grouped into certain classification for
better understanding. From the investors’ perspective, we would follow three basic
classifications.
Firstly, schemes are usually classified in accordance with their structure – as closed-end
or open-end.
schemes are also be classified as being tax-exempt or non-tax-exempt, depending on
whether they invest in securities that give tax-exempt returns or not. We do not use this
36
37
classification in India. Schemes are classified as also load on funds.Under each broad
classification, we may them distinguish between several types of funds (schemes) on the
basis of the composition of their portfolios.
Open-end Vs. Closed-end Funds:
An open-end fund is one that sells and repurchases units at all times. When the fund sells
units, the investor buys them from the fund. When the investor redeems the units, the
fund repurchases the units from the investor. An investor can buy units or redeem units
from the fund itself at a price based on the net asset value (NAV) per unit. NAV per unit
is obtained by dividing the amount of the market value of the fund’s assets (plus accrued
income minus the fund’s liabilities) by the number of units outstanding. The number of
units outstanding goes up or down every time the fund sells new units or repurchases
existing units. In other words, the ‘unit capital’ of an open-end mutual fund is not fixed
but variable. When sale of units exceeds repurchase, the fund increases in size. When
repurchase exceeds sale, the fund shrinks.
In practice, an open-end fund is not obliged to keep selling new units at all times, though
it has the obligation to repurchase units tendered by the investor.
Unlike an open-end fund, the ‘unit capital’ of a closed-end fund is fixed, as it makes a
one-time sale of a fixed number of units. After the offer closes, closed-end funds of not
allow investors to buy or redeem units directly from the funds. However, to provide the
much-needed liquidity to investors, closed-end funds a list on a stock exchange. Trading
through a stock exchange enables investors to buy or sell units of a closed-end mutual
fund from each other, through a stockbroker, in the same fashion as buying or on
investors’ perceptions about the fund’s future performance and other market factors
affecting the dement for or supply of the fund’s units.
Load and No-load Funds: Marketing of a new mutual fund scheme involves initial
expenses. These expenses may be recovered from the investors in different ways at
different times.
Three useful ways in which a fund’s marketing expenses may be recovered from the
investors are:
37
38
At the time of investor’s entry into the fund/scheme by deducting a specific amount
from his contribution.
By charging the fund/scheme with a fixed amount each year, during a specified num-
ber of years.
At the time of investor’s exit from the fund/scheme with a fixed amount each year,
during a specified amount from the redemption proceeds payable to the investor.
These charges imposed on the investors to cover distribution/sales/marketing expenses
are often called “loads.” The load charged to the investor at the time of his entry into a
scheme is called a “front-end load or entry load”. This is the first case above. The load
amount charged to the scheme over a period of time is called a “deferred load”. This is
the second case above. The load that the investor pays at the time of his exist is called
“back-end load or exit load”. This is the third case above some funds may also charge
different amounts of loads to the investors, depending upon how many years the investor
has stayed with the fund; the longer the investor stays with the fund, less the mount of
“exit load” he is charged. This is called “contingent deferred sales charge”.
When an investor buys units from the fund, the front-end load amount is deducted from
the contribution/purchase amount paid by him to the fund. As this amount is meant to
cover distribution/sales/marketing expenses only the remaining part of his contribution is
available at the disposal of the fund for making investments. Similarly, exit loads are
subtracted from the redemption proceeds before they are paid out of the load may not be
apparent to the investor, as the scheme’s NAV would reflect the net amount after the
deferred load.
Funds that charges front-end, back-end or deferred loads are called load funds. Funds that
make no such charges or loads for sales expenses are called no-load funds.
In India, SEBI has defined a “load” as the one-time fee payable by the investor to allow
the fund to meet initial issue expenses including brokers’/agents’ distributors’
commissions, advertising and marketing expenses. Expenses such as SEBI filing fees, or
printing of offer documents and other forms, or even bank charges related to new issue of
a scheme would be considered initial issue expenses. Funds that charge a front-end load
would be ‘load funds’ as per SEBI definition.
38
39
The reason for this slightly different definition of a load by SEBI is to be found in
the nature of its regulations. Front-end load, or load as defined by SEBI, is meant to
cover the marketing expenses associated with the first issue of a scheme. Other expenses
are defined as “recurring expenses” rather than as “loads”. SEBI regulations allow AMCs
to recover loads from the investors for the purpose of paying for the initial issue
expenses. Subject however to a limit on the maximum amount that can be charged by the
AMC. This limit currently stands at 6%, meaning that initial issue expenses should not
exceed 6% of the initial corpus mobilized during the initial offer period. Similarly, SEBI
has also imposed a limit on the maximum “recurring expenses” that can be charged to a
scheme. Thus, the AMC can charge a scheme 2.5% of the average net assets of the
scheme as recurring expenses, if the net assets do not exceed Rs. 100cr, 2.25% on the
next 300cr, 2.00% on the next 300cr and 1.75% over Rs. 700cr. If the AMC had absorbed
the initial issue expenses, it can charge an additional 1% of net assets as recurring
expenses. In case of closed End Scheme these percentage shall be lesser by at least
0.25%.
A load fund’s declared NAV does not include the loads. Hence, a new investor
must add any front-end load amount per unit to the NAV per unit to calculate his
purchase price. An outgoing investor needs to deduct the amount of any back-end load
per unit from his sale price per unit to get to know the net sale proceeds he would receive.
As an example,
If an open-end fund’s NAV per unit is Rs. 11, with a front-load of 2%,
The price at which an investor can buy a unit is Rs. 11.22.
Expressed another way, an investment of Rs. 100 would not buy 100/11=9.09 units, but
only 100-2=98/11 = 8.9 units.
If the redemption price is Rs. 10.70 with a back-end load of 2%,
The exit load charged by the refund amounts to Re. 0.21
So net sale proceeds will be 10.70-21 =10.49.
Expressed another way, sale of 50 units would not fetch
50*10.70=Rs. 535, but only 50*10.49=Rs. 524.5
From the investors’ perspective, it is important to note that loads are not charged only by
open-end funds; even a closed-end fund can charge a load to cover the initial issue
39
40
expenses. It is also important to note that there are other expenses such as the fund
manager’s fees, which are charges to the investor’s objective is to get the benefit of
compounding his initial investment by reinvesting and holding his investment for a very
long-term, then, a no-front-load fund is preferable. The number of units allotted to an
investor is based on the purchase price offered to him. In a no-front-load fund preferable.
The number of units allotted to an investor is based on the purchase price offered to him.
In a no-front-end load fund, the NAV based purchase price offered to the investor is same
as the Fund NAV per unit, there being no deduction from the amount paid by him Rs.
100 would buy 10 units in a scheme with NAV of Rs. 10. When there is front-end load,
the units allotted to the investor get reduced by the load amount Rs. 100 invested in a
scheme with Rs. 20 NAV and a front-end load of Re. 1 will mean Rs. 99 invested in 9.9
units instead of 10 units. Hence, the amount invested (number of units allotted) is higher
in a no front-end load fund. When returns are compounded over many years, this higher
initial base makes a significant difference to the returns on investment.
Some funds charge only an entry load and some only an exit loads. Such funds may
be termed as partial load funds. Sometimes, a fund may defer charging the load to a new
scheme over a specified number of future years. Some funds in India do not charge the
schemes with initial issue expenses. These are borne by the Asset Management Company
or the sponsors. Here, the entire amount paid in by the investor gets invested without
entry load deduction. At the same time, some of these no-front-load funds may load fund.
Note that a no-load fund only mans a fund that does not charge marketing expenses. All
funds still charge the schemes for management fees and other recurring expenses; it is
only that an investor in a no-load fund enters or exits at the net NAV of the fund,
calculated after accounting for these expenses, but without paying any further marketing
expenses from the NAV.
Table no. 3.1
Schemes Min. amt Exit laod
Income schemes
5000Axis income fund Upto 12 month 1%
Birla sun life plus Upto 365 days 1%
40
41
Dynamic bond fund
5000Axis dynamic bond fund Upto 6 month 1%
Hsbc flexi debt fund Nil
ELSS
500 Nil
Nil
HSBC tax saver
IDFC tax saver
Tax-exempt vs. Non-Tax-exempt Funds:
Generally, when a fund invests in tax-exempt securities, it is called a tax-exempt fund
After the 1999 Union Government Budget, all of the dividend income received from any
of the mutual funds is tax-free in the hands of the distributing income to investors. In
other words, open-end equity oriented mutual fund schemes are tax-exempt investment
avenues, while other funds are taxable for distributable income.
For the Indian mutual fund investor, both the dividends and long term capital gains from
their fund investments are currently tax-free. However, any short term capital gains
arising out of repurchase of fund units (held for a period of less than 12 months) are
taxable. Further, after the 2005 Union Budget, repurchase transaction under equity
oriented funds/schemes has been subjected to a Securities Transaction Tax (STT). Tax
implication on dividend received by unit holder
(Table no. 3.2)
Individual/HUF Domestic company NRI
Dividend
Equity oriented
schemes
Nil Nil Nil
Debt oriented schemes Nil Nil Nil
Tax on distributed income (payable by the schemes)
Equity oriented
schemes
Nil Nil Nil
Money market 25%
+10%surcharge+3%cess
30%+10%surcharge+3%cess 25%
+10%surcharge+3%cess
Debt schemes 25%
+10%surcharge+3%cess
30%+10%surcharge+3%cess 25%
+10%surcharge+3%cess
41
42
Infrastructure debt
schems
25%
+10%surcharge+3%cess
30%+10%surcharge+3%cess 5+10%+3%
Capital gain taxation
Long term capital gains
Equity oriented
schemes
Nil Nil Nil
Other than equity 10% with or 20%without 10% with or 20%without 10% with or 20%without
Without index. 10% 10% 10%
With index 20% 20% 20%
Short term capital gain
Equity oriented 15% 15% 15%
Other than equity 30% 30% 30%
Money Market/Liquid Funds:
Liquid Funds are often considered to be the lowest rung in the order of risk level. Liquid
funds invest in debt securities of a short-term nature, which generally means securities of
less than one-year maturity. The typical, short-term interest-bearing instruments these
funds invest in include Treasury Bills issued by governments, Certificates of Deposit
issued by banks and Commercial paper issue by companies.
The major strengths of money market or liquid funds are liquidity and safety of the
principal that the investors can normally expect from short-term investments. Though
interest rate risk is present, the impact is low as the investment instrument’ maturities are
short.
Table no 3.3
Schemes Annualized returns% Rank Quartile
(7days)
Quartile
(15days)
Quartile
(30days)
Quart
ile
(90da
ys)
7D 15D 30D 90D 7D 15D 30D 90D
Axis liquid
fund
8.25 8.66 8.12 8.45 16 5 13 21 2 1 1 2
Birla sun life
cash plus
6.33 7.79 7.72 8.40 29 26 24 26 3 2 2 2
42
43
Gilt Funds:
Gilts are government securities with medium to long-term maturities, typically of over
one year (under one-year instruments being money market securities). In India, we have
Government Securities or Gilt Funds that invest in government paper called dated
securities (unlike Treasury Bills that mature in less than one year). Since the issuer is the
Government/s of India/States, these funds have little risk of default and hence offer better
protection of principal. However, Gilt securities, like all debt securities, face interest rate
risk. Debt securities’ prices fall when interest rate levels increase (and vice versa).
Investors have to understand the potential changes in NAVs of gilt funds on account of
changes in interest rates in the economy.
Table no. 3.4
Schemes Annualized returns% Rank Quartile
(90days)
Quartile
(180days)
Quartile
(1year)
Qu
arti
le
(3y
ear
)
90D 180D 1y 3y 90D 180D 1y 3y
Birla sun life 6.82 7.05 7.58 7.16 14 15 14 8 4 4 4 3
Sahara gilt 7.25 7.26 7.64 7.19 13 14 13 7 4 4 4 2
HDFC gilt
fund
13.45 11.02 10.35 7.77 4 5 4 4 2 2 2 2
Debt Funds (or Income Funds):
Next in the order of risk level, we have the general category Debt Funds. Debt funds
invest in debt instruments issued not only by governments, but also by private companies,
banks and financial institutions and other entities such as infrastructure
companies/utilities. By investing in debt, these funds target low risk and stable income
for the investor as their key objectives. However, as compared to the money
market/liquid funds, they do have a higher price fluctuation risk, since they invest in
43
44
longer-term securities. Similarly, as compared to Gild Funds, general debt funds do have
a higher risk of default by their borrowers.
Debt funds are largely considered as Income funds as they invest primarily in fixed
income generating debt instruments. They do not target capital appreciation but look for
current income, and therefore distribute a substantial part of their surplus to investors.
Income funds that target high returns can fact more risks. Even within the broad category
of debt investment, different investment objectives can be set. Each would result in a
different risk profile. Let us Debt Funds in this light.
Table no. 3.4
Schemes Annualized returns% Rank Quartile
(180days)
Quartile
(1year)
Quartile
(3year)
Qua
rtile
(5ye
ar)
180D 1y 3y 5y 180d 1y 3y 5y
HDFC income
fund
11.29 11.77 8.47 9.30 19 15 18 12 3 2 3 2
ING income
fund
12.92 11.93 8.01 8.87 6 13 27 16 1 2 4 3
Equity Funds:
As investors move from Debt Fund category to Equity Funds, they face increased risk.
However, there is a large variety of Equity Funds each with a slightly different risk
profile. Investors and their advisors need to sort out and select the right equity fund that
suits their risk appetite. In the following section, we have presented the types of Equity
Funds going from the highest risk level to the lowest level within this category.
Before we look at the types of equity fund in terms of their risk, we must
understand where the risks of equity funds come from and how they are different from
debt funds. Equity funds invest a major portion of their corpus in equity shares issued by
companies acquired directly in initial public offerings or through level, at the industry or
sector level and at the company-specific level. Equity funds’ Net Asset values fluctuate
with all these price movements. These price movements are caused by several External
factors-political social as well as economic. Hence, Equity Funds are generally
considered at the higher end of the risk spectrum among all funds available in the market.
44
45
On the other hand, unlike debt instruments that offer fixed amounts of repayments,
equities can appreciate in value in line with the issuer’s earnings potential, and so offer
the greatest potential for growth in capital.
Growth Funds:
Growth funds invest in companies whose earnings are expected to rise at rise at an above
average rate. There companies may be operating in sectors like technology considered
having a growth potential, but not entirely unproven and speculative. The primary
objective of Growth Funds is capital appreciation over a three to five year span. Growth
funds are therefore less volatile than funds that target aggressive growth.
Table no. 3.5
Schemes Annualized returns% Rank Quartile
(1year)
Quartile
(3year)
Quartile
(5year)
Quarti
le
(7year
)
1y 3y 5y 7y 1y 3y 5y 7y
Axis equity fund
–Gr
19.90 5.67 N.A N.A 4 27 - - 1 1 - -
Hsbc progressive
growth fund
-15.2 -
12.15
-
5.87
-
1.23
153 151 134 10
7
4 4 4 4
Sector Funds:
Sector funds’ portfolios consist of investments in only one industry or sector of the
market such as Information Technology, Pharmaceuticals or Fast Moving Consumer
Goods. Since sector and company specify risk than diversified equity funds.
Table no. 3.6
Sector
specificSchemes
Schemes name CAGR returns% Rank Sharp
ratio180D 1y 3y 5y 180D 1y 3y 5y
Technology funds Franklin
infotech fund
8.45 6.35 5.95 11.28 2 5 3 2 0.013
Pharma Reliance
pharma fund
0.33 19.68 9.42 26.53 3 3 2 1 0.079
FMCG ICICI
PRUDENTIAL
4.11 19.38 9.42 26.53 2 2 2 2 0.074
45
46
FMCG fund
Banking UTI banking
sector
-
11.43
8.47 5.91 19.41 3 4 4 2 0.020
Foreign Securities Funds:
These funds invest in equities in one or more foreign countries thereby achieving
diversification across the country’ borders. However, they also have additional risks-such
as the foreign exchange rate risk – and their performance depends on the economic
conditions of the countries they invest in. Foreign Securities Equity funds may invest in a
single country (hence riskier) or many countries (hence more diversified).
Table no. 3.7
Schemes Annualized returns% Rank Sharp ratio
90D 180D 1y 3y 90D 180D 1y 3y
Birla sun life
international
equity fund
13.69 24.17 17.56 20.18 2 1 2 2 0.091
Franklin
templeton asian
equity fund
2.16 13.63 9.78 11.12 2 2 1 1 0.057
Mid-Cap or Small-Cap Equity Funds:
These funds invest in shares of companies with relatively lower market capitalization that
that of big, blue chip companies. They may thus be more volatile than other funds, as
mid-size or smaller companies’ shares are not very liquid in the markets. We can think of
these funds as a segment of specialty funds. In terms of risk characteristics, small
company funds may be aggressive-growth or just growth type. In terms of investment
style some of these funds may also be “vale investors”.
Table no. 3.8
Schemes Annualized returns% Rank Quartile
1year
Quartile
3year
Quartile
(5year)
Quartile
(7year)1y 3y 5y 7y 1y 3 5y 7y
46
47
y
Axis mid cap
fund
14.69 N.A N.A N.A 6 - - - 1 - - -
ING midcap
fund
3.71 0.13 6.68 6.06 31 2
7
31 24 3 3 4 4
Sahara star value -
16.64
-
8.17
N.A N.A 45 4
1
- - 4 4 - -
Diversified Equity Funds:
A fund that seeks to invest only in equities, except for a very small portion in liquid
money market securities, but is not focused on anyone or few sectors or shares, may be
termed a diversified equity fund. While exposed to all equity price risks, diversified
equity funds seek to reduce the sector or stock specific risks through diversification. They
have exposure to the equity market risk. Such general purpose diversified funds are
clearly at a lower risk level than growth funds.
Table no 3.9
Schemes CAGR returns% Rank Quartile
(1year)
Quartile
(3years)
Quartile
(5years)
Quartile
(7years)1y 3y 5y 7y 1y 3y 5y 7y
Religare invesco
equity fund
15.48 5.00 12.39 N.A 14 32 34 - 1 1 1 -
Sahara star value
fund
-16.6 -8.1 N.A N.A 156 14
6
- - 4 4 - -
Equity Linked Savings Schemes
In India, investors have been give tax concessions to encourage them to invest in equity
markets through these special schemes. Investment in these schemes entitles the investor
to claim an income tax rebate, but usually has a lock-in period. As the name suggests,
Invest and accordingly judge the level of risk involved. Generally, such funds would be
in the Diversified Equity Fund category.
Table no. 3.10
47
48
Schemes Annualized returns% Rank Quartile
(1year)
Quartile
(3years)
Quartile
(5years)
Quartile
(7years)1y 3y 5y 7y 1y 3
y
5y 7y
Axis long term
equity fund
15.88 9.51 N.A N.A 1 1 - - 1 1 - -
Sahara tax gain
fund
0.47 0.99 12.60 11.84 31 2
3
6 5 4 3 1 1
Index Funds:
An index fund tracks the performance of a specific stock market index. The objective is
to match the performance of the stock market by tracking an index that represents the
overall market. The fund invests in shares that constitute the index and in the same
proportions the index.
Table no. 3.11
NSE based index funds
Schemes CAGR returns% Rank Quartile
(180days)
Quartile
(1year)
Quartile
(2years)
Quartile
(3years)180d 1y 2y 3y 180d 1
y
2y 3y
Birla sun life
index funds
-1.9 10.01 1.36 2.92 10 1
1
11 10 4 4 4 4
UTI nifty index
funds
-1.8 10.98 1.98 3.62 9 3 6 6 4 2 3 3
BSE based index funds
Schemes CAGR returns% Rank Quartile
(180days)
Quartile
(1year)
Quartile
(2years)
Quartile
(3years)180d 1y 2y 3y 180d 1y 2y 3y
HDFC index
sensex plans
-0.4 11.93 2.1
9
3.76 4 4 6 3 3 3 4 2
TATA index
fund
-0.8 11.18 1.7
6
3.45 6 6 7 5 4 4 4 4
Balanced Funds:
48
49
A balanced fund is one that has a portfolio comprising debt instruments, convertible
securities, and preference and equity shares. Their assets are generally held in more or
less equal proportions between debt/money market securities and equities. By investing
in a mix of this nature, balanced funds seek to attain the objectives of income moderate
capital appreciation and preservation of capital, and are ideal for investors with a
conservative and long-term orientation. Table no 3.12
Schemes Annualized returns% Rank Quartile
(180days)
Quartile
(1year)
Quartile
(3years)
Quartile
(5years)180d 1y 3y 5y 180d 1y 3
y
5y
DSP blackrock
balance fund
-8.2 4.53 2.39 9.63 17 16 1
6
11 4 4 4 3
LIC Nomura
balance fund
plan
2.06 12.78 5.17 6.35 1 4 8 16 1 1 2 4
Growth-and-Income funds:
Unlike income-focused or growth-focused funds, these funds seek to strike a balance
between capital appreciator and income for the investor. Their portfolios are a mix
between companies with good dividend paying records and those with potential for
capital appreciation. There funds would be less risky than pure growth funds, though
more risky than income funds. Table no. 3.13
Schemes Annualized returns% Rank Quartile
(180days)
Quartile
(1year)
Quartile
(3years)
Quartile
(5years)180d 1y 3y 5y 180
d
1y 3
y
5y
Axis income
fund-Gr
10.75 11.10 N.A N.A 21 20 - - 3 3 - -
Birla sunlife
income plus-Gr
14.52 13.67 9.37 9.97 1 3 5 4 1 1 1 1
Commodity Funds:
While all of the debt/equity/liquid funds invest in financial assets, the mutual fund
vehicle is suited for investment in any other –for example-physical assets. Commodity
49
50
funds specialize in investing in different commodities directly or through shares of
commodity companies or through commodity futures group such as edible oils or grains
while diversified commodity funds will spread their assets over many commodities.
A most common example of commodity funds is the so-called Precious Metals funds.
Gold Funds invest in gold, gold futures or shares of gold mines. Other precious metals
funds such as Platinum or silver are also available in other countries. In India, the Union
Finance Minister recently announced a gold linked unit scheme like a gold fund. These
schemes hold a good potential, given the large public holding and interest in gold.
Similarly, a large number of commodity futures contracts are now available for trading
on commodity exchanges, making it possible to launch commodity funds. Table no. 3.14
Schemes Annualized returns% Rank Quartile
(30days)
Quartile
(90days)
Quartile
(180days)
Quartile
(1year)30D 90D 180d 1y 30D 90
D
180d 1y
Axis gold
fund
-7.1 -
15.88
-
19.68
-
16.84
6 10 10 10 3 4 4 4
SBI gold
fund
-
6.51
-
14.77
-
17.90
-
15.11
2 4 3 5 1 2 2 2
4.4.2 Significance Of Various Types Of Funds
In this section, we have developed an understanding of various mutual fund
classifications and types. It must be appreciated that no specific class or type is
universally accepted as the best option. Each type of funds comes with its pros and cons
and a unique risk-return relationship. It is up to the investor to decide the type that best
suits his requirements and matches his objectives...
50
51
A. Advantages and Disadvantages of Mutual fund
Advantages of mutual fund:
Mutual Funds offer several benefits to an investor that are unmatched by the other
investment options. Last six years have been the most turbulent as well as exiting ones
for the industry. New players have come in, while others have decided to close shop by
either selling off or merging with others. Product innovation is now passé with the game
shifting to performance delivery in fund management as well as service. Those directly
associated with the fund management industry like distributors, registrars and transfer
agents, and even the regulators have become more mature and responsible.
1. Affordability: Small investors with low investment fund are unable to invest in
high-grade or blue chip stocks. An investor through Mutual Funds can be
benefited from a portfolio including of high priced stock.
2. Diversification: Investors investment is spread across different securities
(stocks, bonds, money market, real estate, fixed deposits etc.) and different
sectors (auto, textile, IT etc.).
3. Variety: Mutual funds offer a tremendous variety of schemes. This variety is
beneficial in two ways: first, it offers different types of schemes to investors.
51
Affordability Diversification
Regulations
VarietyTax Benefits
Professional Management
52
4. Professional Management: Mutual Funds employ the services of experienced
and skilled professionals and dedicated investment research team. The whole
team analyses the performance and balance sheet of companies and selects them
to achieve the objectives of the scheme.
5. Tax Benefits: Depending on the scheme of mutual funds, tax shelter is also
available. As per the Union Budget-99, income earned through dividends from
mutual funds is 100% tax free. Under ELSS of open-ended equity-oriented funds
an exemption is provided up to Rs. 100,000/- under section 80C.
6. Regulation: All Mutual Funds are registered with SEBI and they function within
the provisions of strict regulations designed to protect the interests of investors.
Disadvantages of mutual fund:
No control over cost:
Since investors do not directly monitor the fund’s operations, they cannot control
the costs effectively. Regulators therefore usually limit the expenses of mutual
funds.
No tailor-made portfolio:
Mutual fund portfolios are created and marketed by AMCs, into which investors
invest. They cannot made tailor made portfolio.
Managing a portfolio of funds:
As the number of funds increase, in order to tailor a portfolio for himself, an
investor may be holding portfolio funds, with the costs of monitoring them and
using hem, being incurred by him.
Delay in Redemption:
The redemption of the funds though has liquidity in 24-hours to 3 days takes
formal application as well as needs time for redemption. This becomes
cumbersome for the investors.
Non-availability of loans: Mutual funds are not accepted as security against loan.
The investor cannot deposit the mutual funds against taking any kind of bank
loans though they may be his assets.
B. Risk Involved In Mutual Fund:
52
53
THE RISK RETURN TRADE OFF
The most important relationship to understand is the risk-return trade-off. Higher the risk
greater the returns/loss and lower the risk lesser the returns/loss. Hence it is up to you, the
investor to decide how much risk you are willing to take. In order to do this you must
first be aware of the different types of risks involved with your investment decision.
MARKET RISK:
Sometimes prices and yields of all securities rise and fall. Broad outside influences
affecting the market in general lead to this. This is true, may it be big corporations or
smaller mid-sized companies. This is known as Market Risk. A Systematic Investment
Plan (“SIP”) that works on the concept of Rupee Cost Averaging (“RCA”)might help
mitigate this risk
CREDIT RISK:
The debt servicing ability (may it be interest payments or repayment of principal) of a
company through its cash flows determines the Credit Risk faced by you. This credit risk
is measured by independent rating agencies like CRISIL who rate companies and their
paper. An ‘AAA’ rating is considered the safest whereas a ‘D’ rating is considered poor
credit quality. A well-diversified portfolio might help mitigate this risk.
INFLATION RISK:
Things you hear people talk about: “Rs. 100 today is worth more than Rs. 100
tomorrow.” “Remember the time when a bus ride cost 50 paisa?”
“Mehangai Ka Jamana Hai.”
The root cause is Inflation. Inflation is the loss of purchasing power over time. A lot of
times people make conservative investment decisions to protect their capital but end up
with a sum of money that can buy less than what the principal could at the time of the
investment.
INTEREST RATE RISK:
In a free market economy interest rates are difficult if not impossible to predict. Changes
in interest rates affect the prices of bonds as well as equities. If interest rates raise the
prices of bonds fall and vice versa. Equity might be negatively affected as well in a rising
interest rate environment. A well-diversified portfolio might help mitigate this risk
POLITICAL/GOVERNMENT POLICY RISK:
53
54
Changes in government policy and political decision can change the investment
environment. They can create a favorable environment for investment or vice versa.
LIQUIDITY RISK:
Liquidity risk arises when it becomes difficult to sell the securities that one has
purchased. Liquidity Risk can be partly mitigated by diversification, staggering of
maturities as well as internal risk controls that lean towards purchase of liquid securities.
C. Factors Affecting Mutual Fund
1. Governmental Influences
Mutual fund business is a highly regulated business throughout the world as it seeks to
ensure that quality and fairly priced schemes are available. Governmental intervention
thus in mutual fund market usually is most needed to ensure that insurers are reliable.
And in the developing countries the additional goal may be promotion of domestic
mutual fund industry and ensuring the national mutual fund industry contributes to
overall economic development..
The ideology of government plays an important role in mutual fund industry also. For
example in the past during 1991, the P .V Narsimha Rao government strongly believed in
liberalization also liberalized the mutual fund sector which helped to allow private
players in the industry from 1993 and enhancing joint ventures with foreign companies..
2. Taxation Policy
Social equity being one of the motives behind tax collections, government gives certain
exemptions from such levying. One such exemption is deduction incurred by taxpayers
towards investment in mutual fund coverage. Similarly, capital invested in infrastructure
bonds etc. is offered with certain concession under tax laws. The central idea behind such
exemptions is that the capitals so allocated by individuals reduce the ultimate burden on
the public infrastructure or helps in creating such infrastructural facilities.
3. Foreign Trade Regulations
With the vast potential for mutual fund in India due its large population in the country
many foreign companies are ready to enter into the Indian market. But companies can be
permitted in India through joint ventures with an Indian partner as well as come
separately and the foreign equity shall be restricted to only 25%. Another statement also
54
55
tells that Indian subsidiaries of foreign companies shall not be allowed to participate in
banking sector unless they entered in to joint ventures with the Indian partners. But at
present the mutual fund regulator is in favor of hike in FDI cap from 25% to 49%, and is
finalizing a report that will be submitted to the government for a comprehensive
legislation for the industry. The security exchange board of India and association of
mutual fund India have been advocating a hike in FDI limit for mutual fund companies so
that the foreign partners can infuse additional funds in these companies to sustain their
growth. The government will need to amend the separate mutual fund Act for FDI capital
as well as domestic company as this is the statutory provision unlike sectors like civil
aviation and telecom, which have come through notification.
4. National Income
The relative importance of the mutual fund Market within a country will also be
dependent upon economic development. With greater rates of economic growth,
consumption of investment should increase as a result of increased income, and an
increased stock of assets requiring mutual fund. Furthermore, the development of mutual
fund is likely to facilitate greater economic growth, implying that economic growth may
be endogenous. Consistent with these arguments, studies find that the level of financial
development and economic development are positively related to the level of mutual fund
across emerging markets.
5. Consumptions and Savings
The gross capital formation of any country is important for indication of its growth in the
future years. It is quite necessary to set up the rate of capital formation so that a large
stock of machines, tools and equipment are accumulated in a country. Experience of
development in other countries suggests that a high rate of capital formation was
achieved to trigger rapid rate of economic growth. With the hike in foreign capital
coming to India the rate of capital formation is becoming boom to insurers, which has
given them opportunities. It is heartening to them to note that latest savings rate of 28% is
highest till now and with the growth rate near to 8% is bringing a pool of buyer’s
purchasing power. This directly influences the demand for mutual fund products.
6. Employment
55
56
The effect of employment on mutual fund industry is as direct as that on economic
development of any country. With the rising levels of employment the effect on mutual
fund industry is positive because employment adds to the insured properties and assets
from every prospective be it due to organized or unorganized.
7. Inflation
The midterm policy review the strong macroeconomic indicators and RBI has revised its
GDP growth estimates to the upper limit of the earlier projection range 8% inflation
(WPI) has been steadily moving up in recent times and RBI has highlighted that primary
articles prices have been one of the key contributors. However one needs to keep in mind
that recent increase in global oil prices.
8. Money supply
The central banks has indicated that credit growth and money supply number are likely
to be above its prosecution for the current fiscal year, the statement “to consider promptly
all possible measures as appropriate to the evolving global and domestics situation “is
indicative of phased increase in FII limits for gilt investment could help in depending the
securities market and is part of the road map towards fuller convertibility.
9. Interest
Interest is major factor for investment when a person find less return from investment
tool than people move towards the higher returns tool of investment.
10. Risk factor
All investments in Mutual Fund and securities are subject to market risks and the NAV of
the fund may go up or down depending on the factors and forces affecting the security
market. There can be no assurance that the fund’s objective will be achieved. Past
performance of the sponsors/Mutual fund/schemes/AMC is not necessarily indicative of
the future results. The name of the schemes does not in any manner indicate their quality,
their future prospects or returns.
The specific risk would be credit, market, illiquidity, judgmental error, interest rate,
swaps and forward rates.
11. Demographic environment
The demographic environment significantly affects the demand for the mutual fund
industry. Factors like the average age of the population, levels of education, household
56
57
structures income distribution, life style and the extent of industrialization as well as
urbanization terribly influences the demand of mutual fund schemes
12. Social Factors
The social environment covers the customs, habits, level of education, tastes and standard
of living of people in the society. Today’s social environment is greatly influenced to a
major extent by the changes in technological aspects. With the rapid progress in
technology and economic liberalization, the physical boundaries are gradually vanishing.
As a result, the social life of the people and their views towards risk and uncertainty of
life and health are gradually changing.
These factors of social life are affecting human motivations and emotions related to the
physical and mental incapacities, loss of health and death. In general there are Extremes
apprehensions of one’s death, though it is certain. The perception of an individual toward
risk and capital growth depends on the social culture and religious belief. In the
urbanized area people does think about investment and capital growth. These beliefs
ultimately influence the buying behavior of a consumer.
3.3 Financial Planning In Mutual Fund
Financial Planning is a way not only knowing those things; it is a road map to achieve
them. Financial planning simply arranging finances keeping in mind the financial goals.
I. Objective of financial planning
Objective of financial planning is to ensure that the right amount of money is available to
investor at right time to enable him to meet the different goals in his life.
Financial Planning has got many objectives to look forward to:
a. Determining capital requirements- This will depend upon factors like cost of cur-
rent and fixed assets, promotional expenses and long- range planning. Capital re-
quirements have to be looked with both aspects: short- term and long- term re-
quirements.
57
58
b. Determining capital structure- The capital structure is the composition of capital,
i.e., the relative kind and proportion of capital required in the business. This in-
cludes decisions of debt- equity ratio- both short-term and long- term.
c. Framing financial policies with regards to cash control, lending, borrowings, etc.
d. A finance manager ensures that the scarce financial resources are maximally uti-
lized in the best possible manner at least cost in order to get maximum returns on
investment.
Major objectives of investor in investing mutual fund:
Purchasing a flat after 5 years with accumulated funds worth 10Lacs and balance with
a loan.
Investing for higher education of children where the money required after 15 years.
Saving to buy a car costing around 4lac after 3 years.
Protecting the family through adequate insurance
Planning for retirement and to meet expenses for 30 years after retirement.
Managing Debt and Cash flows.
Investing to save taxes in an efficient manner.
Passing on wealth to next generation (estate planning) etc.....
Financial planning simply arranging finances keeping in mind the financial goals,
58
59
Let's look at few of them.....
Table no. 3.15
Current Age
Self : 30 years Child: 3 years
Child education 18 years
Higher education Current cost Future cost
Engineer 10 lacs 28
Medical 15 lakhs 41
Foreign study 25 lacs 69
Child marriage 24 years
Current cost Future cost
Marriage 10 lacs 41 lacs
Retirement 60 years
Current cost Future cost
Monthly holding expenses 15000 1,14,184
Retirement kitty 3.54 crore
Assuming inflation @7% Return on retirement kitty -8% Life expectancy 90years
Are we on Track to achieve the critical life goals in our lives?
If a person can save Rs.4,000/- per month How much will be his wealth when he needs
money for his child's higher education?
Assuming:
Current Age: 3 yrs.
Higher Education Age: 18 yrs.
Invests in an Asset class which give returns of 8%
At the time of his child's higher education his wealth would be Rs.13.5 Lacs
Amount Invested: Rs. 7.2 Lacs.
Times amount gets rolled over 1.89,
Value of money in current rupee terms is Rs.6.16 Lacs
Amount Required: Rs. 28 Lacs.
Amount he has: 13.5 Lacs,
Shortfall 14.5 Lacs
59
60
To cover the shortfall he will look for Education Loan, which is liability on child
If a person can save Rs.5,000/- per month What will be his wealth when he retires?
Assuming:
Current Age: 30 yrs. Retirement Age: 60 yrs.
Invests in an Asset class than gave returns of 8%
At Age 60 his wealth would have been Rs 71 lacs
Amount Required: Rs. 3.53 Crs..
Amount he accomulated: 71 Lacs,
Shortfall: Almost 5 times required what he has accomulated.
Amount Invested: Rs. 18 Lacs.
Times amount gets rolled over: 3.94
To cover the shortfall he will look for Donation/Old Age Home
The truth is that:
I. Creating Wealth is Easy.
II. We Need to Create Wealth.
III. We can all Become Wealthy
How can we create wealth
1) Start Saving Early
The longer you save, the more you make
2) Save in the Right Asset Class
This will dictate how much wealth you create …
3) Save Regularly
Even a small amount saved regularly, is good
1) Starting early Table no. 3.16
Ram Shyam
Investment starting age 25 40
Investment monthly sip 5000 10000
60
61
Saving years till age 60 35 20
Total investment made 21 24
Total return on age 60 5.71 crore 1.33 crore
Give time to your investments rather than timing
2) Save in the right asset class
Equities has outperformed than other asset class
Graph 3.1
inflation gold silver co. deposit bank deposit
sensex0
10,00020,00030,00040,00050,00060,00070,00080,00090,000
Series 1Series 2Column1series4series 5series 6
3) Save Regularly
Disciplined Investing through Systematic Investment Plans
Twin Benefits of Investing Regularly
61
Rupee cost averaging
Automatic timing
Average purchase cost will be less
At higher price – less unitsAt lower price – more units
marketUnit purchase
Unit purchased
Market
Rising market
Falling market
62
Why mutual funds?
SENSEX Growth – 1980-2008 Table no 3.17
Year Sensex investment
1979 100 1,00,000
2008 15000 1,50,000
In past 28 years BSE SENSEX has given Approx. 19.5% returns this is in spite of …
• At least 3 recessionary periods
• Two wars
• At least three major financial scandals
• Assassination of 2 prime ministers
• 10 different governments and
• An unfair share of natural Disasters
Past performance
(SIPs) is the ideal way to reduce risk
Performance of SIP in mutual fund oriented schemes Table no 3.18
SIP of rs 10000 per Total amount invested MF equity schemes BSE sensex
62
63
month
% CAGR %CAGR
During last 7years 8.4 lakh 18.77% 12.27%
During last 10years 12 lakh 19.11% 11.37%
Also Equity Mutual Funds have outperformed Sensex, as shown above.
Collective Expertise At Mistiming
Buy low and sell high is what everyone suggests and that is what everyone would like to
do. The reality however for a typical investor in equity markets is somewhat like this:
– buy high,
– buy more higher,
– buy even more even higher.
– buy less when market falls,
– buy lesser if markets fall more,
– buy nothing when markets are really down
Between October 2007 and March 2008, when the Sensex was near 20,000 levels, the net
sales of equity mutual funds were Rs. 41,142 crs.• On the other hand, just a year later,
between October 2008 and March 09 when the Sensex was below 10,000, sales of equity
funds were a negative Rs. 162 crs.• This was not the first time that such a thing happened.
Between 1988 and 1992, after the Sensex had gone up a staggering 10 times from 400
63
64
levels to 4000 levels and the P/E’s had reached an all time high of 40 times, a MF equity
scheme collected nearly 4000 crs.
Graph no 3.2
oct 7-march8 oct8-march9-5,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,00041142
Series 1Series 2
This pattern of an overwhelming majority of investors mistiming the markets repeatedly
and consistently is a key reason for the unsatisfactory experience of the majority from
equities and for the poor equities ownership in India.
SIP Investor Preference Table no. 3.19
If some one had done SIP of Rs 10000 from 10th Jan 2008 to 10th Jan 2013
Name of scheme Total investment
amount
Investment value as on
10th Jan 2013
Annualized return
(CAGR)
Birla frontline equity
fund
6,10000 8,32,120 14.65%
HDFC top 200 fund 6,10000 8,80,360 14.52%
ICICI pru discovery
fund
6,10000 10,30,760 20.90%
Kotak midcap fund 6,10000 8,95,450 15.20%
Reliance equity 6,10000 10,24,510 20.66%
64
65
opportunity fund
SBI magnum global
fund
6,10000 9,55,020 17.80%
10th Jan 08 10th Jan 13
NSE Nifty 6,156 5,968 -0.62%
BSE Sensex 20,582 19,663 -0.91%
Helping you achieve your goals in life …
Child education saving years: 15years Table no. 3.20
Education Target SIP amount
Engineer 28 lakhs 4500
Medical 41 lakhs 6700
Foreign study 69 lakhs 11200
Child marriage Table no. 3.21
Target 41 lakhs
SIP amount 2000
Amount actually paid 5.04 lakhs
Assuming returns of 15%
Retirement saving years: 30years Table no. 3.22
Target 1,14,184 per month
SIP amount 3800
Amount actually paid 13.68 lakhs
Assuming pre retirement returns of 15% and post retirement return of 12%
III.4 Result of the Survey Conducted
There are 16 females and 84 males as respondents.
Q1 Your age group is? Table no. 3.23
AGE
PARTICULARS NO.
65
66
20-30 46
30-40 16
40-50 13
50-60 14
60-ABOVE 11
TOTAL 100
20-3046%
31-4016%
41-5013%
51-6014%
60 above11% Age group
From the above table we can say that awareness for investment in youngster has been
increased & that’s why out of 100, 46% are youngster who do investment and they come
in the age group of 20-30, then comes age group of 30-40 from which 16% people do
investment and other age group are 40-50 where they do investment of 13%, 14%belongs
to age group of 50-60 they do the investment, and 11%belongs to the age group of60-
above they do their investment. We can say that youngsters are more careful for their
investment.
Q2 what is your profession? Table no. 3.24
PROFESSION
PARTICULARS NO.
BUSINESS 10
JOB IN PRIVATE SECTOR 45
JOB IN PUBLIC SECTOR 22
OTHERS 23
TOTAL 100
66
67
Business10%
Job in pri-vate sector
45%
Job in public sector22%
Others23%
Profession
Now 100 people doing investment out of which 45% people are from private sector, 22%
are from public sector, 10% are having their business and 23% are others which include
retired people, housewives and student. Reason for investment by all people was to
secure the future and reason given by people doing the job in private was their higher
salary and unsecured job.
Q3 what is your yearly income? Table no. 3.25
Less than 2 lakh 33
2 to 5 lakh 56
5 to 10 lakh 5
More than 10 lakh 6
Total 100
From 100 people 33% have yearly income less than 2 lakh, 56% have between 2 lakh to 5
lakh, 5% have between 5 lakh to 10 lakh and 6% have more than 10 lakh yearly.
Q4 Do you invest in mutual fund? Table no. 3.26
PARTICULARS NO
YES 60
NO 40
TOTAL 100
67
68
From 100 people 60% of them are doing investment in mutual fund and 40% of them are
not investing in mutual fund but they do investment in other sectors for which
information is given in the next Question.
Q5your other preference for Investment? Table no. 3.27
INVESTMENT PROPORTION EXCEPT MF?
PARTICULARS NO
INSURANCE 32.96
EQUIYTY MARKET 43.57
GOVT. SCHEME 15.63
REAL ESTATE 5.94
COMMODITIES 1.9
TOTAL 100.00
33%
44%
16%
6%
2%
Investor's Investment Prefrences
INSURANCEEQUIYTY MARKETGOVT. SCHEMEREAL ESTATECOMMODITIES
People who were not investing in mutual fund they do invest in sectors like insurance,
equity market, government schemes (includes banks, bonds &other scheme ), real estate,
commodities even people those who do invest in mutual fund they also invest in different
sectors. Out of 100%, 43% people do invest in equity market, 33% invest in insurance,
16% in government scheme, 6% do invest in real estate and 2% do invest in
commodities. People do invest in equity market due to higher returns available in it.
Q6 would you like to know about Mutual Fund? Table no. 3.28
Yes 30
68
69
No 70
Total 100
From 100 people there are 30% would like to know about Mutual Fund and 70% would
not like to know about Mutual Fund. There are some people who investing in Mutual
Fund but interested to know more about Mutual Fund. On the other hand some people are
not aware about Mutual Fund and still no interested to know.
Q7 Are you aware about ‘NJ wealth Advisors Network’? Table no. 3.29
Awareness about NJ India Invest
Yes 13
No 87
Total 100
Only 13% people are aware about ‘NJ Wealth Advisors Network’ and 87% are not aware
about ‘NJ Wealth Advisors Network’.
Q8 Objectives for investment in mutual fund schemes (rank them from 1most
preferred to 4 least preferred), Table no. 3.30
Here in this question the investors have ranked the factors on the basis of their objectives
that for what reason they had invested in that particular scheme. 50% of investors had
given return/dividend 1st rank because every investor want benefits for the risk they had
taken by investing in that scheme, 40% of investors had given safety 1st rank because they
want something more including their invested amount.8% of investor has given tax
saving as 1st rank because while investing in some particular scheme their amount
invested is appreciated as well as they get the tax benefit,2% has given 1st rank to
liquidity because they can withdraw their investment at any time in open ended scheme.
Q9 In which of mf schemes are you interested to invest or investing? Table no. 3.31
69
PARTICULARS RANK 1 RANK 2 RANK 3 RANK 4 TOTAL
RETURN/DIVIDEND 30 15 10 5 60
Safety 24 22 8 6 60
TAX Saving 5 16 24 15 60
LIQUIDITY 1 12 13 34 60
TOTAL 60 60 60 60
70
SCHEME INTEREST TO INVEST
PARTICULARS NO
LARGE CAP 39
MID CAP 26
SMALL CAP 21
SECTORIAL FUND 16
BALANCE FUND 35
BOND FUND 2
INCOME FUND 12
GILT SCHEME 8
ELSS 23
ETF (GOLD) 12
ASIAN EQUITY FUND 5
TOTAL 199
These are few schemes where the investors invest the schemes in which more no of
investors invest are large cap where the return is tremendous but risk is also more,
balance fund in which investment is done in equity and debt where risk is somewhat less
then large cap and return is also less, then comes mid cap and small cap where risk is
there but can get good return, then investment is done in equity linked saving scheme.
CHAPTER: 4
S.W.O.T ANALYSIS, SUGGESTIONS AND CONCLUSION
4.1 S.W.O.T. Analysis
Strengths
The biggest strength of the organization is the;
70
71
•Money power, which makes them ignorant about gestation period.
•Brand image, business experience and innovative products.
•The agents are very selectively chosen have excellent communication skills.
•Service quality which is the crux of their mission.
Weakness
•High target for financial advisor and sales departments.
•Many competitors in market offer same products by the little difference in the offering.
•Sustainable to risk associated with investments in money market.
Opportunity
•Huge market is literally untapped; out of estimated 320 million only 20%of population
has investment in mutual fund industry.
•Equity and ELSS schemes, contribute an estimated market potential of approximately
$15 billion.
Threats
•Entry of many other private player companies with equally strong experience and
financial strength of foreign partners making the competition difficult and saturating the
urban market.
•Current government Policies which do not encourage gross domestic saving. If the tax
liability of service class rises the customer will have little money to invest.
IV.2 Suggestions:
From the above analysis, I found that even though certainly not the best or deepest of
markets in the world, it has ignited the growth rate in mutual fund industry to provide
reasonable options for an ordinary man to invest his savings.
With the help of –
Give more importance to safety and return attributes because Independent
Financial Advisors are more concern about safety and of giving more benefit of
the investments to their clients.
Independent Financial Advisors who are not suggesting their clients to invest in
mutual funds due to their lack of knowledge of mutual funds. So, NJ INDIA
71
72
INVEST should arrange mutual fund awareness Program of their and other
independent Financial Advisors on regular basis.
By providing better service NJ INDIA INVEST should try to attract the
Independent Financial Advisors to join with them.
NJ INDIA INVEST should arrange special mutual fund awareness program for
general public. So they can directly work with NJ INDIA INVEST as direct
client.
Majority of the Government employees take into consideration tax benefits before
making any investment. So NJ INDIA INVEST should highlight tax benefits in
mutual funds.
NJ INDIA INVEST should launch its brand awareness campaign to be successful
in Mutual fund advisory service provider
NJ INDIA INVEST should also concentrate on youngster who are interested in
savings so make them aware about different schemes for investment and arrange
seminars for college going students, by this company gets more customers
connected for long period.
Put hoardings outside the colleges making NJ INDIA known to them and try to
attract them.
Key Findings: -
Around 50% of the investors invest to maximize their returns and they are ready to
take moderate risks in their investment portfolio.
Most of the investors give importance to the fact that their investment should grow in
value over aperiod of time.
Growth scheme is the most preferred for investment
Knowledge about mutual funds and their various schemes is moderate among
investors.
It is necessary to make Mutual Fund more popular in the eyes of investors as well
distributors and also cater trust which has been lost due to US-64.
Most of the investors give importance to return, tax saving etc.
Objectives of the investor are to get something in return for their investment and the
risk they are taking.
72
73
Here the objective of the investor between the age of 20-30 is to earn the higher
return.
While the age group above 30years concentrates on safety and tax saving and they
even take care of the liquidity.
IV.3 Conclusion
A mutual fund is a type of professionally managed collective investment vehicle that
pools money from many investors to purchase securities. The mutual fund industry in
India started in 1963 with the formation of Unit Trust of India. At the end of JUNE 2013,
there were 44 fund players. The structure of mutual funds in India is governed by the
SEBI Regulations, 1996. These regulations make it mandatory for mutual funds to have
a 3-tier structure of Sponsors-Trustee-AMC (Asset Management Company).
Mutual funds are usually classified in accordance with their structure – as closed-
end or open-end. Schemes can also be grouped in terms of whether the fund collect from
investors any charges at the time of entry or exit or both. Schemes are also be classified
as being tax-exempt or non-tax-exempt.
NJ India invest, karvy, Anand rathi, Trustline etc are the leading distributor of mutual
fund in India. NJ INDIAINVEST Pvt. Ltd. is one of the leading advisors and distributors
of financial products and services in India. Established in year 1994 NJ Product basket
is Domestic mutual funds (all AMCs), Capital Markets - direct equity and ETFs, Fixed
Deposits of companies, PMS products (Third party & NJ) Government/ RBI/
Infrastructure bonds, Residential & commercial properties.
There are some advantages in investing mutual fund like affordability, diversification,
tax benefits, variety, professional management etc. There are also some disadvantages of
investing in mutual fund like no control over cost, no tailor made portfolio, delay in
redemptions, non availability of funds. Before investing in mutual fund we have to
understand some risks involved in mutual fund. Higher the risk, higher will be the chance
of profit. Some risk consider before investing are Market risk, Credit risk, Inflation risk,
interest risk etc.
Financial planning is needed before investing in mutual fund. Financial Planning is a way
not only knowing those things; it is a road map to achieve them. Financial planning sim-
73
74
ply arranging finances keeping in mind the financial goals. Financial planning is helpful
for achieving objectives like outflow inflow of cash, how to raise money etc.
From the above finding and result it is concluded that still lot of peoples are not aware
about the MF. The most people prefer to invest other securities like P.O deposits, Bank
deposits etc. So to make more aware about MF companies should use the better
marketing and promotional strategies. Around 50% of the investors invest to maximize
their returns and they are ready to take moderate risks in their investment portfolio. Most
of the investors give importance to the fact that their investment should grow in value
over aperiod of time.
People are not aware with the benefits of MF. There is need to aware the people about the
benefit like Investor can buy in to a portfolio of equities, which would otherwise be ex-
tremely expensive. Investors must spread your investment across different securities
(stocks, bonds, money market instruments, real estate, fixed deposits etc.) and different
sectors (auto, textile, information technology etc.), they can also get tax benefits. Every-
body wants to invest money, which entitled of low risk, high returns and easy redemp-
tion. In my opinion before investing in mutual funds, one should be fully aware of each
and everything.
Limitation of Study:
Every research has its own limitation and ptresent research work is no exception to this
general rule the inherent limitation of the study are as under:
-Interview method, which was followed in the present research work, is relatively more
time consuming. In addition to this it is very expensive method, especially when spread
geographic Sample is taken.
-Questionnaire method can be used only when respondents are literate and co-operative.
- Sample size was 100 that are not enough to study the awareness of Independent
individuals.
74
75
- As sampling techniques is convenient sampling so it may result in personal bias.
Evenrespondent give bias answers. Time is main constraint of the research as we have
beengiven project as well as study simultaneously.
References
Mutual fund web Sites
75
76
www.amfi.com
www.indiainfoline.com
www.njindiainvest.com
Company reports
Fund watch
Daily performance watch
Report on financial planning
ANNEXURE
Questionnaire
(Information provided by you will not be personally share)
76
77
Name: -
Gender: - Male Female
Mobile No:-
Address:-
Q1 Your age group is
1) 20-30
2) 30-40
3) 40-50
4) 50-60
5) 60-above
Q2 what is your profession?
1) Business ( )
2) Job in private sector ( )
3) Job in public sector ( )
4) If others please specify
Q3 what is your yearly income
1) Less than 2 lakh 2) 2 – 5 lakh 3) 5 -10 lakh
4) more than 10 lakh
Q4 Do you invest in mutual fund?
1) Yes 2) No
Q5 Your other preference of Investment
1) Insurance ( )
2) Equity market ( )
3) Government schemes ( )
4) Real estate ( )
5) Commodities ( )
Q6 Would you like to know about Mutual Fund?
1) Yes 2) No
If you invest in Mutual fund, please answer the following Questions
77
78
Q8 Are you aware about ‘NJ wealth Advisors Network’?
1) Yes 2) No
Q10 Objectives for investment in mutual fund schemes (rank them from 1most preferred
to 4 least preferred),
Rank 1 2 3 4
1) Return/Dividend -
2) Safety -
3) Tax saving -
4) Liquidity -
Q13 In which Mutual Fund scheme are you interested to invest?
1) Large cap shares ( )
2) Mid cap shares ( )
3) Small cap shares ( )
4) Sectorial funds scheme ( )
5) Balance fund ( )
6) Bond funds scheme ( )
7) Income fund scheme ( )
8) gilt scheme ( )
9) ELSS ( )
10) ETF (gold) ( )
11) Asian equity funds ( )
Thank you for the feedback provided by
the you, the information you have
provided will not disclosed.
78
1
1
79
79