mutual fund investors-their expectations & strategies in changing scenario

8/8/2019 Mutual Fund Investors-Their Expectations & Strategies in Changing Scenario

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A REPORT

ON

MUTUAL FUND INVESTORS-THEIR

EXPECTATIONS & STRATEGIES INCHANGING SCENARIO


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Topic Page No.

Acknowledgement 4

Abstract .... 5

Introduction

About the project.. 6

Indian mutual fund industry. 7

About the organization. 10

Mutual funds

Concept. 12,13

Characteristics.. 14

Advantages 14

Disadvantages. 16

Types of mutual funds. 17

Constitution of mutual funds 23

Net asset value. 26

Nature of income distribution.. 27

Why an investor leaves a fund.. 29

Latest AUM .. 30

Study

Scope of the study. 38

Objective of the study 38

Methodology used.. 39

Limitations . 40

Findings of the study.. 41


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Comparative analysis of mutual funds... 57

Scope of SCB investment products 61

Recommendations made to SCB 65

References.. 68

ABSTRACT

Mutual funds have been one of the most preferred investment instruments. They are looked upon by

individual investors as financial intermediaries/ portfolio managers who process information, identify

investment opportunities, formulate investment strategies, invest funds and monitor progress at a very

low cost. Thus the success of mutual funds is essentially the result of the combined efforts of

competent fund managers and alert investors. A competent fund manager should analyze investor

behavior and understand their needs and expectations, to gear up the performance in order to meet

investors requirements. The project Mutual fund investors expectations & strategies in changing

scenariois to understand the changing sentiments, expectations & strategies of the investor.

The volatility of stock market has affected the mutual funds sales. There has been a plunge in the sales

of mutual funds. The expectations & strategies of the investors have changed. This has become a

challenge for fund houses. Investors preference has changed. Now they are not sure about what the

investors want. This project aims at understanding their behavior & thus giving recommendations to

SCB for meeting these challenges. Thus, to analyze the difference between investors expectations &

investment managers approach.

The project will seek to cover all the fundamental aspects related to mutual funds & investment in

mutual funds. The project will also cover the various problems of the global scenario that has affected


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There will also be a comparative analysis of some of the star ranked mutual funds as per the

expectations of the investors, so as to understand whether the star ranked mutual funds are catering to

the requirements & expectations of the investors or not.

Basically, the project is to understand the investors, behavior & to give recommendations to Standard

Chartered Bank on how to meet these changing expectations of the investors & offer the productaccordingly. There are many other investment products offered by Standard Chartered. This project

also covers that what are the opportunities for such investment products.


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INTRODUCTION

The growth and maturation of mutual fund industry is the greatest investment story of

the twentieth century. With the introduction of innovative products, the world of

mutual funds nowadays has a lot to offer to its investors. With the introduction ofdiverse options, investors need to choose a mutual fund that meets his risk acceptance,

his risk capacity levels and has similar investment objectives as the investor. There are

a large number of schemes available in the market to cater to the different needs of the

investor. As on 29th Feb, 2008, there were 5343 mutual fund schemes in the market.

The market has been bullish in past few months & has given huge returns. Even the

retail investors started investing in a big way expecting the rally to continue. But with

change in the global scenario, there has been a sudden & unexpected downfall in the

market which sunk the investors expectations, creating a negative sentiment in the

market. This has also affected the mutual fund investments.

Since Indian economy is no more a closed market, and has started integrating with the

world markets, external factors which are complex in nature are also affecting us.

Factors such as Sub-prime problem, expected US recession, an increase in short-

term US interest rates, the hike in crude prices and many other factors have made

Indian market volatile. The market has shown a downfall of --% in past 3 months.

There has been sharp fall in the sales of mutual funds in past 2 months, since January.

The average asset under management (AUM) of the mutual fund industry has declined

sharply by 6.62% in March 2008, according to data released by Association of Mutual

Funds in India (AMFI). This shows that there has been a change in the investors

sentiments & expectations.


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INDIAN MUTUAL FUND INDUSTRY

The Indian mutual fund industry is dominated by the Unit Trust of India which has a total corpus of

Rs700bn collected from more than 20 million investors. The UTI has many funds/schemes in all

categories i.e. equity, balanced, income etc with some being open-ended and some being closed-

ended. The Unit Scheme 1964 commonly referred to as US 64, which is a balanced fund, is the

biggest scheme with a corpus of about Rs200bn. UTI was floated by financial institutions and is

governed by a special act of Parliament. Most of its investors believe that the UTI is government

owned and controlled, which, while legally incorrect, is true for all practical purposes.

The second largest category of mutual funds is the ones floated by nationalized banks. Canbank Asset

Management floated by Canara Bank and SBI Funds Management floated by the State Bank of India

are the largest of these. GIC AMC floated by General Insurance Corporation and Jeevan Bima

Sahayog AMC floated by the LIC are some of the other prominent ones. The aggregate corpus of

funds managed by this category of AMCs is about Rs150bn.

The third largest categories of mutual funds are the ones floated by the private sector and by foreign

asset management companies. The largest of these are Prudential ICICI AMC and Birla Sun Life

AMC. The aggregate corpus of assets managed by this category of AMCs is in excess of Rs250bn

The growth and development of Indian Mutual Fund Industry can be broadly divided into four

phases:-

First Phase (1964-87)

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the

Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve

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

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

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

management.


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Second Phase (1987-1993)

Highlight of phase was 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) in

June 1989 and General Insurance Corporation of India (GIC) In Dec. 1990.

Public Sector Bank also established their own Mutual Funds:-

SBI Mutual Fund (June 1987)

Canbank Mutual Fund (Dec 87)

Punjab National Bank Mutual Fund (Aug 89)

Indian Bank Mutual Fund (Nov 89)

Bank of India (Jun 90)

Bank of Baroda Mutual Fund (Oct 92).

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

Third Phase (1993 2003)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry,

giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first

Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be

registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was

the first private sector mutual fund registered in July 1993.

The number of mutual fund houses went on increasing, with many

foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and

acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,

21,805 crores. The Unit Trust of India with Rs. 44,541 crores of assets under management was way

ahead of other mutual funds


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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 Specified Undertaking of Unit Trust of

India, functioning under an administrator and under the rules framed by Government of India and

does not come under the purview of the Mutual Fund Regulations

Fund Regulations, and with recent mergers taking place among different private sector funds,

the mutual fund industry has entered its current phase of consolidation and growth. As at the end of

September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes


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MUTUAL FUNDS

Concept

A mutual fund is a pool of money, collected from investors, & is invested according to certain

investment objectives.

A mutual fund is created when investors put their money together. It is therefore a pool of the

investors funds. The most important characteristic of a mutual fund is that the contributors & the

beneficiaries of the fund are the same class of people, namely the investors. The term mutual means

that investors contribute to the pool, & also benefit from the pool. There are no other claimants to the

funds. The pool of funds held mutually by investors is the mutual fund.

A mutual funds business is to invest the funds thus collected, according to the wishes of the investors

who created the pool. In many market these wishes are articulated as investment mandates. Usually,

the investors appoint professional investment managers, to manage their funds. The same objective is

achieved when professional investment managers create a product, and offer it for investment to the

investors. This product represents a share in the pool, & pre-states investment objectives.


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CONCEPT OF MUTUAL FUNDS


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Characteristics of Mutual Funds

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

of the mutual fund is in the hands of the investors.

A mutual fund is managed by the investment professionals & 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 investors share in the fund is denominated by units the value of the units change with

the change in the portfolios value, everyday. The value of one unit of investment is called as

the Net Asset Value or NAV.

The investment portfolio of the mutual fund is created according to the stated investment

objective of the fund.

Advantages of Mutual Funds

Portfolio Diversification

By offering readymade diversified portfolios, mutual funds enable investors to hold diversified

portfolio. Though investors can create their own diversified portfolios, the costs of creating

and monitoring such portfolios can be high, apart from the fact that investors may lack the

professional expertise to manage sucha portfolio


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Professional Management

Mutual fund are managed by investment managers(AMCs) who are appointed by

trustees & bound by the investment management agreement, on the hows & whys of

their investment management functions.

AMCs are also required to be adequately capitalized, & are closely regulated by SEBI.

AMCs competing for funds under management therefore bring in significant

professional expertise & are bound by regulatory & trustee supervision.

Investment managers & funds are also bound by the AMFI code of ethics, which foster

professional standards in the industry.

Reduction in risk

Mutual funds invest in a portfolio of securities. This means that all the funds are not invested

in the same investment avenue. It is well known that risk & returns of various investment

options do not move uniformly or in sympathy with one another. Therefore, holding a

portfolio that is diversified across investment avenues is a wise way to manage risk. When

such a portfolio is liquid & marked to market, it enables investors to continuously evaluate the

portfolio & manage their risks more efficiently.

Reduces Transaction cost

Mutual funds provide the investors the benefit of economies of scale, by virtue of their size.Though the individual investors contribution may be small, the mutual fund is large enough


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Liquidity

Most of the funds being sold today are open-ended. That is, investors can sell their

existing units, or buy new units, at any point of time, at prices that are related to the

NAV of the fund on the date of the transaction. This enables investors to enjoy a high

level of liquidity on their investments.

Since investors continuously enter & exit funds, funds are actually able to provide

liquidity to investors, even if the underlying markets, in which the portfolio is invested,

may not have the liquidity that the investor seeks.

Disadvantages

No control over cost

Since investors do not directly monitor the funds 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 create tailor made portfolios.

M i f li f f d


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As the number of mutual fund increase, in order to tailor a portfolio for himself, an investor

may be holding a portfolio of funds, with the costs of monitoring them & using them, being

incurred by him.


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TYPES OF MUTUAL FUNDS

There are various types of mutual fund schemes available in the market. Currently there are 5373

mutual funds schemes available in the Indian market.

Broadly the various

types of mutual funds are differentiated on the basis of:

On the basis ofSTRUCTURE, mutual funds can be divided into 3 types:

a) Open Ended Schemes

It is the pool of fund which is open for sales & repurchases. An open-end fund is one tha

available for subscription all through the year. These do not have a fixed maturity. Invest

can conveniently buy and sell units at NAV related prices. Therefore both the amount of

funds that the mutual fund manages & the number of units vary everyday. The key featur

open-end schemes is liquidity.

Open-ended funds have to balance the interests of investors who come in, investors who

out & investors who stay invested. Open-ended funds are offered for sale at a pre-specifi

price, in the initial offer period. After a pre-specified period, the fund is declared open fo

further sales & repurchases. These transactions happen at the computed NAV related pric

b) Closed Ended Schemes

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

years. The fund is open for subscription only during a specified period. Investors can inv

the scheme at the time of the initial public issue and thereafter they can buy or sell the un

the scheme on the stock exchanges where they are listed. Therefore new investors buy fr

the existing investors, & existing investors can liquidate their units by selling them to oth

willing buyers. In a closed end funds, thus, the pool of funds can technically be kept cons

The price at which units can be sold or redeemed depends on the market prices, which is

fundamentally linked to the NAV


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In order to provide an exit route to the investors, some close-ended funds give an option

selling back the units to the Mutual Fund through periodic repurchase at NAV related pri

SEBI Regulations stipulate that at least one of the two exit routes is provided to the inves

c) Interval schemes

Interval Schemes are that scheme, which combines the features of open-ended and close-

ended schemes. The units may be traded on the stock exchange or may be open for sale o

redemption during pre-determined intervals at NAV related prices.

On the basis ofINVESTMENT OBJECTIVE, mutual funds can be divided into 4 types:

a) Growth Option

Growth Schemes are also known as equity schemes. The aim of these schemes is to

provide capital appreciation over medium to long term. These schemes normally inve

major part of their fund in equities and are willing to bear short-term decline in value

possible future appreciation.

In it incomes earned are retained in the investment portfolio, & allowed to grow, rathe

than being distributed to the investors.

The return to the investors is at the rate at which his initial investment has grown over

period for which he was invested in fund. The NAV will vary with the value of the

investment portfolio while the number of unit held will remain constant.

b) Income Scheme

Income Schemes are also known as debt schemes. The aim of these schemes is to pro

regular and steady income to investors. These schemes generally invest in fixed incom

securities such as bonds and corporate debentures. Capital appreciation in such schem

may be limited.

c) Balanced Funds

Funds that invest both in debt & equity markets are called balanced funds. Balanced

Schemes aim to provide both growth and income by periodically distributing a part of

income and capital gains they earn. A typical balanced fund would be almost equally

invested in both the markets. A balanced fund also tends to provide investors exposur

both equity & debt markets in one product. Therefore the benefits of diversification gfurther enhanced, as equity & debt markets have different risk and return profiles.


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d) Money Market Schemes

Money Market Schemes aim to provide easy liquidity, preservation of capital and

moderate income .These debt funds invest only in instruments with a maturity less tha

year. The investment portfolio is very liquid, & enables investors to hold their investm

for very short horizons of a day or more. These schemes generally invest in safer, sho

term instruments, such as treasury bills, certificates of deposit, commercial paper andinter-bank call money.

On the basis ofNATURE, mutual funds can be of 3 types:

a) Equity Funds

These funds invest a maximum part of their corpus into equities holdings. The structu

the fund may vary different for different schemes and the fund managers outlook on

different stocks. Equity funds can be further divided into 4 types:

Simple equity funds

These funds invest a pre-dominant portion of the funds mobilized in equity & equi

related products. In most cases about 80-90% of their investments are in equity sha

These funds have the freedom to invest both in primary & secondary markets for

equity.

Sector Specific funds

These funds choose to invest in one or more chosen sectors of the equity markets.

These sectors could vary depending on the investor preference & the return-risk

attributes of the sector. Sector specific funds are not as well diversified as simple e

funds, as they tend to focus on fewer sectors in the equity funds, as they tend to fo

on fewer sectors in the equity markets. They can exhibit very volatile returns.

Ta Sa ing F nds(ELSS)


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One variation of the simple equity fund is the ELSS (Equity Linked Saving Schem

These funds, named variously in the mutual fund industry, are equity funds formed

under a special scheme notified by the Government of India in 1990. According to

provisions of this notification, investment in a specially formed mutual fund produ

that invest at least 90% of its funds in equity & equity-linked investments is eligib

a tax rebate, up to a maximum investment of Rs. 10,000, under section88 of the In

Tax Act. Investors have to hold their units for a minimum lock-in period of 3 year

order to avail of the tax rebate.

Primary market funds

These funds invest in equity shares, but do so only when a primary market offeringavailable. The focus is on capturing the opportunity to buy those companies which

issue their equity in primary markets, either through a public offer or through priva

placements.

Index funds

It is an alternative approach to creating an equity portfolio for investors, is to avoid

taking views on the performance of companies, & instead focus on creating a

diversified portfolio, that simply replicates an existing market index. In order to tra

the return performance of markets, market indices of a sub-set of trading stocks is

created.

This strategy is also called passive fund management. The costs of this strategy ar

lower, & the fund performance virtually tracks the market index. An index fund

provides an ideal exposure to equity markets, without the investors having to bear

risks & costs arising from the market views that a fund manager may take.

Other equity funds

Equity funds can also be created to invest in equity shares of companies with spec

attributes. For Example, there are small stock funds, which invest only in equity sh

of small companies; there are PSU funds which specialize in investing only in PSU

stocks; there is a top 200 fund, which invests in companies within the universe of t

top 200 equity stocks; there is a select equity fund, which invests from the universstocks comprising the A group companies of the Bombay Stock Exchange; & ther


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products try to define a subset of the equity market, in terms of size &other attribu

& tend to focus on that segment.

b) Debt Funds

Debt funds are those that pre-dominantly invest in debt securities. Since most debt

securities pay periodic interest to investors, these funds are also known as income fun

However, investing in debt products can also offer a growth option to their investors.

universe of debt securities comprises of long term instruments such as bond issues by

central & state governments, public sector organizations, public financial institutions

private sector companies; and short term instruments such as call money lending,

commercial papers, certificates of deposit; & treasury bills. Debt funds tend to create

variety of options for investors by choosing one or more of these segments of the deb

markets in their investment portfolio. Debt funds can be further divided into 5 types:

Gilt Funds

A gilt fund invests only in securities that are issued by the government, & therefor

does not carry any credit risk. These funds invest in short & long-term securities is

by the government. These funds are preferred by institutional investors who have t

invest only in government paper. These funds also enable retail investors to partici

in the market for government securities, which is otherwise a large-ticket wholesal

market.

Income Funds

These funds invest a major portion into various debt instruments such as bonds,

corporate debentures and Government securities

MIPs

These funds invest maximum of their total corpus in debt instruments while they ta

minimum exposure in equities It gets benefit of both equity and debt market Thes


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scheme ranks slightly high on the risk-return matrix when compared with other de

schemes.

Short Term Plans(STPs)

These funds are meant for investment horizon for three to six months. These fundsprimarily invest in short term papers like Certificate of Deposits (CDs) and

Commercial Papers (CPs). Some portion of the corpus is also invested in corporate

debentures.

Liquid funds

These funds are also known as Money Market Schemes, These funds provide easy

liquidity and preservation of capital. These schemes invest in short-term instrumen

like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are m

for short-term cash management of corporate houses and are meant for an investm

horizon of 1day to 3 months. These schemes rank low on risk-return matrix and ar

considered to be the safest amongst all categories of mutual funds.

c) Balanced Funds

As the name suggest they, are a mix of both equity and debt funds. They invest in

both equities and fixed income securities, which are in line with pre-defined

investment objective of the scheme. These schemes aim to provide investors with

the best of both the worlds. Equity part provides growth and the debt part provides

stability in returns. The benefits of diversification get further enhanced, as equity &

debt markets have different risk &return profiles.


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CONSTITUTION OF A MUTUAL FUND

The structure of mutual funds in India is governed by the SEBI (mutual fund)

Regulations, 1996. These regulations make it mandatory for mutual funds to have a

three-tier structure of Sponsor-Trustee-Asset Management Company (AMC). The

sponsor is the promoter of the mutual fund, & appoints the Trustees. The trustees are

responsible to the investors in the mutual fund, & appoint the AMC for managing theinvestment portfolio. The AMC is the business face of the mutual fund, as it manages

all the affairs of the mutual fund. The mutual fund & the AMC have to be registered

with SEBI.

SEBI regulations also provide for who can be a sponsor, trustee & AMC, & specify

the format of agreements between these entities. These agreements provide for the

rights, duties & obligations of these three entities. These agreements provide for the

rights, duties & obligations of these three entities.


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.

Sponsor

The sponsor is the promoter of the mutual fund. The sponsor establishes the mutual fund

registers the same with SEBI.

Sponsor appoints the trustees, custodians & the AMC with prior approval of

SEBI, & in accordance with SEBI Regulations.

Sponsor must have at least 5-year track record of business interest in the

financial markets.

Sponsor must have been profit making in at least 3 of the above 5 years.

Sponsor must contribute at least 40% of the capital of the AMC.

Trustee

The mutual fund, which is a trust, is managed either by a Trust company or a board of

Trustees. It is the responsibility of the trustees to protect the interest of investors, whose

is managed by the AMC. The AMC & other functionaries are functionally accountable to

trustees.

Asset Management Company (AMC)

The mutual fund is operated by a separately established asset management company (AM

It manages the funds of the various schemes. It is entrusted with the specific task of

mobilizing funds under the scheme.

The trustee, on the advice of the sponsor, usually appoints the AMC. The trust deed

authorizes the trustee to appoint the AMC. The AMC is usually a private limited compan

which the sponsors & their associates or joint venture partners are shareholders. The AM

has to be SBI registered entity, & should have a minimum net worth of Rs. 10 crores.

Following are the various types of AMCs we have in India


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AMCs owned by financial institutions

AMCs owned by the Indian private sector company

AMCs owned by foreign institutional investors

AMCs owned jointly by Indian & foreign sponsors.

Custodian

Custodians are responsible for the securities held in mutual funds portfolio. They discha

an important back-office function, by ensuring that securities that are bought, delivered &

transferred to the books of the mutual funds, & those funds are paid out when a mutual fubuys securities. They keep the investment account of the mutual fund, & also collect the

dividends and interest payments due on the mutual fund investments. Custodians also tra

corporate actions like bonus issues, right offers, offer for sale, buy back & open offers fo

acquisition.

Registrars & Transfer

Agents (R & T Agents)

The R & T agents are responsible for the investor servicing functions, as they maintain th

records of investors in mutual funds.

They process investor

applications.

Record details provided

the investors on application forms.

Send out to investor deta

regarding their investments in mutual fund.

Send out periodical

information on the performance of mutual funds.

Process dividend payout

investors

Incorporate changes ininformation as communicated by investors.


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Keep the investment reco

up to date, by recording new investors & removing investors who have withdrawn t

money.

NET ASSET VALUE (NAV)

NAV represents the actual value of per unit of a fund. It is calculated as:

(Market value of all investments + Income + Profit Loss - Expenses)

Number of units in the mutual fund

The above components stand for:

Market value of all the investments

Every security in the funds portfolio has a market value. The value of the entire portfolio

calculated to reach this figure. It is here that any capital appreciation or depreciation of th

portfolio is reflected.

Income

This is the interest income earned by debt securities or dividend income earned by stocks

the portfolio.


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Profit

This is the capital gain realized by selling a security (debt or equity) at a price higher than

purchase price.

Loss

This is the capital loss suffered by selling a security (debt or Equity) at a lower price than

purchase price.

Expenses

This is the actual expenses incurred by the fund. For example, fees paid to AMC, custodi

registrars etc., SEBI restricts the expenses that can be paid by the fund.

2 facts emerge from the above:

All the income, expenses , profits & losses of a mutual fund are reflected in one sin

number its value, i.e. its NAV

Market Value of investments is a major determinant of NAV. Thus, a mutual funwill reflect market conditions.

NATURE OF INCOME DISTRIBUTION TO INVESTORS

Mutual fund offers a variety of options to investors, in the manner in which the returns

from their investments are structured. At a broad level, the investors have 3 optionswhich are:

Dividend Option

Investors, who choose a dividend option on their investments, will receive

dividends from the mutual funds, as & when dividends are declared. Dividends

are paid in the form of warrants, or are directly credited to investors bank

account.


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Investors who do not require periodic income distributions can choose the

growth option, where the income earned are retained in the investment portfolio,

& allowed to grow, rather than being distributed to the investors. Investors with

longer-term investment horizons, & limited requirements for income, choose this

option. The return to the investors is at the rate at which his initial investment

has grown over the period for which he was invested in the fund. The NAV of

the investor choosing this option will vary with the value of the investment

portfolio, while the number of units held will remain constant.

Re-investment Option

Investors re-invest the dividends that are declared by the mutual fund, back into

the fund itself, at NAV that is prevalent at the time of re-investment. In this

option, the number of units held by the investor will change with every re-investment. The value of the units will be similar to that under the dividend

option.

SELECTION OF FUNDS

Following are the steps recommended by John Bogle, former chairman of Vanguard

Group of Funds in United States:

For Equity funds

Classify the equity funds into broad categories that signify their return &

risk characteristics.

Classify funds further on the basis of fund manager style. Investors may

want to choose between value & growth styles, depending on their risk &


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Evaluate the performance of the schemes. This is done both within the

peer group, & comparison with the bench mark

Under the structural characteristics of the scheme like Size of the fund,

fund age, portfolio managers experience, and costs of investing.

Understanding the portfolio characteristics of the scheme like percentageof cash in portfolio, market capitalization of the fund, portfolio turnover,

portfolio risk, and statistics-ex marks of the portfolio, beta, and gross

dividend yield.

The performing fund will have higher ex marks, lower beta, & higher gross

dividend yield.

For Debt/Bond funds

Fund age & size Newer & smaller fund may not be risky to the investors.

Relative Yield the total return on the fund may not be risky to the investors.

Costs expenses ratio in a bond fund is very important, higher loads &

expenses could lead to a yield sacrifice.

Quality of the portfolio Better the rating of the bonds in the portfolio,

better the fund.

Average maturity the duration of the portfolio, and therefore is related to

the average maturity. Higher the average maturity means higher interest rate

risk in the fund.


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WHY AN INVESTOR LEAVES A FUND

Change in a Fund's Manager

When investors put their money into a fund, they are putting a certain amount oftrust into the fund manager's expertise and knowledge, which they hope willlead to an outstanding return on an investment that suits their investment goals.

Thus, fund manager plays an important role when investors put in their moneyin mutual funds.

Change in Strategy

If investors research their fund before investing in it, they most likely investedin a fund that accurately reflects their financial goals. If their fund managersuddenly starts to invest in financial instruments that do not reflect the mutualfund's original goals, they may want to re-evaluate the fund you are holding. Forexample, if a small-cap fund starts investing in a few medium orlarge-cap

stocks, the riskand direction of the fund may change.

Consistent Underperformance

This can be tricky since the definition of "underperformance" differs frominvestor to investor. If the mutual fund returns have been poor over a period ofless than a year, then investors may not liquidate, thinking that liquidating theirholdings in the portfolio may not be the best idea since the mutual fund maysimply be experiencing some short-term fluctuations. However, if they havenoticed significantly poor performance over the last two or more years, theymay liquidate their holdings.

The Fund Becomes Too Big

In many cases a fund's quick growth can hinder performance. The bigger thefund, the harder it is for a portfolio to move assets effectively. Fund size usuallybecomes more of an issue forfocused funds or small-cap funds, which eitherdeal with a smaller number of shares or invest in stock that has low volume andliquidity.
http://www.investopedia.com/terms/s/small-cap.asphttp://www.investopedia.com/terms/l/large-cap.asphttp://www.investopedia.com/terms/r/risk.asphttp://www.investopedia.com/terms/f/focusedfund.asphttp://www.investopedia.com/terms/v/volume.asphttp://www.investopedia.com/terms/l/large-cap.asphttp://www.investopedia.com/terms/r/risk.asphttp://www.investopedia.com/terms/f/focusedfund.asphttp://www.investopedia.com/terms/v/volume.asphttp://www.investopedia.com/terms/s/small-cap.asp


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Latest Asset under Management for all Mutual Fund Houses

Amount in


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MUTUAL FUND

NAME

NO. OF

SCHE-

MES

ASSET UNDER MANAGEMENT

As on Mar

31,2008

As on Feb

29,2008

Net Inc/Dec as

on Mar 31,2008

ABN AMRO MutualFunds

325 6675.73 6813.54 -137.81

AIG Global InvestmentGroup Mutual Fund

54 3,148.63 3,303.49 -154.86

Benchmark MutualFund

12 5611.00 4,954.72 656.28

BIRLA Mutual Funds 330 34750.00 36,391.00 -1641

BOB Mutual Funds 22 70.34 79.69 -9.35

Canara Robeco MutualFund

54 2484.28 3,146.58 -662.3

DBS Chola Mutual

Fund

80 1,963.92 2,953.32 -989.4

Deutsche Mutual Fund 176 11996.00 14,404.85 -2408.85

DSP Merrill LynchMutual Fund

207 19136.00 19,940.40 -804.4

Escorts Mutual Funds 26 175.8 146.93 28.87

Fidelity Mutual Funds 39 8294.05 9,487.17 -1193.12

Franklin TempletonInvestments

225 29604.33 29,424.58 179.75

HDFC Mutual Funds 351 43762.7 46,291.97 -2529.27

HSBC Mutual Funds 212 13953.08 15,530.08 -1577ICICI Prudential

Mutual Fund416 51810.85 62,008.95 -10198.1

ING Mutual Funds 251 9844.71 9,844.71 00.00

JM Financial MutualFund

171 11,032.93 12,559.79 -1526.853

JPMorgan MutualFunds

9 2081.42 2,481.12 -399.7

Kotak MahindraMutual Fund

178 16135.52 19,367.84 -3232.32

LIC Mutual Funds 112 13387.40 15,103.00 -1715.6

Lotus India MutualFunds

212 10057.10 9,763.88 293.22

Morgan Stanley MutualFunds

3 3172.00 3,599.49 -427.49

PRINCIPAL MutualFunds

151 11,780.02 13,318.69 -1538.67

Quantum Mutual Funds 6 64.22 65.38 -1.16Reliance Mutual Funds 331 77210.04 93,531.68 -16321.64

h l d
http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM042http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM042http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM044http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM010http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM010http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM019http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM019http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM042http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM042http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM044http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM010http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM010http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM019http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM019http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033


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As per the graph, we can see there has been a sharp increase in the sales of mutual

funds in the month of January. The volatility of the market started in January. When the

market decreased in January, investors thought that it is correction and they put in

money so as to buy mutual funds at lower NAV. But after the market crashed on 21st

January, investors began to panic. In the month of February there has been a sharp

decrease in the sales of mutual funds. This is because of downward motion of market in

February. In March there has been a slight recovery in the sales.

Balanced funds sales showed the same trend. There had been a sudden increase in the

sales of balanced funds. As balanced funds is the combination of both equity & debt.


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February there has been a sharp decline in the sales of balanced funds & same

continued in the month of March.


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Income funds basically invest in debts. There had been a sharp increase in the sales in

month of January. But a slight decrease in the month of February. There has been

increase in the sales of such funds in March. It is because of their returns are assured &

they are less risk averse.


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After the volatility of market, investors have developed a negative sentiment. And it is

visible from the sharp increase in the sales of gilt funds. They do not have credit risk.

And they invest in government securities only. Therefore, investors invested more in

the gilt funds. There has been a sharp increase in the month of February, in spite of thedecrease in the mutual funds sales. There has just been a slight decrease in the month of

March. But overall the sales of gilt funds have increased to a very large extend.


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Sales of gold funds have increased many folds because people are moving towards

commodities to hedge against inflation or market fall & gold ETF offer theadvantage of not holding physical gold as well as flexibility to sell at any time &turn to equity or debt because selling instrument is easier rather than physicalquantity & procuring gold is not an easy task plus flexibility is another reason whygold ETF is preferred against gold


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These funds basically aim at liquidity. They invest in short term bonds & securities.

These funds also followed the trend. There has been increase in the sales in the month

of January but a slight decrease in the month of February. Again these funds sales

increased in the month of March.


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METHODOLOGY USED

Primary data is collected through a questionnaire & collecting answers from

investors to understand the investors needs, choice & strategies under various

conditions. The questionnaire is aimed at gathering firsthand knowledge of investors

point of view.

Sample design

Random sampling method is used for collection of data and necessary information for

which sample size of 100 respondents in Jaipur city have been taken for study.

Analysis & Interpretation

The study mainly deals with changed strategies and expectations of IndividualInvestors towards Mutual funds in Jaipur city due to the volatility of the market.

Respondents were screened and inclusion was purely on the basis of their knowledgeabout Financial Markets, MFs in particular. This was necessary, because thequestionnaire presumed awareness of some basic terminology about Mutual Funds. Thepurpose of the survey was to understand mainly their fund selection behavior, variousfactors influencing this behavior, their investment objectives, changing strategies inchanging scenario and also the conceptual awareness level among individual investors.The survey was conducted during Mar-Apr 2008, among 100 educated, geographicallydispersed individual investors of Jaipur city. Sample of the Questionnaire is given inAnnex I 1. The unit of observation and analysis of survey is only among Individual

Investors whose definition is An Individual who has currently invested in any MutualFunds. Since it is an exploratory study no specific hypothesis is formulated.

Since the study is entirely based on the personal opinion of the respondents, the

collected data is presented in tabular form .Pie charts and diagrams are also used as a

presenting tool for the effective presentation. Percentage and majority method has been

used to analyze the responses given by the respondents. For most important questions

the responses have been accepted according to the most frequently similar responses

given by the respondents of one similar group and after that the whole responses of all

respondents were compiled in order to get a clear snap shot of the investment behavior.

So primarily the direct responses according to majority of sample has been accepted


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Secondary data will be collected through internet, magazines. Various journals,

books, various AMCs Fund Fact sheets and Standard Chartered Bank study material

so as to collect information about mutual fund market, stock exchange and about

wealth management.

LIMITATIONS OF THE STUDY

1) Geographical constraint - Sample size is limited to 100 educated individualinvestors in the city of Jaipur. The sample size may not adequately represent thenational market.

2) Sampling constraints - Simple Random and judgment sampling techniques isdue to time and financial constraints.

3) Time constraint - This study has not been conducted over an extended period of

time having both ups and downs of stock market conditions which a significant

influence on investor s buying pattern and preferences.

FINDINGS OF THE STUDY

1) PERSONAL INFORMATION ABOUT INVESTORS

Under this category investors were asked 5 questions:

(a) What is your age?

Basically this question is being asked to study a trend of investment

according to the age of an investor Age plays an important role in the


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invest more in equity as he can have higher risk appetite. A person who is in

middle age may prefer to invest in balanced funds. A person who is aged

may prefer to invest in debt funds as his risk appetite will be the lowest. He

would not be looking towards long term investments but he must be looking

towards constant returns, so may want to invest in debt funds.

CATEGORY NO. OF RESPONDENTS

20-30 YRS 30

31-40YRS 30

41-50 YRS 25

550 ABOVE 15

(b) Which investment tool, generally you choose for your investmentpurpose.

INVESTMENT TOOL NO. OF RESPONDENTS

Bonds 7

Equity 23

Fixed Deposits 4

Gold 25Mutual funds 40

Others 1


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Analysis:

Around 11% investors want to invest in secured instruments like bonds &

FDs

Around 23% are high risk takers. They invest in equity.

Around 25% people invest in gold. It is the second most popular investment

tool. As it has given huge returns in past few months.

Around 40% invests in mutual funds, which shows that they want to balance

between risk and returns.

(c) What is your investment expenditure ratio?

INVESTMENT-EXPENDITURE RATIO NO. OF RESPONDENTS

Less than 20% 24

20-80% 36

30-70% 15

40-60% 25

50-50% 0


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Analysis:

Around 25% of the investors invest less than 20% of their income. This is

a huge potential base.

The major part lies in the bracket 20-80% ratio.

25% investors invest in the ratio of 40-60% which is less.

(d) How stable is your income source?

STABILITY OF INCOME NO. OF RESPONDENTS

Stable 60

Unstable 5Moderate 25


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Analysis:

As 60% investors have a stable income source. Earlier they had apsychology of investing in stable investment instruments like bonds & fixeddeposits rather than investing in equity market where returns can be muchhigher than present investments but they are showing risk aversion becauseof the equity markets volatility. Based on this it can be said that they do notbelieve in the economical condition of the country and market stability. Butno conditions have changed. People with stable income are also ready totake risk

25% has moderate income

10% has fluctuating. This basically comprises of business men

Only 5% state their income to be unstable

d) Which bank/organization is providing you the investment services?


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Analysis:

Only 30% of the investors invest through banks/financial institutes

Out of 100 investors, who invest in mutual funds, 70% do not take

investment services from the bank or any other institute.

There are still large part investors who invest on their own.

2) HOW INVESTORS TAKE INVESTMENT DECISION?


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Under this there were 3 different questions asked to the respondents:

(a) Before making an investment decision, how do you conclude that

for which investment instrument you should go for?

REASON FOR INVESTMENT NO. OF RESPONDENTS

According to return analysis 50

According to esteemed group 5

After consultation with financial advisor 15

According to market trend 30

Analysis:

As the data show that only 25% respondents of the total populationchoose their investment medium after consultation or according to theirpeer group. They are not anymore dependent on what others have to say.They decide for their own money. 75% of respondents follow the return analysis & market trendmethod for arriving at an investment decision. This shows that peoplehave become educated. They know where there money should go. Whatare their requirements?

(b)Do you generally invest in popular mutual funds or analyze the funds &performance before investment decisions?


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REASON FOR CHOOSING MUTUAL

FUND

NO. OF RESPONDENTS

Follow the popularity 5

Follow the esteemed group 15

Careful analysis of the fund 50

After consultation with financial advisor 30

Analysis

Around 50% of people still choose mutual funds after consultation.

These shows that people believe more on what other advisors has to say

rather than making their own decisions

Another 50% do the return analysis & other analysis of the funds todecide on which fund to invest in

(c)What factors do you keep in mind before investing in mutual

funds?


48/85

Brand Name 20

Product features 5

Quality of service 5

Transparency 5

Past performance 65

Analysis:

While choosing a fund the most important thing that matters to investors is

past performance of the mutual funds

Next is the brand name. This shows the brand name inculcates trust and

investors want to invest where they feel that their money is safe.

Other factors like product features & quality services & transparency are

not that important to investors


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Simply as the topic may seem, but the investment objective of an investor

forms the base for his investment foray. Investment objective refers to the

expectations & requirements that an investor desires his investment to live

up to. Every investment is followed by an investors attempt to attain

some gain out of it. But the GAIN is just not the capital appreciation thatsatisfies an investor, its timely attainment is as mandatory as the

realization of gain itself.

The various schemes in the mutual fund industry are designed to suit the

particular investment purpose of the investors. The idea of customization

has penetrated into this industry as well & with the growing diversified

needs of the investors, several schemes are formulated that help the

customer achieving his goal & making his investment valuable.

This customization is the key reason for the spurt in the investment

avenue. Other than this, at times it may be identified that investors may

hold more than one expectation. In such a case he tries to create a portfolio

for himself that lives up to all his expectations. There are many counselors

who provide counseling in the same avenue basing & researching their

decisions on certain parameters which are small things but could have the

biggest of impact on ones investments.


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Age also plays an important role in the investment objective. The model

portfolio that has been recommended for investors by Jacobs for investors

according to their life cycle stages is

INVESTORS RECOMMENDED MODEL PORTFOLIO

Young

unmarried

professional

50% in aggressive equity funds

25% in high yield bond funds, growth & income funds

25% in conservative money market funds

Young couplewith 2 income

& 2 children

10% in money market funds30% in aggressive equity funds

25% in high yield bond funds & long term growth funds

35% in municipal bond funds

Older couple

single income

30% in short term municipal funds

35% in long term municipal funds

25% in moderately aggressive equity

10% emerging growth equity

Recently

retired couple

35% in conservative equity funds for capital

preservation/income25% in moderately aggressive equity for modest capitalgrowth

40% in money market funds

Under this category there were 4 questions asked:

(a) If you have to invest Rs. 100, how will you divide it in the

following categories?


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INVESTMENT OBJECTIVE NO. OF RESPONDENTS

Long term(5-6years)/ Capital appreciation

Mid -term(2-3years)/growth appreciation

Short term(monthly)/ Liquidity

Analysis:

Around 64% investors are interested in long term investments. They

look at both growth & capital appreciation

Around 25% interested in mid- term returns within the span of 2 to

3 years

Most of the investors look for growth so there are less people who


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(b) What is your investment objective, while investing in mutual funds?

INVESTMENT OBJECTIVE NO. OF RESPONDENTS

Growth 45Liquidity 5

Income 25

Balanced 25

Others

Analysis:

As the data show that 45% investors have opted for growth, 25 %income or the liquidity & 30 % for balanced. Here the liquidity andbalanced can be taken as same because they both show short term objectinstead of long term object. We can conclude that a majority of investorsshow a short term object nearly about 80 % means they are not investing

in the market with a broader horizon of stability of the economy or themarket. The result also describes that they are not investing in stockmarket; they are going for the debt market as they opt for the liquidity orthe balanced returns. A lower proportionate of the growth option show thatthey do not want to invest for long term means they may have a view thatthe stock market will not be able to perform well in long time. The bullride of the

economy is short in nature according to their response. Because forobtaining growth in future they need to invest for long term in stockmarket So a lower response regarding investment in favor of the growth


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(c) What is your investment strategy?

INVESTMENT STRATEGY NO. OF RESPONDENTS

Low risk, low return 15Mid risk, mid return 55

High risk, high return 30

Analysis:

Around 30% investors can take high risk. That shows that they want

high returns

Most of the investors are risk averse i.e. they want medium risk.

They want to strike a balance between risk and return

This category is of low risk appetite people who basically invests in

gilts & bonds and have lowest returns


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4) CURRENT SENTIMENTS

Under this category there are 3 questions asked to the customers:

(a) What is your view about stock market?

VIEW ABOUT STOCK MARKET NO. OF RESPONDENTS

It will decrease further 25

This is the bottom 5

Will decrease further but then recover 40

Will recover now 30

Analysis:

Majority of investors think that market will recover. They think that

it will recover back to its bullish walk

Only 5% thinks that market will stagnate here.

There is another major part of investors that thinks that market will

decrease further. This shows a negative sentiment of the investors & thusimpacts the sale of mutual funds


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Another 30% thinks that market will now recover, it will not fall

further.

(b) With current scenario, how risky do you find investing in mutual funds?

RISK IN INVESTING IN MUTUAL FUND NO. OF RESPONDENTS

Low risk 20

Medium risk 45

High risk 30

Very high risk 5

Analysis:

5% investors think that investing in mutual funds is of high risk

low

20%

medium

45%

high

30%

very high

5%

Mutual Fund Risk


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30% think that it is high risk to invest in mutual funds

45% think that investing in mutual fund is of medium risk and this truly

stands in context of mutual funds because mutual funds diversify the risk

to a large extend as compared to equity.


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(c) As the market is going down, what is your investment strategy?

CHANGED INVESTMENT STRATEGY NO. OF RESPONDENTS

Selling off existing funds 10

Wait & watch 60

Buying more as the NAV is low 30

Analysis:

10% people have negative sentiments. They want to sell of their

existing investments.

60% people say that their strategy is to wait and watch. They wantto give market more time to recover.

30% people take it as an opportunity. They think that market will

recover. This is the time to buy because they are getting a good deal at

very low prices.


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COMPARATIVE ANALYSIS OF MUTUAL FUNDS

There are around 5343 mutual fund schemes currently in market. It is difficult for an

investor to choose from them. That is where wealth management comes into play.

There are certain mutual funds that are star ranked by the wealth managers.

So these mutual funds are analyzed on the basis of the parameters as per the investorsand to observe the following:

1) Difference between the parameters of the investors & investment managers.

2) Currently star ranked funds catering to the needs of investors

3) Funds

4) Difference between the output of current star ranked funds & expectations of

investors

5) Need for changing the investment strategies.

EQUITY ELSS

Recommendation Recommendation by SCB Recommendation byMarket

Name of the fund Principal Personal Tax Saver Tata tax Advantage fund 1

Last 1 year % 30.3 20.46

Last 3 years % 31.2 28

Since Inception % 31.7 35.1

Total Equity % 121.6 93Expense Ratio % 2.5 2.22


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Inception Date 1-Jan-96 10-Apr-99

EQUITY INDEX

Recommendation Recommendation by SCB Recommendation by

Market

Name of the fund ICICI Prudential Index Fund LIC MF Index Fund -

Sensex Plan - Growth

Last 1 year % 26.2 18.1

Last 3 years % 34.9 34.01


Expense Ratio % 1.25 2.05Corpus (crs.) 37 44.23

Inception date 25-Feb-2002 28-Nov-2002

Sharpe .25 .21

Beta 1 .92

Treynor .89 .77

EQUITY LARGE CAP DIVERSIFIED

Recommendation Recommended by SCB Recommended by Market

Name of the fund DSP Merill Lynch Top 100

Equity Fund

Templeton India Growth

Fund- Dividend

Last 1 year % 28.1 33.4

Last 3 years % 37.6 31.8
http://www.mutualfundsindia.com/fundfactsheet1.asp?sname=LC044http://www.mutualfundsindia.com/fundfactsheet1.asp?sname=LC044http://www.mutualfundsindia.com/fundfactsheet1.asp?sname=LC044http://www.mutualfundsindia.com/fundfactsheet1.asp?sname=LC044


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Total Equity % 85 96.8

Expense Ratio % 2.3 2.32

Corpus (crs.) 802 320

EQUITY SECTOR CONCENTRATED


Name of the fund Kotak Oppportunity Fund DSP Merrill Lynch IndiaTiger Fund

Last 1 year % 33.7 29.7

Last 3 years % 42.1 42.8


Total Equity % 89.1 90.2


Corpus (crs.) 700 3831

BALANCED FUNDS


Name of the fund HDFC Balanced Fund Benchmark Split capital fund

Last 1 year % 13.18 Na

Last 3 years % 21.11 Na


Expense Ratio % 2.21 0

Sharpe .20 .19

Beta .82 .87Treynor .52 .44


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FIXED INCOME GILT LONG TERM


Name of the fund ICICI Prudential Gilt Fund

Investment Plan

HDFC Gilt Fund Long Term

Plan-growth

Last 1 year % 8.2 6.96

Last 3 years % 6.3 4.17



Sharpe .12 .05

Beta .80 .77

Treynor .07 .03

LIQUID FUNDS


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INVESTMENT PRODUCTS OFFERED BY SCB

Standard Chartered Bank offers other investment products under wealth management

& SCB is a pioneer in them. These can be other products that can be offered to

investors but many investors are not aware of them. These products include:

Unit linked insurance plan (ULIP)

A unit linked insurance policy is one in which the customer is provided with a life insurance

cover and the premium paid is invested in either debt or equity products or a combination of

the two. In other words, it enables the buyer to secure some protection for his family in the

event of his untimely death and at the same time provides him an opportunity to earn a return

on his premium paid. In the event of the insured person's untimely death, his nominees would

normally receive an amount that is the higher of the sum assured (insurance cover) or the

value of the units (investments).However, there are some schemes in which the policyholder

receives the sum assured plus the value of the investments.

Every insurance company has four to five ULIPs with varying investment options, charges and

conditions for withdrawals and surrender. Moreover, schemes have been tailored to suit

different customer profiles and in that sense offer a great deal of choice The advantage of


Name of the fund HDFC Cash Management

Fund- Saving Plan

Principal Money Manager

Fund-Regular-growth

Last 1 year % 8.2 Na

Last 3 years % 7.0 Na


Expense Ratio % 0.58 Na

Sharpe 2.24 Na

Beta .15 Na

Treynor .3 Na


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return are high. Just as in the case of mutual funds, buyers who are risk averse can buy into

debt schemes while those who have an appetite for risk can opt for balanced or equity

schemes. However, the charges paid in these schemes in terms of the entry load,

administrative fees, underwriting fees, buying and selling charges and asset management

charges are fairly high and vary from insurer to insurer in the quantum as also in the manner in

which they are charged.

Structured notes

A debt obligation that also contains an embedded derivative component with

characteristics that adjust the security's risk/return profile. The return

performance of a structured note will track that of the underlying debt obligation

and the derivative embedded within it. A structured note is a hybrid security that

attempts to change its profile by including additional modifying structures. A

simple example would be a five-year bond tied together with an option contract

for increasing the returns.

Arbitrage funds

Arbitrage is a strategy, which involves simultaneous purchase and sale ofidentical or equivalent instruments in two or more markets in order to benefit


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market volatility as the buying and selling transactions offset each other. In anarbitrage transaction, returns are calculated as the difference between the futuresprice and cash price at the time of the transaction. Ideally the positions are heldtill the expiry of the futures contract when the offsetting positions cancel eachother and initial price difference is realized. This arbitrage strategy makes thefund immune to market volatility i.e. the fund will not be affected by market

fluctuations. Since the portfolio of arbitrage funds is completely hedged at alltimes to lower the risk of loss/erosion of gains, it also in turn caps the returns thatthe fund could have clocked if the portfolio was not hedged i.e. these funds havea limited upside.

Despite the fact that arbitrage funds offer investors the opportunity to benefitfrom investments in equities by making use of derivatives, the fund cannot becompared to conventional diversified equity funds, especially on the returnsparameter. The returns from arbitrage funds would typically be much lower thanthose of equity funds. That could be one reason why despite their equity

holdings, arbitrage funds are benchmarked against indices like CRISIL LiquidFund Index for want of a more appropriate index.

Fixed income funds

An investment that provides a return in the form of fixed periodic payments and

the eventual return of principal at maturity. Unlike a variable-income fund,

where payments change based on some underlying measure such as short-terminterest rates, the payments of a fixed-income security are known in advance. An

example of a fixed-income security would be a 5% fixed-rate government bond

where a $1,000 investment would result in an annual $50 payment until maturity

when the investor would receive the $1,000 back. Generally, these types of

assets offer a lower return on investment because they guarantee income.

Portfolio management services(PMS)

Professional Investment Management Services are no longer the privilege of only large

institutional investors. Portfolio Management Services (PMS) is one such service that is fast

gaining eminence as an investment avenue of choice for High Net worth Investors l. PMS is a

sophisticated investment vehicle that offers a range of specialized investment strategies to

capitalize on opportunities in the market. The Portfolio Management Service combined with

competent fund management, dedicated research and technology, ensures a rewarding

experience for its clients.

Most portfolio managers allow you to choose between a fixed and a performance-linked


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performance-linked fee differs across players; usually, this includes a flat fee of 0.5-1.5 percent. The portfolio manager also gets to share a percentage of your profit usually 15-20 percent earned over and above a threshold level, which may range between 8 per cent and 15per cent. Apart from management fees, separate charges will be levied towards brokerage,custodial services and towards meeting tax payments.

However, a PMS may only add significant value in the following cases:

Equity bias: Portfolio management services may be ideal for a person who seeks a

substantial investment in the stock markets. An equity portfolio also offers greater scope for a

manager to add value than does a debt portfolio. Several of the established players in the PMS

business focus on equity investments, though some also offer hybrid products.

Large surplus to invest: The minimum portfolio size that portfolio managers accept for a

customized portfolio ranges from Rs 25 lakh to Rs 5 crore.

Real estate Funds

An REMF is like a mutual fund for real estate assets. In other words the assetmanagement company (AMC) invests in a range of real estate assets around the

country and creates a fund based on those assets. Investors can buy shares inthose funds which are traded on a daily basis on stock exchanges. The value ofthe shares depends on the value of the underlying real estate assets.

REMFs have many advantages over direct investment in real estate.

It allows investors to invest according to their income and financialcircumstances.

The portfolio of real estate assets will be a lot more diversified than a

single home with assets ranging from office space to residential propertiesall around the country as well as securities based on the real estate sector.

Investors don't have to deal with the legal and maintenance hassles ofowning property and can instead rely on the professional expertise of theAMCs. Finally if they need quick money, these funds are liquid assetswhich can be sold conveniently and rapidly.


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RECOMMENDATIONS

Savings Objective of Individual InvestorsSavings Objective of the majority of Individual Investors is to invest in moderate risk, thus throwing light on the nature of risk averse investors. AMC can attract a pool ofinvestors by designing products for Risk-Averse investors.But there is also a pool of investors that are ready to take high risk. Nearly 30% of theinvestors are ready to take high risk as they want high returns. These investors can beof high potential for equity based funds.

Savings instrument preference among individual investorsNow only 11% investors invest in secured investments like bond & fixed deposits.Now they prefer mutual funds over other investments. Around 23% of investors investin equity. This group shows the highest risk appetite and thus shows a huge potentialAround 25% of the investors invest in gold. This is the second most preferredinvestment tool next to mutual funds. It also shows a huge potential as now gold ETFare available. And the increase in gold price & thus increase in gold ETF is very muchevident.

Investment expenditure RatioMaximum investors show their expenditure ratio of 20-80%. But still around 25% ofinvestors have income-expenditure ratio of less than 20%. Thus it shows that still manyinvestors are not investing properly & thus they need professional investment services.

Stability of incomeAround 60% investors have a stable income source. Earlier they had a psychology ofinvesting in stable investment instruments like bonds & fixed deposits rather than

investing in equity market where returns can be much higher than present investmentsbut they use to show risk aversion because of the equity markets volatility. Based onthis it can be said that they did not believe in the economical condition of the country


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also ready to take risk. More people are ready to explore new investment avenues.They are ready to invest in various types of investment.

Investment adviceAround 70% of the investors do not take investment advice. They do investments ontheir own. This shows that investors have become more educated. They have moreknow- how of the market. But this can also be taken as a potential. Because, still thereare investors who need advice. Standard Chartered Bank should target such investors.Around 25% of the investors make investments after consultation with their peer groupor financial advisors. Still around 75% of the investors make investment decisions on

their own by making return analysis or market research.

Preferential Feature in mutual funds among individual investorsThe study shows the investors need for Good Return is highest among features,followed by Safety, Liquidity, Tax Benefit, Capital Appreciation, ProfessionalManagement and Diversification Benefits.

Reason for choosing a mutual fundThe most preferred reason for choosing the mutual fund is the past returns. Around

65% of the investors choose a mutual fund on the basis of past performance. Thus SCBshould offer more of those mutual funds that have good track record. Next mostpreferred feature is the brand name. In case of an NFO brand name plays an importantrole.

Investment strategyAround 64% of the investors have long term investment strategy. They want to investfor longer period. For such investors SCB can offer more of equity funds. As thoughthe market is volatile now but it is going to give huge returns in 3 to 4 years. As theseinvestors are ready to wait they can be of huge potential.

Preference of Mutual Fund Investing Over Equity InvestingThe emergence of an array of savings and investment options and the dramatic increasein the popularity of Mutual Funds, in the recent years in India, has opened up anentirely new area for value creation and management. A house-holder investor withfew rupees left over after paying for housing and two wheeler installments, is puzzledas to where he must park his funds safely, given the volatility of the market. Thiscategory may include people who either have a low awareness level about MF industryor still do not completely believe that MFs can get the same return like that of Equity

shares. Around 75% of the investors say that investing in mutual funds, risk rangesfrom low to medium. This shows that sentiments of investors have changed towards


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Sentiments towards marketAround 75% of investors believe that the market will recovers again. This shows apositive sign for mutual funds. So investors can be offered long term investments

which can give returns.Around 25% of investors believe that market wont recover. For such investors giltfunds and money market funds can be offered

Future strategy of investorsAround 60% of investors want to play safe. With current market volatility they want towait and watch. Around 30% of the investors are looking at this as an opportunity toinvest more in mutual funds as mutual funds are available at lower NAVs. This canprove to be a good potential customer base for SCB

REFERENCES

www.mutualfundsindia.com
http://www.mutualfundsindia.com/http://www.mutualfundsindia.com/


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www.amfiindia.com

www.nseindia.com

www.wikipedia.com

The Economics Times

Study materials of NCFM
http://www.amfiindia.com/http://www.nseindia.com/http://www.wikipedia.com/http://www.amfiindia.com/http://www.nseindia.com/http://www.wikipedia.com/


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CATEGORIES OF MUTUAL FUNDS


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Mutual funds can be classified as follow :

Based on their structure:

Open-ended funds: Investors can buy and sell the units from the

fund, at any point of time.

Close-ended funds: These funds raise money from investors only once.

Therefore, after the offer period, fresh investments can not be made into the fund.

If the fund is listed on a stocks exchange the units can be traded like stocks (E.g.,

Morgan Stanley Growth Fund). Recently, most of the New Fund Offers of close-

ended funds provided liquidity window on a periodic basis such as monthly or

weekly. Redemption of units can be made during specified intervals. Therefore,

such funds have relatively low liquidity.

Based on their investment objective:

Equity funds: These funds invest in equities and equity relatedinstruments. With fluctuating share prices, such funds show volatile

performance, even losses. However, short term fluctuations in the

market, generally smoothens out in the long term, thereby offering

higher returns at relatively lower volatility. At the same time, such

funds can yield great capital appreciation as, historically, equities

have outperformed all asset classes in the long term. Hence,

investment in equity funds should be considered for a period of at

least 3-5 years. It can be further classified as :

i) Index funds- In this case a key stock market index, like BSE Sensex or

Nifty is tracked. Their portfolio mirrors the benchmark index both in terms

of composition and individual stock weightages


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ii) Equity diversified funds- 100% of the capital is invested in equities

spreading across different sectors and stocks.

iii|) Dividend yield funds- it is similar to the equity diversified funds

except that they invest in companies offering high dividend yields.

iv) Thematic funds- Invest 100% of the assets in sectors which are

related through some theme.

e.g. -An infrastructure fund invests in power, construction, cements sectors

etc.

v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A

banking sector fund will invest in banking stocks.

vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the

investors.

Balanced fund:Their investment portfolio includes both debt and equity. As a result,on the risk-return ladder, they fall between equity and debt funds. Balanced funds are

the ideal mutual funds vehicle for investors who prefer spreading their risk across

various instruments. Following are balanced funds classes:

i) Debt-oriented funds -Investment below 65% in equities.

ii) Equity-oriented funds -Invest at least 65% in equities, remaining in

debt.

Debt fund:They invest only in debt instruments, and are a good optionfor investors averse to idea of taking risk associated with equities.

Therefore, they invest exclusively in fixed-income instruments like bonds,

debentures, Government of India securities; and money market

instruments such as certificates of deposit (CD), commercial paper (CP) and


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call money. Put your money into any of these debt funds depending on your

investment horizon and needs.

i) Liquid funds-These funds invest 100% in money market instruments, a

large portion being invested in call money market.

ii) Gilt funds ST- They invest 100% of their portfolio in government

securities of and T-bills.

iii) Floating rate funds - Invest in short-term debt papers. Floaters invest

in debt instruments which have variable coupon rate.

iv) Arbitrage fund- They generate income through arbitrage opportunities

due to mis-pricing between cash market and derivatives market. Funds are

allocated to equities, derivatives and money markets. Higher proportion

(around 75%) is put in money markets, in the absence of arbitrage

opportunities.

v) Gilt funds LT- They invest 100% of their portfolio in long-term

government securities.

vi) Income funds LT- Typically, such funds invest a major portion of the

portfolio in long-term debt papers.

vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt

and an exposure of 10%-30% to equities.

viii) FMPs- Fixed monthly plans invest in debt papers whose maturity is in

line with that of the fund.


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mutual fund investors-their expectations & strategies in changing scenario

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