krutika- prudent project
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A
PROJECT REPORT
ON
SURVEY ON INVESTOR PERCEPTION WITH
RESPECT TO DIFFERENT INVESTMENT
AVENUES
(WITH REFERANCE TO PRUDENT CAS LTD.AHMEDABAD)
SUBMITTED IN PARTIAL FULFILLMENT OF THE
REQUIREMENT FOR THE MASTER OF BUSINESS
ADMINISTRATION
PREPARED BY
KRUTIKA H. RATHOD
MBA (Semester III)
ACADEMIC YEAR
2008-10
SUBMITTED TO
SHREE CHIMANBHAI PATEL INSTITUTE OF
MANAGEMENT AND RESEARCH,
GUJARAT UNIVERSITY,
AHMEDABAD.
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PREFACE
For the students of Masters of Business Administration, onlycoaching classrooms and theoretical studies are not enough to understanddifferent aspects and various critical principles of business.
As a student of M.B.A, SEM-III, preparation of the summerinternship project report of any company is an important part of practicalstudy. For this I have done the summer internship of 6 weeks in PrudentC.A.S. Ltd. and gained a lot of knowledge about different financial
products and also experienced how the market of these financial productsworks.
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ACKNOWLEDGEMENT
This report is an outcome of the project is sponsored by PrudentCorporate Advisory service.Ltd. Ahmedabad.
I am thankful to Gujarat university for making it compulsoryfor M.B.A students to under take project report in M.B.A.
I am thankful to our respected director Mr. Vidhyut Joshi forallowing us to undertake this project report. We express sense gratitude toour professors for providing necessary guidance & information duringproject. I would like to thankMr.jaydev Gadhvi sales manager, prudentc.a.s ltd., Hemali Joshi,, H R Department & all the other staff members.
Once again I am thankful to all those who have indirectly helpedus in completing this project work.
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EXECUTIVE SUMMARY
Mutual Funds pool money from many small investors withsimilar (one could say mutual) objectives, to achieve Economies of Scaleand Diversification in the investment of these funds. This can result inhigher returns at lower risk. Each mutual fund schemes has a definedinvestment objective and strategy.
I have studied the different department of HR, finance andmarketing by observation and interaction with departments personnel.
I have found out the perception about the mutual fund in theinvestors mind throughout our survey.
I had prepared the questionnaires for the (survey on investorperception with respect to different investment avenues). This tool of datacollection has provided me the different view for investing in the mutualfund that the people have no more time to spend in the stock market. Ifpeople want to invest their money without spending much time, then themutual fund is the best option for them.
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CONTENTS
SR. NO PARTICULARS PAGE
NO.
1. Company profile
Prudent C.A.S ltd. 7
Organization chart 9
Introduction to partners and managing body 10
Services provided to valuable clients 11
Company achievement 11
Working theory of company 12
Mutual fund An introduction
Definition of mutual fund 13
Mutual fund operation flow chart 15
Mutual fund structure 18
History of mutual funds in India 19
Advantages of mutual fund 21
Disadvantages of mutual fund 23
Classification of mutual fund 25
About NAV 30
Risk in mutual fund schemes 31
Other investment plans and services in mutualfunds 34
Regulation for mutual funds in India 36
Restriction on investment 38
Swot analysis of mutual fund 40
Research methodology
Objectives of study 41
Preparation of research design 42
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Sources of data 42
Research techniques 43
Sampling design 43
Limitation of study 44
Mutual fund industry profile 45
Other financial investment avenues
Fixed deposit 52
Bonds 52
Government securities 54 Public provident fund 55
Kisan vikas patra 56
National saving certificate 57
Insurance 58
Analysis and finding 59
Recommendation 67
Conclusion 68
Bibliography 69
Annexure 70
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COMPANY PROFILE
PRUDENT C.A.S LTD.
Historically known as Prudent Fund Manager established in2000 is a registered investment company offering fee-based moneymanagement, financial planning, and investment advisory services. Wehelp you build a personalized investment strategy to ensure your financialgoals are met. We focus on each client, build investment strategiestailored to specific client needs, and regularly review those strategies toincrease the likelihood of success. What are your goals and aspirations?We'd like to know. Then we can determine an investing strategy thathelps you achieve your full potential.
We Understand - The difference between selling and marketing.Prudent believes in understanding the customer needs and offering theproduct that can match his requirement (marketing) as against just sellingwhat product is already available. Owing to the inherent professionalexpertise we first study and understand the investment requirements andcircumstances. Our experts assess the investors' need and their riskprofile. Once the entire comparative analysis is done then the bestpossible option is advised to the investors. The best possible option
provides the proper asset allocation to various asset classes and also theestimated risk involved.
This helps us to provide our clients an optional basket of fundsrather than selling the typical available funds. This approach lets us setour focus on the quality work rather than the just the quantity. Here it isworth mentioning that though we are involved in wide spectrum andheavy quantum of activities but, if ever it comes to a choice Prudent CASalways prefers to be the best rather then being the biggest. Kindly visit us
at www.prudentcorporate.com site for our valued clients.
The sole business of the organization is to manage clientsinvestments and to fulfill their needs from end to end. At Prudent thepeople are education centric, the relationship managers will help you inidentifying and understanding your need and help you develop a portfolioacross different assets classes commensurate to your needs. This practiceis performed at Prudent and this is what makes it superior to othercompetition in the same field.
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There are well trained experts who give a feel on the variousassets classes and explain you the risk associated with each in a simpleand lucid manner to put you at calm. Once the investment is planned anddone we dont leave our client in between but we back them by periodic
valuation report and regular information through newsletters, mailer, e-mail, road shows etc.
The prime concern of the people at Prudent is to help you attainpeace of mind on the investment front.
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ORGANISATION CHART
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10
President
H.R.M.Department
\
MarketingDepartment
FinanceDepartment
OperationDepartment
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INTRODUCTION TO PARTNERS AND MANAGING
BODY
Managing Body
Managing Director: Mr. Sanjay ShahCEO: Mr. Shirish Patel
Director: Mr. Chirag Shah
HOD Details:
IT Head: Mr. Yogi KananiAccounts Head: Mr. Chirag KothariHR Head: Mr. Dashrathsinh ChundawatDirect Sales: Mr. Deven Shah (Ahmedabad & North Gujarat
Region)
Mr. Rohit Patel (Baroda )Mr. Satyesh Desai ( South Gujarat Region)Indirect Sales: Mr. Jigar Parekh ( North & West India)
Mr. Manoj Singh (Mumbai Region)Mr. Bhanu P STomar ( Pune Territory
Address of Corporate Office:-
701, Sears Tower,Gulbai Takera, Off.C.G. Road,Ahmedamad-380 006
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SERVICES PROVIDED TO OUR VALUABLE
CLIENTS
Weekly report send by e-mail
Inform about each and every new N.F.O.
Any information related with Indian Investment world
Prudent CAS Ltd. is a growing company that can be very well provedfrom the below achievements.
COMPANYS ACHIEVEMENTS
Have gained a dominant place in the Indian mutual fundsdistribution business
Certified by the Association of Mutual Funds as AMFI registeredMutual Funds advisors
Won the best broker award twice in the year 2004 and 2005 foroutstanding performance in the schemes of Birla Sun Life and State
Bank Of Indias Mutual fund.
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Won many other awards and certificate for outstandingperformance in various Mutual Funds schemes.
It has acquired about 25 to 29% share of the total Mutual Fundbusiness of Gujarat.
Assets under Management (AUM) more than 1700 corers.
Prudent CAS Ltd has tie up with almost 30 AMC out of 36operating in the Mutual Fund industry.
WORKING THEORY OF PRUDENT C.A.S
LTD
To provide reliable information
To honor our service commitments
To maintain all record in privacy
To preserve client capital
To provide appropriate feedback
To guide their future investment
To restructure investment plan on demand
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Finally to provide complete solution & peace of mind on the investment
front
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What is a Mutual Fund?
Like most developed and developing countries the mutual fund cult
has been catching on in India. There are various reasons for this. Mutual
funds make it easy and less costly for investors to satisfy their need for
capital growth, income and/or income preservation.
And in addition to this a mutual fund brings the benefits of
diversification and money management to the individual investor,
providing an opportunity for financial success that was once available
only to a select few.
Understanding Mutual funds is easy as it's such a simple concept: a
mutual fund is a company that pools the money of many investors -- its
shareholders -- to invest in a variety of different securities. Investments
may be in stocks, bonds, money market securities or some combination of
these. Those securities are professionally managed on behalf of theshareholders, and each investor holds a pro rata share of the portfolio --
entitled to any profits when the securities are sold, but subject to any
losses in value as well.
A mutual fund, by its very nature, is diversified -- its assets are
invested in many different securities. Beyond that, there are many
different types of mutual funds with different objectives and levels of
growth potential, furthering your chances to diversify.
Definition of Mutual Fund
A mutual fund is a pool of assets invested on behalf of investors. Mutual
funds invest in a diversified portfolio of securities, which can include
equity securities (such as common and preferred shares), debt securities
(such as bonds and debentures) and other financial instruments issued by
corporations and governments, according to the stated investment
objectives of the funds. Individual investors own a percentage of the
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MUTUAL FUNDS: AN INTRODUCTION
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value of the fund as represented by the number of units they purchase. A
collection of money invested in a group of assets and managed by an
investment company (a mutual fund company or other). The money
comes from investors who want to buy shares in the fund. The benefits to
investors in buying shares of mutual funds come primarily from
diversification, professional money management, and capital gains and
dividend reinvestment at relatively low cost. The flow chart below
describes broadly the working of a mutual fund.
MUTUAL FUND OPERATION FLOW CHART
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Investor
Fund
ManagerReturns
Securities
Passed back
to
Invest inGenerates
Pooled their
money with
All mutual funds comprise four constituents Sponsors, Trustees,
Asset Management Company (AMC) and Custodians.
a) Sponsors:
The sponsors initiate the idea to set up a mutual fund. It could be aregistered company, scheduled bank or financial institution. A sponsor
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has to satisfy certain conditions, such as capital, record (at least five
years operation in financial services), and de-fault free dealings and
general reputation of fairness. The sponsors appoint the Trustee, AMC
and Custodian. Once the AMC is formed, the sponsor is just a
stakeholder.
b) Trust/ Board of Trustees:
Trustees are like internal regulators in a mutual fund, and their job is to
protect the interest of unit holders. Sponsors appoint trustees. Trustees
float and market schemes, and secure necessary approvals. They check if
the AMCs investments are within well-defined limits, whether the funds
assets are protected, and also ensure that unit holders get their due
returns. They also review any due diligence by the AMC. For major
decisions concerning the fund, they have to take the unit holders consent.
They submit reports every six months to SEBI; investors get an annual
report. Trustees are paid annually out of the funds assets 0.5 percent of
the weekly net asset value.
c) Fund Managers/ AMC:
An AMC-Asset Management Company is the legal entity formed by the
sponsor to run a mutual fund. They are the ones who manage money of
the investors. There is the head of the fund house, generally referred to as
the chief executive officer (CEO). Under him comes the chief investment
officer (CIO), who shapes the funds investment philosophy, and the fund
managers, who manage its schemes. They are assisted by a team of
analysts, who track markets, sectors and companies. An AMC takesdecisions, compensates investors through dividends, maintains proper
accounting and information for pricing of units, calculates the NAV, and
provides information on listed schemes. It also exercises due diligence
on investments, and submits quarterly reports to the trustees. A funds
AMC can neither act for any other fund nor undertake any business other
than asset management. Its net worth should not fall below Rs. 10 Crore.
And, its fee should not exceed 1.25 percent if collections are below Rs.
100 Crore and 1 percent if collections are above Rs. 100 Crore. SEBI canpull up an AMC if it deviates from its prescribed role.
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d) Custodian:
Often an independent organisation, it takes custody of securities and other
assets of mutual fund. Its responsibilities include receipt and delivery of
securities, collecting income-distributing dividends, safekeeping of theunits and segregating assets and settlements between schemes. Their
charges range between 0.15-0.2 percent of the net value of the holding.
Custodians can service more than one fund.
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STRUCTURE OF ASSET MANAGEMENT COMPANY
(AMC)
MUTUAL FUND STRUCTURE
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SPONSORTRUSTEE
OPERATIONSAMC
MKT./ SALES
DISTRIBUTER
MKT./ SALES
FUNDMANAGER
MUTUAL FUND
SCHEMES
INVESTORS
SEBI
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HISTORY OF INDIAN MUTUAL FUND
INDUSTRY
The mutual fund industry in India started in 1963 with the
formation of Unit Trust of India, at the initiative of the Government of
India and Reserve Bank the. The history of mutual funds in India can be
broadly divided into four distinct phases.
First Phase: 1964-1987
An Act of Parliament established Unit Trust of India (UTI) on
1963. It was set up by the Reserve Bank of India and functioned under
the Regulatory and administrative control of the RBI. In 1978 UTI was
de-linked from the RBI and the Industrial Development Bank of India
(IDBI) took over the regulatory and administrative control in place of
RBI. The first scheme launched by UTI was Unit Scheme 1964. At the
end of 1988 UTI had Rs.6,700 crores of AUM.
Second Phase: 1987-1993 (Entry of Public Sector
Funds)
In 1987 marked the entry of non- UTI, public sector mutual funds
set up by public sector banks and Life Insurance Corporation of India
(LIC) and General Insurance Corporation of India (GIC). SBI Mutual
Fund was the first non- UTI Mutual Fund established in June 1987.
Third Phase: 1993-2003 (Entry of Private Sector
Funds)
With the entry of private sector funds in 1993, a new era started in
the Indian mutual fund industry, giving the Indian investors a wider
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choice of fund families. Also, 1993 was the year in which the first Mutual
Fund Regulations came into being, under which all mutual funds, except
UTI were to be registered and governed. The erstwhile Kothari Pioneer
(now merged with Franklin Templeton) was the first private sector
mutual fund registered in July 1993. The industry now functions under
the SEBI (Mutual Fund) Regulations 1996.As at the end of January 2003;
there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The
Unit Trust of India with Rs.44,541 crores of assets under management
was way ahead of other mutual funds.
Fourth Phase Since February 2003
In February 2003, following the repeal of the Unit Trust of India
Act 1963 UTI was bifurcated into two separate entities. One is the
Specified Undertaking of the Unit Trust of India with assets under
management of Rs.29, 835 crores as at the end of January 2003,
representing broadly, the assets of US 64 scheme, assured return and
certain other schemes.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB
and LIC. It is registered with SEBI and functions under the Mutual Fund
Regulations.
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ADVANTAGES OF MUTUAL FUND
Mutual Funds are becoming a very popular form of investment
characterized by many advantages that they share with other forms of investment
characterized by many advantages that they share with other forms of
investments and what they possess uniquely themselves. The primary objectives
of an investment proposal would fit into one or combination of the two broad
categories, i.e., Income and Capital gains. How mutual fund is expected to be
over and above an individual in achieving the two said objectives is what attracts
investors to opt for mutual funds. Mutual fund route offers several important
advantages.
1. Diversification:
A proven principle of sound investment is that of diversification which is
the idea of not putting all your eggs in one basket. By investing in many
companies the mutual funds can protect themselves from unexpected
drop in values of some shares. The small investors can achieve wide
diversification on his own because of many reasons, mainly funds at his
disposal. Mutual funds on the other hand, pool funds of lakhs of investorsand thus can participate in a large basket of shares of many different
companies. Majority of people consider diversification as the major
strength of mutual funds.
2. Professional Management :
Making investments is not a full time assignment of investors. So they
hardly have a professional attitude towards their investment. When
investors buy mutual fund scheme, an essential benefit one acquires is
expert management of the money he puts in the fund. The professional
fund managers who supervise funds portfolio take desirable decisions
viz., what scripts are to be bought, what investments are to be sold and
more appropriate decision as to timings of such buy and sell. They have
extensive research facilities at their disposal, can spend full time to
investigate and can give the fund a constant supervision. The performance
of mutual fund schemes, of course, depends on the quality of fund
managers employed.
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3. Liquidity of Investment:
A distinct advantage of a mutual fund over other investments is that there
is always a market for its unit/ shares. Moreover, Securities and Exchange
Board of India (SEBI) requires the mutual funds in India have to ensureliquidity. Mutual funds units can either be sold in the share market as
SEBI has made it obligatory for closed-ended schemes to list themselves
on stock exchanges. For open-ended schemes investors can always
approach the fund for repurchase at net asset value (NAV) of the scheme.
Such repurchase price and NAV is advertised in newspaper for the
convenience of investors.
4. Transparency:
Regular information on the value of investment in addition to disclosure
on the specific investments made by investors, the proportion invested in
each class of assets and the fund managers investment strategy and
outlook is provided on regular basis by different fund houses.
5. Flexibility:
Through features such as regular investment plans, regular withdrawalplans and dividend reinvestment plans, investors can systematically
invest or withdraw funds according to investors needs and conveniences.
6. Reduced risks:
Risk in investment is as to recovery of the principal amount and as to
return on it. Mutual fund investments on both fronts provide a
comfortable situation for investors. The expert supervision,
diversification and liquidity of units ensured in mutual funds minimise
the
8. Tax Shelter:
Depending on the scheme of mutual funds, tax shelter is also available.
As per the union budget-99, income earned through dividends from
mutual funds is 100% tax-free to investors.
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DISADVANTAGES OF MUTUAL FUND
1. Entry and Exit costs
Mutual Funds are a victim of their own success. When a large body like
a fund invests in shares, the concentrated buying or selling often results in
adverse price movements i.e. at the time of buying, the fund ends up
paying a higher price and while selling it realizes a lower price. For
obvious reasons, this problem is even more severe for funds investing in
small capitalization stocks. However, given the large size of the debt
market, excluding UTI, most debt funds do not face this problem.
2. Waiting time before
It takes time for a Mutual Fund to invest money. Since it is difficult to
invest all funds in one day, there is dome money waiting to be invested.
Further, there may be a time lag before investment opportunities are
identified. This ensures that the fund under performs the index. For
open-ended funds, there is the added problem of perpetually keeping
some money in liquid assets to meet redemption. The problem of
impracticability of quick investments is likely to be reduced to some
extent with the introduction of index futures.
3. Fund management costs
The costs of the fund management process are deducted from the fund.
This includes marketing and initial costs deducted at the time of entry
itself, called load. Then there is the annual asset management fee andexpenses, together called the expense ratio. Usually, the Standard 2%
expense ratio means that, everything else being equal, the Fund manager
under performs the benchmark index by an equal amount.
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4. Cost of churning
The portfolio of a fund does not remain constant. The extent to which the
portfolio changes is a function of the style of the individual fund
manager. It is also dependent on the volatility of the fund size i.e.whether the fund constantly receives fresh subscriptions and redemption.
Such portfolio changes have associated costs of brokerage, custody fees,
and registration fees etc. that lowers the portfolio return commensurately.
5. Change of index composition
The indices keep changing over the world to reflect changing market
conditions. There is an inherent survivorship bias in this process, with
the bad stocks weeded out and replaced by emerging blue chips. This is a
severe problem in India with the Sensex having been changes twice in the
last five years, with each change being quite substantial. Another reasons
for change index composition is Mergers & Acquisitions. The weight age
of the shares of a particular company in the index changes if it acquires a
large company not a part of the index.
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CLASSIFICATION OF MUTUAL FUND
SCHEMES
Any mutual fund has an objective of earning income for investors and/ or
getting increased value of their investments. To achieve these objectives
mutual funds adopt different strategies and accordingly offer different
schemes of investments. On these basis the simplest way to categorise
schemes would be to group these into two broad classifications:
Operational Classification and Portfolio Classification.
Operational classification highlights the two main types of schemes, i.e.,open-ended and close-ended which are offered by the mutual funds.
Portfolio classification projects the combination of investment
instruments and investment avenues available to mutual funds to manage
their funds. Any portfolio scheme can be either open ended or close
ended.
A. OPERATIONAL CLASSIFICATION
(a) Open Ended Schemes:
As the name implies the size of the scheme (Fund) is open i.e., not
specified or pre-determined. Entry to the fund is always open to the
investor who can subscribe at any time. Such fund stands ready to buy or
sell its securities at any time. It implies that the capitalisation of the fund
is constantly changing as investors sell or buy their shares. Further, the
shares or units are normally not traded on the stock exchange but arerepurchased by the fund at announced rates. Open-ended schemes have
comparatively better liquidity despite the fact that these are not listed.
The reason is that investor can any time approach mutual fund for sale of
such units. No intermediaries are required. Moreover, the realizable
amount is certain since repurchase is at a price based on declared net asset
value (NAV). No minute to minute fluctuations in rates haunt the
investors. The portfolio mix of such schemes has to be investments,
which are actively traded in the market. Otherwise, it will not be possibleto calculate NAV. This is the reason that generally open-ended schemes
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are equity based. Moreover, desiring frequently traded securities, open-
ended schemes hardly have in their portfolio shares of comparatively new
and smaller companies since these are not generally traded. In such funds,
option to reinvest its dividend is also available. Since there is always a
possibility of withdrawals, the management of such funds becomes more
tedious as managers have to work from crisis to crisis. Crisis may be on
two fronts, one is, that unexpected withdrawals require funds to maintain
a high level of cash available every time implying thereby idle cash. Fund
managers have to face questions like what to sell. He could very well
have to sell his most liquid assets. Second, by virtue of this situation such
funds may fail to grab favourable opportunities. Further, to match quick
cash payments, funds cannot have matching realisation from their
portfolio due to intricacies of the stock market. Thus, success of the open-
ended schemes to a great extent depends on the efficiency of the capital
market.
(b) Close Ended Schemes:
Such schemes have a definite period after which their shares/ units are
redeemed. Unlike open-ended funds, these funds have fixed
capitalisation, i.e., their corpus normally does not change throughout itslife period. Close ended fund units trade among the investors in the
secondary market since these are to be quoted on the stock exchanges.
Their price is determined on the basis of demand and supply in the
market. Their liquidity depends on the efficiency and understanding of
the engaged broker. Their price is free to deviate from NAV, i.e., there is
every possibility that the market price may be above or below its NAV. If
one takes into account the issue expenses, conceptually close ended fund
units cannot be traded at a premium or over NAV because the price of apackage of investments, i.e., cannot exceed the sum of the prices of the
investments constituting the package. Whatever premium exists that may
exist only on account of speculative activities. In India as per SEBI (MF)
Regulations every mutual fund is free to launch any or both types of
schemes.
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B. PORTFOLIO CLASSIFICATIONOF FUNDS:
Following are the portfolio classification of funds, which may be offered.This classification may be on the basis of (a) Return, (b) Investment
Pattern, (c) Specialised sector of investment, (d) Leverage and (e) Others.
(a) Return Based Classification:
To meet the diversified needs of the investors, the mutual fund schemes
are made to enjoy a good return. Returns expected are in form of regular
dividends or capital appreciation or a combination of these two.
Income Funds:
For investors who are more curious for returns, Income funds are floated.
Their objective is to maximize current income. Such funds distribute
periodically the income earned by them. These funds can further be
splitted up into categories: those that stress constant income at relatively
low risk and those that attempt to achieve maximum income possible,
even with the use of leverage. Obviously, the higher the expected returns,the higher the potential risk of the investment.
Growth Funds:
Such funds aim to achieve increase in the value of the underlying
investments through capital appreciation. Such funds invest in growth
oriented securities which can appreciate through the expansion
production facilities in long run. An investor who selects such funds
should be able to assume a higher than normal degree of risk.
Conservative Funds:
The fund with a philosophy of all things to all issue offer document
announcing objectives as: (i) To provide a reasonable rate of return, (ii)
To protect the value of investment and, (iii) To achieve capital
appreciation consistent with the fulfilment of the first two objectives.
Such funds which offer a blend of immediate average return andreasonable capital appreciation are known as middle of the road funds.
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Such funds divide their portfolio in common stocks and bonds in a way to
achieve the desired objectives. Such funds have been most popular and
appeal to the investors who want both growth and income.
(b) Investment Based Classification:
Mutual funds may also be classified on the basis of securities in which
they invest. Basically, it is renaming the subcategories of return based
classification.
Equity Fund:
Such funds as the name implies, invest most of their investible shares in
equity shares of companies and undertake the risk associated with the
investment in equity shares. Such funds are clearly expected to outdo
other funds in rising market, because these have almost all their capital in
equity. Equity funds again can be of different categories varying from
those that invest exclusively in high quality blue chip companies to
those that invest solely in the new, unestablished companies. The strength
of these funds is the expected capital appreciation. Naturally, they have ahigher degree of risk.
Debt Funds:
Such funds have their portfolio consisted of bonds, debentures, etc. this
type of fund is expected to be very secure with a steady income and little
or no chance of capital appreciation. Obviously risk is low in such funds.
In this category we may come across the funds called Liquid Funds
which specialize in investing short-term money market instruments. The
emphasis is on liquidity and is associated with lower risks and low
returns.
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Balanced Fund:
The funds, which have in their portfolio a reasonable mix of equity and
debt, are known as balanced funds. Such funds will put more emphasis on
equity share investments when the Outlook is bright and will tend toswitch to debentures when the future is expected to be poor for shares.
(c) Sector Based Funds:
There are number of funds that invest in a specified sector of economy.
While such funds do have the disadvantage of low diversification by
putting all their all eggs in one basket, the policy of specialising has the
advantage of developing in the fund managers an intensive knowledge of
the specific sector in which they are investing. Sector based funds are
aggressive growth funds which make investments on the basis of assessed
bright future for a particular sector. These funds are characterized by high
viability, hence more risky.
Type of Fund Characteristics
Sector Fund Concentration on specific sectors and are
designed to give diversification in
that sector.
Diversified Growth
Fund
Gives superior returns but highly volatile in the
short term. Best suited for wealth
accumulation and long term goal.
Balanced Funds Gives an optimal mix of capital appreciation
and stability of capital.
Income Funds Gives modest returns but are more stable invalue. Best suited for current
regular income.
Money Market
Funds
Provides total principal safety and more
attractive yields compared to bank
deposits. Best suited for instant
access to money.
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ABOUT N.A.V
The net asset value, or NAV, is the current market value of a fund'sholdings, less the fund's liabilities, usually expressed as a per-shareamount. For most funds, the NAV is determined daily, after the close oftrading on some specified financial exchange, but some funds updatetheir NAV multiple times during the trading day. The public offeringprice, or POP, is the NAV plus a sales charge. Open-end funds sell sharesat the POP and redeem shares at the NAV, and so process orders onlyafter the NAV is determined. Closed-end funds (the shares of which aretraded by investors) may trade at a higher or lower price than their NAV;this is known as a premium ordiscount, respectively. If a fund is dividedinto multiple classes of shares, each class will typically have its ownNAV, reflecting differences in fees and expenses paid by the differentclasses.
Some mutual funds own securities which are not regularly traded on anyformal exchange. These may be shares in very small or bankruptcompanies; they may be derivatives; or they may be private investments
in unregistered financial instruments (such as stock in a non-publiccompany). In the absence of a public market for these securities, it is theresponsibility of the fund manager to form an estimate of their valuewhen computing the NAV. How much of a fund's assets may be investedin such securities is stated in the fund's prospectus.
Calculating Net Asset Value
Unit Capital is the investors subscriptions. In mutual funds it is not
treated as a liability.
Investments made on behalf of the investors are reflected on the assetsside of the balance sheet.
There are liabilities of short-term nature.
Funds Net Asset = Asset Liabilities
Net Asset Value = Net Assets of the scheme / No. of Outstanding Units
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RISK IN MUTUAL FUND SCHEMES
All investments involve some form of risk. Even an insured bank
account is subject to the possibility that inflation will rise faster than your
earnings, leaving you with less real purchasing power than when you
started (Rs.1000 gets you less than it got your father when he was your
age). Consider these common types of risk and evaluate them against
potential rewards when you select an investment.
Market Risk
At times the prices or yields of all the securities in a particularmarket rise or fall due to broad outside influences. When this happens,
the stock prices of both an outstanding, highly profitable company and a
fledgling corporation may be affected. This change in price is due to
Market Risk.
Inflation Risk
Sometimes referred to as Loss of Purchasing Power. Whenever
inflation sprints forward faster than the earnings on your investment, yourun the risk that youll actually be able to buy less, not more. Inflation
risk also occurs when prices rise faster than your returns.
Credit Risk
In short, how stable is the company or entity to which you lend
your money when you invest? How certain are you that it will be able to
pay the interest you are promised, or repay your principal when theinvestment matures?
Interest Rate Risk
Changing interest rates affect both equities and bonds in many
ways. Investors are reminded that predicting which way rates will go is
rarely successful. A diversified portfolio can help in offsetting these
changes.
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Employee Risk
An industries key asset is often the personnel who run the business
i.e. intellectual properties of the key employees of the respective
companies. Given the ever changing complexion of few industries and
the high obsolescence levels, availability of qualified, trained and
motivated personnel is very critical for the success of industries in few
sectors.
Exchange Risk
A number of companies generate revenues in foreign currencies
and may have investments or expenses also denominated in foreigncurrencies. Changes in exchange rates may, therefore, have a positive or
negative impact on companies which in turn would have an effect on the
investment of the fund.
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RISK AND RETURN GRAPH AS PER THE DIFFERENT
SCHEMES OFFRED BY THE MUTUAL FUND
COMPANIES
36
Investment Graph
Gilt funds
Liquid funds
Debt funds
Growth funds
Sector funds
Balancedfunds
0
1
2
3
4
5
6
7
Risk
Return
Return
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OTHER INVESTMENT PLANS AND SERVICES
IN MUTUAL FUNDS
1) SYSTEMATIC INVESTMENT PLAN
Systematic Investment Plan (SIP) is a simple, time-honored strategy
designed to help investors to accumulate wealth in a discipline manner
over the long-term and to plan a better future for them. SIP is more
suitable for a salaried employee with investable savings every month and
who wishes to generate better returns than other instruments at a low risk
of price volatility.
How do SIPs work? Instead of a lumpsum amount, you invest a pre-
specified amount in a scheme at pre-specified intervals. The number of
units that accrue to you on each periodic investment is a function of the
then prevailing net asset value (NAV) of the scheme you have opted for.
Thus irrespective of market conditions, your cost of investment will be
mostly lower than the average cost of market prices.
This disciplined approach for investing will provide the investors with the
following benefits:
1) Reduces average cost
2) Can be done regularly even for savings of Rs 1000
3) Encourages disciplined investing,
4) Eliminates the need to decide when to invest
5) Avoids the temptation to time the market.
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REGULATION FOR MUTUAL FUNDS IN
INDIA
SEBI (SECURITY EXCHANGE BOARD OF INDIA)
SEBI was established to promote the orderly and healthy development of
securities market and to provide adequate investor protection. SEBI has
an independent constituted board with regulatory powers over stock
exchange, merchant banking, brokers, registrar and transfer agents,
custodians, mutual funds and capital issues. SEBI issues guidelines for
various market players to conform with. All players need to register withSEBI and consent to comply with the regulations of SEBI. In the case of
mutual funds, the SEBI guidelines were first issued in the SEBI Mutual
Fund Regulations of 1993. In December 1996, SEBI published the
revised Mutual Fund Regulations, 1996, regulating several aspects
including management fees, expenses, and NAV calculation and
standardized reporting practices.
SCHEMES OF MUTUAL FUND
The asset management company shall launch no scheme unless the
trustees approve such scheme and a copy of the offer document has
been filed with the Board.
Every mutual fund has to pay filling fees along with the offer
document.
The offer document should contain disclosures which are adequate in
order to enable the investors to make informed investment decision
including the disclosure on maximum investments proposed to be
made by the scheme in the listed securities of the group companies of
the sponsor.
No one can issue any application form for units of mutual fund until
the memorandum containing such information is issued. With each
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application form fund house has to provide such a memorandum
providing guidelines to investors.
Each close-ended scheme should be listed on a recognized stock
exchange within six months from the closure of the subscription.
A closed-ended scheme should be fully redeemed at the end of the
maturity period. Unless a majority of the unit holders otherwise decide
for its rollover by passing a resolution.
The mutual fund and asset Management Company should be liable to
refund the application money to the applicants.
The asset management company should issue to the applicant whose
application has been accepted, unit certificates or a statement of
accounts specifying the number of units allotted to the applicant as
soon as possible within six weeks from the date of closure of the
initial subscription list and/or from the date of receipt of the request
from the unit holders in any open ended schemes.
GENERAL OBLIGATIONS
Each asset management company should keep and maintain proper
books of accounts, records and documents, for each scheme so as to
explain its transactions and to disclose at any point of time the
financial position of each scheme and in particular give a true and fair
view of the state of affairs of the mutual fund and can intimate to the
Board the place where such books of accounts, records and documents
are maintained.
The financial year for all the schemes should end as of Mach 31 st of
that year.
Each mutual fund or the asset management company should prepare
an annual report and annual statement of accounts for each scheme.
Each mutual fund should have an annual statement of accounts audited
by an auditor who is not in any way associated with the auditor of the
asset management company.
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RESTICTION ON INVESTMENTS
A mutual fund can not invest more than 15% of its NAV in debt
instruments issued by a single issuer, which are rated not below
investment grade by a credit rating agency authorized to carry out
such activity under the Act. Such investment limit may be extended to
20% of the NAV of the scheme with the prior approval of the Board of
Trustee and the Board of Asset Management Company.
A mutual fund scheme can not invest more than 10% of NAV in
unrated debt instruments issued by a single issuer and the total
investment in such instruments should not exceed 25% of the NAV of
the scheme. All such investments should be made with prior approval
of the Board of Trustee and the Board of Asset Management
Company.
No mutual fund should own more than 10% of any companys paid up
capital carrying voting rights under all its schemes.
Transfers of investments from one scheme to another (switch over) in
the same mutual fund should be allowed if-
a. Such transfer is done at the prevailing market price for quoted
instruments on spot basis.
b. The securities so transferred should be in conformity with his
investment objective of the scheme to which such transfer is beingdone.
I.Transfer of investment may be done in another scheme of the
same asset management company or any other without
charging any fees.
II. The initial issue expenses in respect of any scheme may not
exceed six per cent of the funds raised under the scheme.
III.Each mutual fund should get the securities purchased ortransferred in the name of the mutual fund on account of the
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concerned scheme, wherever investments are intended to be of
long-term nature.
IV. Each mutual fund can diversify its portfolio of each
scheme as per market condition and this should be published
by that fund in the monthly fact sheets issued to investors.
V. No mutual fund scheme should make any investment in;
1) Any unlisted security of an associate or group company of the sponsor,
or
2) Any security issued by way of private placement by an associate or
group company of the sponsor, or
3) The listed securities of group companies of the sponsor, which are in
excess of 30% of the net asset of all the schemes of a mutual fund.
No mutual fund scheme should invest more than 10% of its NAV in
the equity shares or equity related instruments of any company. This
limit of 10% is not applicable to index fund and sector specific scheme
A mutual fund scheme can not invest more than 5% of its NAV in the
equity shares or equity related investments in case of open-endedscheme and 10% in case of close-ended scheme.
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THE SWOT ANALYSIS OF MUTUAL FUNDS
IN INDIA
STRENGTHS
o Professional managemento Diversified portfolioo Liquidityo Tax reliefo Safe and convenient administrationo Low Costso Transparency
o Affordabilityo Well Regulated
WEAKNESS
o No assured returnso No protection of capitalo Everything is dependent on Fund Manager.
OPPURTUNITY
o A goose lying golden eggo When the returns comes out its too much
THREAT
o lack of management information
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o Poor investment performance
RESEARCH
METHODOLOGY
This study aims to delineate the
methodology, employed to undertake this study.
Research is a common parlance, which refers to
a search for knowledge. One can define research
as scientific and systematic search for pertinent.
Research is of a great importance to find out the
nature, extent and cause of the research issue
under study. Research Methodology is the
process in which various steps that are generally
adopted by a research are outlined.
The various steps provide useful
guidelines regarding the research process are:
1. Objectives of study.
2. Preparation of the research design.
3. Source of data.
4. Technique of research.
5. Sampling design.
6. Limitation of the study.
1. Objectives of Study :
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Primary Objectives :
(1) To aware about the orientation
of the people regarding financialproducts.
(2) To aware the people about
mutual funds & Amfi exam.
Secondary Objectives :
(1) To find out the current market
scenario & current market standing of our
company.
(2) To provide the Suggestion &
Recommendations to the company.
(3)To find out the awareness of the people
regarding mutual funds.
2. Preparation of the research
design :
A research design is the arrangement ofconditions for collection and analysis of data.Actually, it is the blue print of research project.
The research design can be divided following:
A. Exploratory Research
I. Search of secondary data.
II. Survey of Insurance & Post
agents.
B. Conclusive Research
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I. Descriptive Research
a. Survey Method
b. TelephoneAdministrative
c. Questionnaire Method
II. Experimentation
3. Source of Data :
Sound marketing research depends upon
the existence of facts or directly related toproblem studied. To fulfill a foresaid objectiveof study, the information was gathered fromprimary as well as secondary sources.
A. Primary Source Information :
I. Method of obtaining data :
Questionnaire
II. Communication method :
Personal meeting
B. Secondary Source Information :
I. Internal : Company internal
information
II. External : Books,
magazines journals
In my study I have used secondary as
well as primary data. For this research purpose
all primary & secondary data were collected.
4. Research Technique :
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The following research techniques were usedfor data collection:
(A)Questionnaire :
Questionnaire was structured to get it filled
by investors as well as insurance and post
agents.
(B) Collection of Information :
The respondents were personally approached
to explain the objective of survey. During the
meeting the questionnaire was fulfilled by the
respondents.
5. Sample Design:
Sample design refers to the technique asthe procedure that a researcher would adopt inselective item for the sample.
(A) Target Population or Sampling Unit :
The universe of the study are Insurance& Post agents as well as investors.
(B) Sample Size :
The sample size taken for the study is 200
respondents.
(C) Sampling Method :
The agents and investors had beenselected on the basis of random sampling. Thestudy is sample survey consisting of small sizedsample of agents who had not much awareness
of Mutual funds and AMFI examination.
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6. Limitation of the study :
Every research have its own limitationand present research work is no exception tothis general rule the inherent limitation of thestudy are as under:
1 ) 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
geographical sample is taken.
2 ) Questionnaire method, can be used
only when respondents are literate and
co-operative.
3 ) The success of questionnaire method
lies more on the quality of
questionnaire itself.
4 ) In the present work, the sample size is
very small. Research is mainly based
on the survey of investors andinsurance and post agents which may
not be true representative of whole
market scenario.
5 ) Few agents refuse to give answer.
6 ) Lack of time.
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MUTUAL FUND INDUSTRY
PROFILE
The Indian mutual fund industry is mainlydivided into three kinds of categories. These
categories include public sector players,nationalized banks and private sector and foreignplayers. UTI Mutual Fund was one of theleading Mutual Fund companies in India till May2006 with a corpus of more than Rs.31, 000Crore and it is the public sector mutual fund.Now Reliance Mutual fund became the Topmutual fund holding largest AUM.
Bank of Baroda, Punjab National Bank,Can Bank and SBI are the major nationalizedbanks mutual fund. At present mutual fundindustry is mainly dominated by private andforeign sector players which include majorplayers like Prudential ICICI Mutual Fund,HDFC Mutual Fund, Reliance Mutual Fund etc.are private sector mutual funds players whileFranklin Templeton etc. are major Foreignmutual fund players. At present there are morethan 33 players operating in Indian. The briefintroduction of major players is given as follows.
ABN AMRO Mutual Fund
ABN AMRO Mutual Fund was setup on April15, 2004 with ABN AMRO Trustee (India) Pvt.Ltd. as the Trustee Company. The AMC, ABN
AMRO Asset Management (India) Ltd. wasincorporated on November 4, 2003. Deutsche
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Bank A G is the custodian of ABN AMROMutual Fund.
Birla Sun Life Mutual Fund
Birla Sun Life Mutual Fund is the joint ventureof Aditya Birla Group and Sun Life Financial.Sun Life Financial is a global organizationevolved in 1871 and is being represented inCanada, the US, the Philippines, Japan,Indonesia and Bermuda apart from India. BirlaSun Life Mutual Fund follows a conservativelong-term approach to investment. Recently it
crossed AUM of Rs. 10,000 Crore.
Bank of Baroda Mutual Fund
Bank of Baroda Mutual Fund or BOB Mutual
Fund was setup on October 30, 1992 under thesponsorship of Bank of Baroda. BOB AssetManagement Company Limited is the AMC ofBOB Mutual Fund and was incorporated onNovember 5, 1992. Deutsche Bank AG is thecustodian.
HDFC Mutual Fund
HDFC Mutual Fund was setup on June 30, 2000with two sponsor namely Housing DevelopmentFinance Corporation Limited and Standard LifeInvestments Limited.
HSBC Mutual Fund
HSBC Mutual Fund was setup on May 27, 2002with HSBC Securities and Capital Markets
(India) Private Limited as the sponsor. Board of
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Trustees, HSBC Mutual Fund acts as the TrusteeCompany of HSBC Mutual Fund.
ING Vyasya Mutual Fund
ING Vyasya Mutual Fund was setup onFebruary 11, 1999 with the same named TrusteeCompany. It is a joint venture of Vysya andING. The AMC, ING Investment Management(India) Pvt. Ltd. was incorporated on April 6,1998.
Prudential ICICI Mutual Fund
The mutual fund of ICICI is a joint venture withPrudential PLC of America; one of the largestlife insurance companies in the US of A.Prudential ICICI Mutual Fund was setup on 13thof October 1993 with two sponsors, PrudentialPLC. And ICICI Ltd. The Trustee Companyformed is Prudential ICICI Trust Ltd. and theAMC is Prudential ICICI Asset ManagementCompany Limited incorporated on 22nd of June
1993.
Sahara Mutual Fund
Sahara Mutual Fund was set up on July 18, 1996
with Sahara India Financial Corporation Ltd asthe sponsor. Sahara Asset ManagementCompany Private Limited incorporated onAugust 31, 1995 works as the AMC of SaharaMutual Fund. The paid-up capital of the AMCstands at Rs 25.8 crore.
State Bank of India Mutual Fund
State Bank of India Mutual Fund is the firstBank sponsored Mutual Fund to launch offshore
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fund, the India Magnum Fund with a corpus ofRs. 225 cr. approximately. Today it is the largestBank sponsored Mutual Fund in India. Theyhave already launched 35 Schemes out of which
15 have already yielded handsome returns toinvestors. State Bank of India Mutual Fund hasmore than Rs. 5,500 Crore as AUM. Now it hasan investor base of over 8 Lakhs spread over 18schemes.
Tata Mutual Fund
Tata Mutual Fund (TMF) is a Trust under the
Indian Trust Act, 1882. The sponsor for TataMutual Fund is Tata Sons Ltd., and TataInvestment Corporation Ltd. The investmentmanager is Tata Asset Management Limited andits Tata Trustee Company Pvt. Limited. TataAsset Management Limited's is one of the fastestin the country with more than Rs. 10000 Crore(as on April 30, 2007) of AUM.
Kotak Mahindra Mutual Fund
Kotak Mahindra Asset Management Company(KMAMC) is a subsidiary of KMBL. It ispresently having more than 1,99,818 investors inits various schemes. KMAMC started itsoperations in December 1998. Kotak MahindraMutual Fund offers schemes catering toinvestors with varying risk - return profiles. Itwas the first company to launch dedicated gilt
scheme investing only in government securities.
Reliance Mutual Fund
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Reliance Mutual Fund (RMF) was established astrust under Indian Trusts Act, 1882. The sponsorof RMF is Reliance Capital Limited andReliance Capital Trustee Co. Limited is the
Trustee. It was registered on June 30, 1995 asReliance Capital Mutual Fund, which waschanged on March 11, 2004. Reliance MutualFund was formed for launching of variousschemes under which units are issued to thePublic with a view to contribute to the capitalmarket and to provide investors the opportunitiesto make investments in diversified securities.
Standard Chartered Mutual Fund
Standard Chartered Mutual Fund was set up onMarch 13, 2000 sponsored by StandardChartered Bank. The Trustee is StandardChartered Trustee Company Pvt. Ltd. StandardChartered Asset Management Company Pvt.Ltd. is the AMC which was incorporated withSEBI on December 20,1999.
Franklin Templeton India Mutual Fund
The group, Franklin Templeton Investments is aCalifornia (USA) based company with a globalAUM of US$ 409.2 bn. (as of April 30, 2005). Itis one of the largest financial services groups inthe world. Investors can buy or sell the MutualFund through their financial advisor or throughmail or through their website. They have Open
end Diversified Equity schemes, Open endSector Equity schemes, Open end Hybridschemes, Open end Tax Saving schemes, Openend Income and Liquid schemes, Closed endIncome schemes and Open end Fund of Fundsschemes to offer.
Morgan Stanley Mutual Fund India
Morgan Stanley is a worldwide financialservices company and its leading in the market
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in securities, investment management and creditservices. Morgan Stanley InvestmentManagement (MISM) was established in theyear 1975. It provides customized asset
management services and products togovernments, corporations, pension funds andnon-profit organizations. Its services are alsoextended to high net worth individuals and retailinvestors. In India it is known as Morgan StanleyInvestment Management Private Limited (MSIMIndia) and its AMC is Morgan Stanley MutualFund (MSMF). This is the first close enddiversified equity scheme serving the needs of
Indian retail investors focusing on a long-termcapital appreciation.
Escorts Mutual Fund
Escorts Mutual Fund was setup on April 15,1996 with Escorts Finance Limited as itssponsor. The Trustee Company is EscortsInvestment Trust Limited. Its AMC wasincorporated on December 1, 1995 with the
name Escorts Asset Management Limited.
Alliance Capital Mutual Fund
Alliance Capital Mutual Fund was setup onDecember 30, 1994 with Alliance CapitalManagement Corp. of Delaware (USA) assponsor. The Trustee is ACAM Trust CompanyPvt. Ltd. and AMC, the Alliance Capital Asset
Management India (Pvt) Ltd. with the corporateoffice in Mumbai.
Benchmark Mutual Fund
Benchmark Mutual Fund was setup on June 12,2001 with Niche Financial Services Pvt. Ltd. asthe sponsor and Benchmark Trustee CompanyPvt. Ltd. as the Trustee Company. Incorporated
on October 16, 2000 and headquartered in
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Mumbai, Benchmark Asset ManagementCompany Pvt. Ltd. is the AMC.
Can bank Mutual Fund
Can bank Mutual Fund was setup on December19, 1987 with Canara Bank acting as thesponsor. Can bank Investment ManagementServices Ltd. incorporated on March 2, 1993 isthe AMC. The Corporate Office of the AMC isin Mumbai.
Chola Mutual Fund
Chola Mutual Fund under the sponsorship ofCholamandalam Investment & FinanceCompany Ltd. was setup on January 3, 1997.Cholamandalam Trustee Co. Ltd. is the TrusteeCompany and AMC is Cholamandalam AMCLimited.
LIC Mutual Fund
Life Insurance Corporation of India set up LICMutual Fund on 19th June 1989. It contributedRs. 2 Crore towards the corpus of the Fund. LICMutual Fund was constituted as a Trust inaccordance with the provisions of the IndianTrust Act, 1882. . The Company started itsbusiness on 29th April 1994. The Trustees of
LIC Mutual Fund have appointed Jeevan BimaSahayog Asset Management Company Ltd as theInvestment Managers for LIC Mutual Fund.
GIC Mutual Fund
GIC Mutual Fund, sponsored by GeneralInsurance Corporation of India (GIC), aGovernment of India undertaking and the four
Public Sector General Insurance Companies, viz.National Insurance Co. Ltd (NIC), The New
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India Assurance Co. Ltd. (NIA), The OrientalInsurance Co. Ltd (OIC) and United IndiaInsurance Co. Ltd. (UII) and is constituted as aTrust in accordance with the provisions of the
Indian Trusts Act, 1882.
ASSET UNDER MANAGEMENT
56
Asset Under Managemen
4%
4%
18%
5%
4%
7%
8% 12%
12%
12%
14% UTI MF
Pru ICICI MF
Franklin Templeton Investment
HDFC MF
Birla Sunlife MF
Standard Chartered MF
Reliance Capital MF
SBI MF
DSP ML MF
Kotak Mahindra MF
Others
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Bonds are debt instruments that are issuedby companies, municipalities and governmentsto raise funds for financing their capitalexpenditure. By purchasing a bond, an investor
loans money for a fixed period of time at apredetermined interest rate. While the interest ispaid to the bond holder at regular intervals, theprincipal amount is repaid at a later date, knownas the maturity date. While both bonds andstocks are securities, the principle differencebetween the two is that bond holders are lenders,while stockholders are the owners of theorganization.
Advantages of investing in bonds:
Bonds are predictable. You know howmuch interest you can expect to receive, howoften you'll receive it, and when yourprincipal (the bond's face value) will berepaid (maturity date).
Bonds are steadier then stocks (which canfluctuate wildly short-term). Nervousinvestors usually sleep better by buyingbonds instead of equity investments.
People on a fixed income and/or inretirement will receive a predictable amountof regular income from bonds.
The interest rates paid by bonds typicallyexceed those paid by banks on savingsaccounts, especially short-term bonds.
Disadvantages of bonds:
Companies and municipalities can and dogo bankrupt, and if they do, your bonds willlose value and possibly even become
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worthless.
Long-term bonds will have your moneytied up in low yielding bonds should interest
rates go up.Unlike stocks, bonds don't offer the possibility
of high long-term returns. Younger investors and
those with several years to go until retirement
would be better served by limiting their bond
purchases and opting for equity buys instead.
3. GOVERNMENT SECURITIES
Government securities(G-secs) are
sovereign securities which are issued by theReserve Bank of India on behalf of Governmentof India,in lieu of the Central Government'smarket borrowing programme.
The term Government Securities includes:
1. Central government securities2. State government securities
3. Treasury bills
The Central Government borrows funds tofinance its 'fiscal deficit'. The market borrowingof the Central Government is raised through theissue of dated securities and 364 days treasurybills either by auction or by floatation of loans.
In addition to the above, treasury bills of91 days are issued for managing the temporary
cash mismatches of the Government.
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Benefits of Investing in
Government Securities:
Additional Income Tax benefit u/s 80L of
the Income Tax Act for Individuals
Qualifies for SLR purpose
Zero default risk being sovereign paper
Highly liquid.
Transparency in transactions and
simplified settlement procedures through
CSGL/NSDL.
4. PUBLIC PROVIDENT FUND (PPF)
The Public Provident Fund Scheme is astatutory scheme of the CentralGovernment of India.
The Scheme is for 15 years.
The rate of interest is 8% compoundedannually. The minimum deposit is 500/- and
maximum is Rs. 70,000/- in a financialyear.
One deposit with a minimum amount ofRs.500/- is mandatory in each financialyear.
The deposit can be in lumpsum or inconvenient installments, not more than 12Installments in a year or two installments
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in a month subject to total deposit ofRs.70,000/-.
It is not necessary to make a deposit inevery month of the year. The amount of
deposit can be varied to suit theconvenience of the account holders.
The account in which deposits are notmade for any reasons is treated asdiscontinued account and such accountcan not be closed before maturity.
The discontinued account can be activatedby payment of minimum deposit ofRs.500/- with default fee of Rs.50/- for
each defaulted year. Joint account is not permissible. Those who are contributing to GPF Fund
or EDF account can also open a PPFaccount.
A Power of attorney holder can neitheropen or operate a PPF account.
The grand father/mother cannot open aPPF behalf of their minorgrand son/daughter.
The deposits shall be in multiple of Rs.5/-subject to minimum amount of Rs.500/-.
The deposit in a minor account is clubbedwith the deposit of the account of theGuardian for the limit of Rs.70,000/-.
No age is prescribed for opening a PPFaccount.
Interest is not contractual but rate isnotified by Ministry of Finance, Govt. of
India, at the end of each year. The facility of first withdrawal in the 7th
year of the account subject to a limit of50% of the amount at credit precedingthree year balance. Thereafter oneWithdrawal in every year is permissible.
5. KISAN VIKAS PATRA (KVP)
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Minimum Investment Rs. 500/- Nomaximum limit.
Rate of interest 8.40% compoundedannually.
Money doubles in 8 years and 7 months. Two adults, Individuals and minor
through guardian can purchase. Companies, Trusts, Societies and any
other Institution not eligible to purchase. Non-Resident Indian/HUF are not eligible
to purchase. Facility of encashment from 2 years. Maturity proceeds not drawn are eligible
to Post office Savings account interest foramaximum period of two years.
Facility of reinvestment on maturity. Patras can be pledged as security against a
loan to Banks/Govt. Institutions. Patras are encashable at any Post office
before maturity by way of transfer todesiredPost office.
Patras are transferable to any Post officein India.
Patras are transferable from one person toanother person before maturity
Duplicate can be issued for lost, stolen,destroyed, mutilated and defaced patras.
Nomination facility available. Facility of purchase/payment of Kisan
vikas Patras to the holder of Power of
attorney. Rebate under section 80 C not admissible. Interest income taxable but no TDS
Deposits are exempt from Wealth tax.
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6. NATIONAL SAVINGCERTIFICATE (NSC)
Minimum investment Rs. 500/- Nomaximum limit.
Rate of interest 8% compounded halfyearly.
Rs. 1000/- grow to Rs. 1601/- in six years. Two adults, Individuals, and minor
through guardian can purchase. Companies, Trusts, Societies and any
other Institutions not eligible to purchase. Non-resident Indian/HUF can not
purchase. No pre-mature encashment. Annual interest earned is deemed to be
reinvested and qualifies for tax rebate for
first 5 years under section 80 C of IncomeTax Act.
Maturity proceeds not drawn are eligibleto Post Office Savings account interest fora maximum period of two years.
Facility of reinvestment on maturity. Certificate can be pledged as security
against a loan to banks/ Govt. Institutions. Facility of encashment of certificates
through banks. Certificates are encashable any Post office
in India before maturity by way of transferto desired post office.
Certificates are transferable from one Postoffice to any Post office.
Certificates are transferable from oneperson to another person before maturity.
Duplicate Certificate can be issued for
lost, stolen, destroyed, mutilated ordefaced certificate.
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Nomination facility available. Facility of purchase/payment to the holder
of Power of attorney. Tax Saving instrument - Rebate
admissible under section 80 C of IncomeTax Act.
Interest income is taxable but no TDS.
7. INSURANCE
Agreed, insurance may not be the bestplace to invest your hard-earned money. Butthere are sufficient reasons for one to believe
that it can be a highly lucrative avenue tofacilitate savings. People often talk about yieldon investment and tend to compare their valueswith those available on various insuranceschemes. This is particularly typical within theIndian sub-continent where one convenientlyforgets the element of risk covered by lifeinsurance.
It is extremely unfair to compare the
performance of insurance against otherinvestments without considering the corefeatures of insurance. The very essence ofinsurance is to protect your family from theuncertainty of your life. Hence it proves verylogical to evaluate the costs involved towardsthis feature. Ask yourself this question
When you pay insurance premium for
your car, do you get anything if fortunately no
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mishap happens? This means that you spent theamount to secure a valuable property.
Hence you must accept that out of the
total amount paid by you for your life insurance,a certain amount is used for providing the riskcover and only the balance can be utilised assavings.
In other words, the total premium you payminus the amount evaluated as the cost ofinsurance must be considered as the amountinvested to get the maturity amount. If youcalculate the yield from returns, you will be in
for a surprise.
Secondly, we tend to think veryunrealistically about our life. We often comparethe results after say 10 years from an investmentscheme, for instance PPF. And then we try toconvince ourselves that PPF is providing a betteryield than an insurance policy.
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ANALYSIS AND FINDINGS
1. General Investment
Preference by people:
66
69%
32.50%
43%
6%
20.50% 21%
94.50%
11.50%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
BankD
eposit
N.S.E.
Equity
Market
Debent
ures
Govt.
Securit
ies
TaxSa
vingB
onds
Mutua
lFunds
Others
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Interpretation:
The above graph indicates the generalinvestor perception about people. This shows
that the majority of people prefer to invest theirmoney in mutual funds and the least peopleprefer to invest their money in debentures. Thisshows that the people trust mutual funds andbelieve that it will give higher returns for theirinvestments.
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2. Reasons for investing in
mutual funds and different
financial products:
68
Tax Benefits, 51%
Min. Investment,
26%
Liquidity, 42%
Speedy
ransaction, 27%
Transparency,
34.50%
High Returns,
78.50%
Tax Benefits
High Returns
Liquidity
Min. Investment
Speedy Transaction
Transparency
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Interpretation:
The above pie-chart shows why peopleinvest in mutual funds or other financial
products. This chart indicates that the majority ofpeople invest their money to get higher returnson their investment. The other reasons forinvesting their money are transparency, speedytransaction, minimum investment, liquidity andtax benefits.
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3. Preferred type of Mutual
Funds Investment among the
Investors:
70
Equity Fund
60.50%
Debt Fund
12.50%
Gilt Fund
9.50%
Balance Fund
36% Equity Fund
Debt Fund
Gilt Fund
Balance Fund
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Interpretation:
The above pie-chart indicates in whichtype of mutual fund the majority of people invest
their money. The data in the graph shows that asper our survey 60.50% of people invest in equityfunds. The reason for this may be the growthoption in equity funds. And the least peopleinvest their money in gilt funds.
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4. Sources Of Information Behind
Different Investment Avenues
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23%
35%
50%
36%
23%
selfaware
brokers
financ
ial
advisor
med
ia
othe
rs
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Interpretation:
The above graph shows the informationsource behind the investment. This graph shows
that the most people like to invest their moneyafter taking advice of any financial advisorbefore making an investment in any investmentavenue. And the least people invest their moneywith self awareness or with reference to othersources.
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RECOMMENDATION
I am not so much expert to recommendto the highly qualified people. But form deepanalysis of the whole study I came to know someconclusion and I would like to stretch thecompanys attention to these points.
Some of the recommendations are as follows;
1. Prudent CAS Ltd. has to give moreadvertisement for mutual fund awareness in themind of people who are living small town orrural area.
2. Provide more AMFI test so that Recruitmentof Experienced employees of mutual fund field
can be done, so that the knowledge of the expertsis used by the organization. And companyincreases its workforce by recruiting moreadvisors.
3. Firm think about increase its offices in all thecities and big villages also. Because ourcountrys number of villages is more than citiesand more people leave in it. So if we cover all
the market than started ruler marketing also.
4. Prudent CAS Ltd. should gives rates of all thefunds in all the news paper so that, an ordinaryperson also think about it.
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CONCLUSION
Up till now sought after investmentavenues like bank deposits, real estate, gold,provident fund etc. especially due to fall in
interest rates coupled with the rising inflation,and Mutual Fund obviously become a viablealternative.
Mutual Funds are in the business ofmanaging trust. If Mutual Funds gain investorstrust, money will follow. It is important to gainmind-share rather than wallet share of theinvestors.
Currently industry is gradually growingphase and Indian Mutual Fund industry has beendefinitely maturing over the last few years andthe level of awareness today is much more thanwhat it was in the past. But the level ofawareness has not yet reached the rural and othersmaller towns and it is more of a smaller townsand it is more of an urban phenomenon. What isneeded is the spread of awareness beyond
regional limits. Mutual Fund as a concept is wellknown, but the target audience still needs to gainmore awareness.
The future is very bright. This industryis very important role to play in providingalternative avenues to the entire gamut ofinvestors in a scientific and professional manner.
Mutual Fund industry has been evolvingvery well for an important reason that, today we
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have the best system and procedure, goodregulatory mechanism, use of technology,transparency and sharing of details anddissemination of information at an improved
level.
BIBLIOGRAPHY
Books:
1. Bodie, Kane, Marcus Security Analysis andPortfolio Management, 5th edition Tata Mc
Graw hill publications.
2. Mutual Fund testing program Book AMFI
Publication.
3. Association of Mutual Fund in India work
book.
Websites:
www.amfi.com
www.mutualfundresearchonline.com
www.mutualfundsindia.com
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Magazine & Newspaper:
Business World
The Economic Times
The financial express
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ANNEXUE
Questionnaire
Dear Respondent,I am, Krutika Rathod, as a
student of SHREE CHIMANBHAI PATELINSTITUTE OF MANAGEMENT ANDRESEARCH, I am undertaking a survey onINVESTOR PERCEPTION WITHRESPECT TO DIFFERENT INVETSMENT
AVENUES. The Information provided by youwill be used for academic purpose only. Thankyou for your co-operation.
1. Name:____________________________________________
2. Address:_________________________________
__________________________________________________________________
_________________________________
___________________________
3. contact no: _____________
4. Occupation:Service (____) Business
(____)Agriculture (____) Profession
(____)Housewife (____) Others
(____)
5. Annual income:Below 1 lakh (____) 1 to 2.5
lakh (____)
2.5 to 5 lakh (____) Above 5lakh (____)
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6. Do you invest in mutual fund or other
financial products?
Yes (____)No (____)
7. In which financial product will you doinvestment?
Mutual fund (____) goldand silver (____)Govt. security (____) Bank
deposit (____)Insurance (____)
Debentures (____)N.S.C (____) Others
(____)
8. Which criteria will you prefer before
investing in mutual fund or otherfinancial products?
Risk (____) HighReturn (____)Safety (____) Speedytransaction (____)Liquidity (____) Min.investment (____)Transparency (____) Tax
planning (____)
9. Which type of fund you prefer in mutualfund?
Equity (____) Debt(____)
Balance (____) Giltfund (____)
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10. How long you stay invested in mutualfund or other financial products?Less than 1 year (____) 1 to 3
year (____)
3 to 5 year (____) morethan 5 year (____)
11. What percentage of return you got foryour investment?
Less than 10% (____) 10% to15% (____)
15% to 25% (____) more than25% (____)
12.In which security you find higher risk?Mutual fund (____) Govt.
security (____)Insurance (____) other
security (____)Post office savings (____) Bank
deposit (____)
13. State the information source behind
your investment?Self awareness (____)
Brokers (____)Financial advisors (____)
Friends (____)Media (____) Others
(____)
14. According to you, which is betterproduct for investment? Mutual fund orother financial products? Why? Giveyour suggestion.
______________________________________________________________________________
__________
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____________________________________________
OVERALL EXPERIENCE
Before entering in Prudent C.A.S Ltd. as
an intern, I was aware only about a few financialproducts and their bookish knowledge. I lacked
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the practical market knowledge about theseproducts. But from Prudent C.A.S. Ltd. I cameto know about various financial products, theirfeatures, advantages, disadvantages and how
their market works. So I have gained a lot ofpractical as well as theoretical knowledge fromPrudent C.A.S. Ltd.