Hdfc Amc Project Report Final

A Summer Internship Project Report on “Dynamics of Mutual Fund Distribution” Submitted in partial fulfillment of the requirements for the degree of Post Graduate Diploma in Management (Marketing) By HANISH DHILLON (Roll No. ISBS M 48) Under the guidance of Mr. Dilraj Singh Manger Banking & Corporate Channel-HDFC AMC Ltd A Study Conducted for HDFC AMC Ltd

At Indira School of Business Studies, Tathawade, Pune 411033 (2008-10)

CONTENTS 1

Chapter/

Particulars

Sub Headings 1 2 3 4

Page No

Acknowledgements Executive Summary Objectives Introduction-

4 5 8 10

4.1

-

Mutual Funds

11

4.2

-

History of Mutual Funds

12

4.3

-

Current state of Mutual Funds

14

4.4

-

Key Characteristics

16

4.5

-

Advantages of Investing in Mutual

20

Funds

22

Disadvantages of Investing in Mutual

23

Funds

25

Risks Associated with Investing in

28

Mutual Funds

29

4.6 4.7

-

4.8 4.9

-

4.10 -

Categories of Mutual Funds

-

Snapshot of Various funds

-

Risk Hierarchy of Different Mutual Funds

5

Company Profile- HDFC AMC

30

6

Research Study

41

6.1

-

Introduction

42

6.2

-

Review of Literature

42

6.3

-

Type of Research

42

6.4

-

Data collection Technique

42

6.5

-

Scope of the Study

43

6.6

-

Data sources

43

6.7

-

Sampling procedure

43

6.8

-

Sample Size

43

6.9

-

Techniques for Analysis

43

2

6.10

-

Data presentation tools

44

6.11

-

Limitations

44

7

Data Analysis

7.1

- Bar Graph 7.1

45

7.2

- Bar Graph 7.2

46

7.3

- Bar Graph 7.3

48

7.4

- Bar Graph 7.4

49

7.5

- Bar Graph 7.5

51

7.6

- Bar Graph 7.6

53

7.7

- Bar Graph 7.7

55

7.8

- Bar Graph 7.8

57

7.9 8 9 10

- Bar Graph 7.9 Research Conclusions Recommendations Annexure and Bibliography

ACKNOWLEDGEMENTS

3

58 60 62 65

I take this opportunity to express my deep sense of gratitude to all those who have contributed significantly by sharing their knowledge and experience in the completion of this project work. I am greatly obliged to, for providing me with the right kind of opportunity and facilities to complete this venture. My first word of gratitude is due to Mr. Dilraj Singh – Manager Banking & Corporate Channel, HDFC Mutual Fund, My corporate guide, for his kind help and support and his valuable guidance throughout my project. I am thankful to him for providing me with necessary insights and helping me out at every single step. I am highly thankful to Prof. Bidyut Gogoi – My internal faculty guide under whose able guidance this project work was carried out. I thank him for his continuous support and mentoring during the tenure of the project. Finally, I would also like to thank all my dear friends for their cooperation, advice and encouragement during the long and arduous task of carrying out the project and preparing this report.

4

2. EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

5

The Indian mutual fund industry has witnessed significant growth in the past few years driven by several favorable economic and demographic factors such as rising income levels and the increasing reach of Asset Management Companies (AMCs) and distributors. However, after several years of relentless growth, the industry witnessed a fall of 8 percent in the assets under management in the financial year 2008-09 that has impacted revenues and profitability. Recent developments triggered by the global economic crisis have served to highlight the vulnerability of the Indian mutual fund industry to global economic turbulence and exposed our increased dependence on corporate customers and the retail distribution system. It is therefore an opportune time for the industry to dwell on the experiences and develop a roadmap through a collaborative effort across all stakeholders, to achieve sustained profitable growth and strengthen investor faith and confidence in the health of the industry. Innovative strategies of AMCs and distributors, enabling support from the regulator SEBI, and pro-active initiatives from the industry bodies CII and AMFI are likely to be the key components in defining the future shape of the industry. Total Investment scenario is changing, in past people were not interested in investment because there were no good options available for investment. Now there are many options available for investment like life Insurance, Mutual fund, Equity market, Real asset, etc. The basic objective of any financial services company would be to provide an absolute tailor made products and services to the customer and to advocate them, enrich them and finally retain them into the organization. The underlying difference or core competence that can help any AMC outperform others is by providing differentiated services that are tailor made as according to the customers need and objective of investing money in a Mutual Fund. 6

This project involves study of mutual fund Industry and evaluating and suggesting measures to improve the services provided by the various Banking Channels of HDFC AMC and also to identify the strong and the weak points so that an appropriate sales pitch can be developed. The sales pitch highlighted features like HDFC being the pioneer in terms of AUM, its huge distributor base, returns being independent of the market ups and downs, etc. During the Internship I mainly worked with two of the highest revenue generator Banking Channels mainly HDFC Bank, Boat Club Road and DBS Bank, Dhole Patil Road. Initially Cold Calls were made to different customers (Retail) from company‘s database and appointments were sought. Thereafter a brief questionnaire was filled up by them regarding their perception about HDFC AMC. The need for this research is to emphasize and understand the expectations of customers of mutual funds and how the company can be more customers centric instead of Product Centric. This report summarizes the current state of the Indian mutual fund industry highlighting the key challenges and issues. We have also presented the ‘Voice of Customers’ to understand their needs and priorities. I acknowledge the inputs received from AMCs, distributors, customers and service providers for this report.

7

3. PROJECT OBJECTIVES

8

OBJECTIVES OF THE PROJECT As the title of the project suggests, the objective of the project is to find out the satisfaction level of different Banking Channels with respect to the services & overall quality provided by the AMC. The following are the sub objectives of the project: •

To understand the different investment options provided by HDFC mutual funds through its mutual fund schemes.

•

To know the investors’ expectations on mutual funds offered by HDFC AMC.

•

Find out there preference parameters for selling a particular fund.

•

Understanding the competition for the service provided by different mutual fund companies.

•

Finding out ways and means to improve on the services by HDFC Mutual Fund.

•

Understanding the different ratios & portfolios so as to tell the Banks about these terms, by this, managing the relationship with the Banks.

•

Understanding the attitude and behavior of the distributors and channel partners towards HDFC AMC.

•

To identify and over come the gap between the management perception and the customers expectation.

•

To come up with strategies to maintain better business relationships with our banking channels.

9

4. INTRODUCTION

10

4.1 MUTUAL FUNDS A

mutual

fund

is

a

professionally-managed

firm

of

collective

investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities, it is a trust registered with the Securities and Exchange Board of India (SEBI), which pools up the money from individual / corporate investors and invests the same on behalf of the investors /unit holders, in equity shares, Government securities, Bonds, Call money markets etc., and distributes the profits. The value of each unit of the mutual fund, known as the net asset value (NAV), is mostly calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding. The value of all the securities in the portfolio in calculated daily. From this, all expenses are deducted and the resultant value divided by the number of units in the fund is the fund’s NAV.

Profit/Loss from Individual Investment s

Profit/Loss from portfolio of Investments

I N V E S T O R S

NAV= Total value of the fund ________________________________________ No. of shares currently issued and outstanding M U T U A Invest in L Variety of Invest their M Stocks/ Money A F Bonds R U K N E D T S C H 11 E M E S

4.2 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 history of mutual funds in India can be broadly divided into four distinct phases. First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament 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. Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.At the 12

end of 1993, the mutual fund industry had assets under management of Rs.47, 004 crores. Third Phase – 1993-2003 (Entry of Private Sector Funds) 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. 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. Consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

13

4.3 CURRENT STATE The Indian mutual fund industry has evolved from a single player monopoly in 1964 to a fast growing, competitive market on the back of a strong regulatory framework. AUM Growth The Assets under Management (AUM) have grown at a rapid pace over the past few years, at a CAGR of 35 percent for the fiveyear period from 31 March 2005 to 31 March 2009. Over the 10year period from 1999 to 2009 encompassing varied economic cycles, the industry

grew at 22 percent

CAGR. This

growth

was

despite two falls in the AUM - the first being after the year 2001 due

to

the

dotcom

bubble

burst,

and

the second

in

2008

consequent to the global economic crisis (the first fall in AUM in March 2003 arising from the UTI split. AUM Base and Growth Relative to the Global Industry India mutual to

has

been

funds

2008

(as

amongst

since of

2004;

the in

December)

fastest

the the 14

growing

five-year Indian

markets for

period from

mutual fund

2004

industry

grew 4

at

29

percent

percent3.

mature

Over

markets

while

some

exceeded

this

likes

of

the

CAGR

against

period,

the

the

as

US

the global

the mutual

and France

emerging markets

growth witnessed

in

fund

grew

viz.

the

average

of

industry

in

at

4

China

Indian

percent,

and

Brazil

market. However,

despite clocking growth rates that are amongst the highest in the world, the Indian mutual fund industry continues to be a very

small

market; comprising

0.32

percent

share

of

the

global AUM of USD 18.97 trillion as of December 20084. Share of Mutual Funds in Household Financial Savings Investment in mutual funds in India comprised 7.7 percent of the

gross

household

significant

increase

households

in

savings

in

and

10

had

more

a

percent

factor

had

in

total

the

households

time

61

hold

banks, 18

as of

FY

in

period. As

percent of

the

of

percent

The

of

in

their

insurance

2008,

mutual

percent),

the

UK

funds

as

than

December

total

a

FY 2004.

2008. In

savings (26

FY 2008,

55 percent

investments into

household

same held

the

in

percent to

with

currency

thrice

savings

1.2

continue

deposits in

than of

from

India

fixed

financial

India

2008,

savings

in

UK bank

deposits, 11.6 percent in equities and 1 percent in bonds. Profitability The increase in fund growth CAGR

industry in in

profitability percentage

the the of of

revenue and profitability has

not

last

5

period

years. from

AMCs the

been

AUM

to 14 bps in FY 2008.

-

commensurate The

AUM

March

2005

which -

in the Indian mutual

is

declined

with the

grew

to 2009,

defined as from

at 35

24 bps

AUM

percent

while PBT

in

FY

the

as

a

2004

During FY 2004 and FY 2008, the 15

investment management was

in the

bps

in FY

range

being

expenses, as to

spend

on

impacting

bps

AMC

in

FY

decline

bps

the

industry

relatively

low

2008

largely due

the The

in profitability

margin

products

to

operating bps

in

FY

administrative

expenses

plans

a

the

increased

growth

have

64

the

in

necessitates

that

to on

41

pressures

entry

AUM

focus

segment. The

AUM, rose from

cost

average increase

of

presence.

underlying characteristics

of

(small

distribution and

have impacted

by

percent

58

margins. Rising

an Indian

a

institutional

percentage

eyeing a

to to

the

marketing,

profitability

as

comprising

at

a

113

55 due

mix

targeted

2004

of

2006)

underlying asset

fee

and

of

global

AUM

an

decline

players

accompanied

analysis

bearing

in

on

of

the

the

growth

and profitability of the Indian mutual fund industry.

4.4 THE INDIAN MUTUAL FUND INDUSRTY KEY- KEY CHARACTERISTICS Customers The

Indian

mutual

fund

ownership

from

the

comprising

96.86

percent

37

percent

March the

US

of

a

total

mutual to

42 be

the

200811,

in

was

of at

fund

institutional in

total

82

investor as

(the

number

of AUM

of

1.15

accounts actual

investors

in

as

at

the at

billion, India

retail

the

as

end

of 31

folios). In

of

participation 2008. Out

total number

of investors

hold multiple

approximately

December the

high

Retail investors

terms held

as

number

16

significantly

investors.

lower than

percent

population

has

industry AUM

significantly

million lower

industry

March is the

of

2008

estimated US,

an

estimated

92

million individual

investors

owned

mutual

funds

out of a total population of 305 million in 2008. In

the

last

few

years,

the

retail

investor

participation,

in

particular, in Tier 2 and Tier 3 towns, has been on the rise aided by the buoyant equity markets. Products The

Indian

stage

mutual

in

compete fixed

terms with

of

of

10,349 mix

and comprised

of FY 200915, percent

99

was of

and tends

2008,

1,002

products

percent

relatively nascent

the Government

of December

US. Debt

49

a

offerings,

by

As

in

in

total

providing the

total

comparison

dominate

the

to

the

to

product

industry

AUM

as

while the equity and liquid funds comprised 26

and

comprised

offered

fund schemes

in the

is

product

returns.

mutual

funds

industry

its

products

guaranteed

number

fund

22

percent

percent

of

respectively.

the

total

Open-ended funds

industry

AUM as

of

March

2009. While traditional vanilla products dominate in India, new product ETFs,

categories Capital

viz.

Exchange

Protection

and

Traded

Overseas

Funds

Funds

(ETFs), Gold

have gradually

been gaining popularity 2008. Markets While

the

mutual

fund

metro

and

urban

centric,

tap

Tier

growth total

2

and

strategy. AUM

has

Tier The

3

industry the

mutual

towns

as

contribution

gradually

in a

India

continues

funds

declined from

Top

10

of

approximately

17

to

their

cities

percent in 2005 to approximately 80 percent currently. Distribution Channels

be

are beginning

vital component

of the

to

to 92

As

of

March

registered

2009,

the

distributors

million

insurance

(IFAs)

or

as

fund

industry

compared

agents.

Individual

corporates

mutual The

to

73,

Independent Financial

21 and

6

92,499

approximately 2.5

distributors, corporate

comprised

had

Advisors

employees

percent

and

respectively

of

the total distributor base. Banks

in

sector

general,

banks

distribution Regional

foreign

in

with

particular,

over

Distributors

IFAs

comprised

The

public

banks

30

percent

sector

banks

the

leading

new private

the

mutual fund

dominate

percent

(including

57

and

share. National

and

broker and dealers) together

with

of the

AUM total

are gradually

AUM

as

of

enhancing

2007.

focus

on

mutual fund distribution to boost their fee income. Industry Structure The

Indian

players The

mutual

that

industry

favour

of

sector

players

fund

have has

industry

been

given

witnessed

private

sector

reduced

a

shift 11

consists

regulatory

players,

from

currently has as

approval

of

38

by SEBI.

changed drastically the number

in 2001

to

5

in

of

in

public

2009. The

public sector has gradually ceded market share to the private sector.

Public

sector

mutual

funds comprised

21

percent

of

the AUM in 2009 as against 72 percent AUM share in 2001. The

mutual

distribution

fund

strategy,

houses the

based

key

on

elements

product of

portfolio

and

competitive strategy,

can be segmented into three categories: •

The

market

leaders

having

presence

across

all product

segments • Players having dominant focus on a single product segment - debt or equity

18

•

Players

having

niche

focus

on

an

emerging

product

category or distribution channels. The for mix

market a

leaders

more

that

Indian

have

diversified

helps

market

AUM

maintain

has

focused base

a

networth

business,

existence

low

required of

with

product categories

an equitable

consistent AUM

relatively

minimum

across

a strong

size. Although

entry barriers

to venture local

product

given

into

brand

the

mutual

and

a

the

wide

low fund and

deep distribution footprint are the key differentiators. Operations The Indian mutual fund industry while on a high growth path needs

to

address

efficiency

and

customer centricity.

AMCs

have successfully been using outsourced service providers such as

custodians, Registrar

recently, fund on core

accountants,

aspects

development outsourced transfer

and

of

Transfer so

that

their

and distribution. are

custody

services

management.

mutual

at

costs

(R&T)

and

more

funds

can

focus

business

such

Functions

that

services, fund

aimed

Managing

Agents

services,

investor and

as

product

have registrar

servicing and

ensuring

been and cash

investor satisfaction

continue to be the key goals for all mutual funds today. However,

there

operations

costs

is

likely

given the

to trend

be of

scope rising

for

optimizing

administrative

and

associated costs as a percentage of AUM. Regulatory Framework The

Indian

framework markets of

India

mutual

fund

is believed

to

industry match

globally. The regulator, (SEBI),

has

up

in

terms

of

regulatory developed

to

the

most

Securities

and

Exchange

consistently introduced 19

several

Board

regulatory

measures of

the

and

amendments

small

investor

growth

of

Money

Laundering

in

the

December

and of

Anti

(PMLA)

2008,

as

is

at protecting

augurs

well

Rules, the

part

of

expected

to

gain

long term

Prevention

guidelines

and

(CFT)

measures

cover

two

of

issued

practices

further momentum.

(AML)

(KYC)

interests

risk management

Laundering

Customer

the

of

latest

the

the

for

implementation

Money

Terrorism

Know Your

that

industry. The

procedures

current

aimed

The

Combating Financing main

and

‘suspicious

ambit

seeks

aspects

of

transaction

monitoring and reporting’. The

regulatory

and

compliance

range

of

issues including

players

to

ensure

the

resilience

financial

to

dwell

capability

and sustainability

on

of

through

a the

increase

in minimum net worth and capital adequacy, investor protection and

education

to

investors,

through

disclosure

distribution

introducing

more

reducing

the information

distributors,

and

remuneration. The fund

industry

of

India,

on

compliance

framework

the industry

gap

success in

in

improving

contingent of

related

transparency by

further ensures

norms the

distribution

between

the

in

20

the

for

aimed

at

system

by

the

fittest

and

distributor

nascent

forward,

robust

supporting

only

prudent players survive.

a

information

investors

relatively

its march

evolving that

regulations

the mechanism

in

that

for more

mutual will

be

regulatory and growth and

the

needs most

4.5 ADVANTAGES OF MUTUAL FUND Diversification of Risk Helps diversifying risk by investing money in a Basket of Assets. Diversification reduces risk of loss, as compared to investing directly in one or two shares or debentures or other instruments. When an investor invests directly, all the risk of potential loss is his own. This risk reduction is one of the most important benefits of a collective investment vehicle like mutual fund. Reduction of Transaction Cost Mutual Funds provide the benefit of cheap access to expensive stocks. A direct investor bears all the cost of investing such as brokerage and custody of security. When going through a fund, he has the benefits of economies of scale; the funds pay a lesser costs because of larger volumes, benefits passed on to its investors. Convenience and Flexibility Being institutions with good bargaining power in markets, mutual funds have access to crucial corporate information, which individual investors cannot access. Mutual fund management companies offer many investor services that a direct market investor cannot get. Investors can easily transfer their holdings from one scheme to the other; get updated market information, and so on. Liquidity An investor can liquidate the investment, by selling the units to the fund if open-end, or selling them in the market if the fund is close-end, and collect funds at the end of each period specified by the mutual fund or the stock market. Choice of Schemes The Investor gets choice from varied Funds in accordance to his Needs and Objectives. 21

Lucidity You get regular information on the value of your investment in addition to disclosure on the specific investments made by the mutual fund scheme. Professional Management Most mutual funds pay topflight professionals to manage their investments. These managers decide what securities the fund will buy and sell. Regulatory Over-sight Mutual funds are subject to many government regulations that protect investors from fraud. Securities Exchange Board of India (“SEBI”), the mutual funds regulator has clearly defined rules, which govern mutual funds. These rules relate to the formation, administration and management of mutual funds and also prescribe disclosure and accounting requirements. Such a high level of regulation seeks to protect the interest of investors.

22

4.6 DISADVANTAGES OF MUTUAL FUND No Guarantees No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through a mutual fund runs the risk of losing money. Fees and commissions All funds charge administrative fees to cover their day-to-day expenses. Some funds also charge sales commissions or "loads" to compensate brokers, financial consultants, or financial planners. Even if you don't use a broker or other financial adviser, you will pay a sales commission if you buy shares in a Load Fund. Taxes During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit 34 on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made. Management risk When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course,

23

if you invest in Index Funds, you forego management risk, because these funds do not employ managers. Dilution It’s possible to have too much diversification. Because funds have small holdings in so many different companies, high returns from a few investments often don’t make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. 4.7 RISKS ASSOCIATED WITH MUTUAL FUNDS Market Risk Market risk relates to the market value of a security in the future. Market prices fluctuate and are susceptible to economic and financial trends, supply and demand, and many other factors that cannot be precisely predicted or controlled. Political Risks Changes in the tax laws, trade regulations, administered prices, etc are some of the many political factors that create market risk. Although collectively, as citizens, we have indirect control through the power of our vote individually, as investors, we have virtually no control. Inflation Risk Interest rate risk relates to future changes in interest rates. For instance, if an investor invests in a long-term debt Mutual Fund scheme and interest rates increase, the NAV of the scheme will fall because the scheme will be end up holding debt offering lower interest rates.

24

Business Risk Business risk is the uncertainty concerning the future existence, stability, and profitability of the issuer of the security. Business risk is inherent in all business ventures. The future financial stability of a company cannot be predicted or guaranteed, nor can the price of its securities. Adverse changes in business circumstances will reduce the market price of the company’s equity resulting in proportionate fall in the NAV of the Mutual Fund scheme, which has invested in the equity of such a company.

Economic Risk Economic risk involves uncertainty in the economy, which, in turn, can have an adverse effect on a company’s business. For instance, if monsoons fail in a year, equity stocks of agriculture-based companies will fall and NAVs of Mutual Funds, which have invested in such stocks, will fall proportionately.

25

4.8 CATEGORIES OF MUTUAL FUNDS

Mutual funds can be classified as follow: Based on their structure

26

•

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 related instruments. 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.

•

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: 27

Debt-oriented funds -Investment below 65% in equities. Equity-oriented funds -Invest at least 65% in equities, remaining in debt. Debt fund: They invest only in debt instruments, and are a

•

good option for 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 call money. Put your money into any of these debt funds depending on your investment horizon and needs. –

Liquid funds These funds invest 100% in money market instruments, a large portion being invested in call money market.

–

Gilt funds ST They

invest

100%

of

their

portfolio

in

government

securities of and T-bills. –

Floating rate funds Invest in short-term debt papers. Floaters invest in debt instruments which have variable coupon rate.

–

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. –

Gilt funds LT They

invest

100%

of

government securities. 28

their

portfolio

in

long-term

–

Income funds LT Typically; such funds invest a major portion of the portfolio in long-term debt papers.

–

MIPs Monthly Income Plans have an exposure of 70%-90% to debt and an exposure of 10%-30% to equities.

–

FMPs Fixed monthly plan invest in debt papers whose maturity is in line with that of the fund.

4.9 SNAPSHOT OF MUTUAL FUND SCHEMES The following table summarizes different types of mutual fund schemes, their objective, where do they invest and their suitability Mutual Fund Type Money Market

Objective

Risk

Liquidity + Moderate Income + Reservatio n of Capital

Negligible

29

Investme nt Portfolio Treasury Bills, Certificate of Deposits, Commerci al Papers, Call Money

Who should invest Those who park their funds in current accounts or shortterm bank deposits

Investme nt horizon 2 days - 3 weeks

Shortterm Funds (Floating - shortterm)

Liquidity + Moderate Income

Little Interest Rate

Bond Funds (Floating - Longterm)

Regular Income

Credit Risk & Interest Rate Risk

Gilt Funds

Security & Income

Interest Rate Risk

Equity Funds

Long-term Capital Appreciatio n

High Risk

Stocks

Index Funds

To generate returns that are commensu rate with returns of respective indices

NAV varies with index performan ce

Portfolio indices like BSE, NIFTY etc

30

Call Money, Commerci al Papers, Treasury Bills, CDs, Short-term Governme nt securities. Predomina ntly Debenture s, Governme nt securities, Corporate Bonds Governme nt securities

Those with surplus short-term funds

3 weeks 3 months

Salaried & conservati ve investors

More than 9 - 12 months

Salaried & 1 year and conservati more ve investors Aggressive > 3 years investors with long term outlook

Aggressive investors

> 3 years

Balanced Funds

Growth & Regular Income

Capital Market Risk and Interest Rate Risk

Balanced ratio of equity and debt funds to ensure igher returns at lower risk

Moderate & Aggressive

> 2 years

4.10 RISK HEIRARCHY OF DIFFERENT FUNDS Thus, different mutual fund schemes are exposed to different levels of risk and investors should know the level of risks associated with these schemes before investing. The graphical representation hereunder provides a clearer picture of the relationship between mutual funds and levels of risk associated with these funds

31

5. COMPANY PROFILE

VISION “To be a dominant Player in the Mutual Fund space recognized for its higher levels of ethical and professional conduct and a commitment towards enhancing Investor Interests”. HDFC Asset Management Company Ltd. has a vision of being a leading player in the

Mutual Fund business and has achieved 32

significant success and visibility in the market. Growth and visibility is adhered to Good Conduct in the marketplace. At HDFC AMC, the implementation and observance of ethical processes and policies has helped them to stand up to the scrutiny of the domestic and international investors. MANAGEMENT The management at HDFC AMC is committed to good Corporate Governance, which includes transparency and timely dissemination of information to its investors and unit holders. The HDFC AMC Limited Board

is

a

knowledgeable

professional

body,

Independent

including

Directors.

well-experienced

Regular

Audit

and

Committee

meetings are conducted to review the operations and performance of the company. HDFC MF HDFC Mutual Fund is one of the largest mutual funds and wellestablished fund house in the country with consistent and above average fund performance across categories since its incorporation on December 10, 1999. While our past experience does make us a veteran, but when it comes to investments, we have never believed that the experience is enough. HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated June 30, 2000.

In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset Management Company Limited to manage

33

the Mutual Fund. The paid up capital of the AMC is Rs. 25.161 crore. INVESTMENT PHILOSOPHY The single most important factor that drives HDFC Mutual Fund is its belief to give the investor the chance to profitably invest in the financial market, without constantly worrying about the market swings. To realize this belief, HDFC Mutual Fund has set up the infrastructure required to conduct all the fundamental research and back it up with effective analysis. HDFC lays strong emphasis on managing and controlling portfolio risk avoids chasing the latest “fads” and trends. OFFERINGS HDFC believes, that, by giving the investor long-term benefits, they have to constantly review the markets for new trends, to identify new growth sectors and share this knowledge with their investors in the form of product offerings. They have come up with various products across asset and risk categories to enable investors to invest in line with their investment objectives and risk taking capacity. Besides, they also

offer

Portfolio

Management

Services.

ACHIEVEMENTS HDFC Asset Management Company (AMC) is the first AMC in India to have been assigned the ‘CRISIL Fund House Level – 1’ rating. This is its highest Fund Governance and Process Quality Rating which reflects the highest governance levels and fund management practices at HDFC AMC. It is the only fund house to have been assigned this rating for third year in succession. Over the past, HDFC has won a number of awards

and

accolades

for

PRODUCTS 34

their

performance.

Equity/ Growth Fund –

HDFC mid Cap Opportunities Fund.

–

HDFC Prudence Fund.

–

HDFC Index Fund- Nifty Plan.

–

HDFC Capital builder Fund.

–

HDFC Infrastructure Fund.

–

HDFC Long term advantage Fund.

–

HDFC Index Fund- Sensex plus Plan.

–

HDFC Core and Satellite Fund.

–

HDFC Growth Fund.

–

HDFC top 200 Fund.

–

HDFC Index Fund- Sensex plan.

–

HDFC Balanced Fund.

–

HDFC Long term Equity Fund.

–

HDFC Equity Fund.

–

HDFC Premiere Multi-cap Fund.

–

HDFC Arbitrage Fund.

–

HDFC Tax saver (ELSS).

Children’s Gift Fund –

HDFC Children’s Gift Fund Savings Plan.

–

HDFC Children’s Gift Fund Investment Plan.

HDFC Liquid Fund –

HDFC Cash Management Fund- Savings Plan.

–

HDFC Liquid Fund Premier Plus Plan.

–

HDFC Liquid Plan.

–

HDFC Cash Management Fund- Call Plan.

–

HDFC Liquid Fund Premier Plan.

Debt/Income Funds –

HDFC Floating rate Income Fund- Long term Plan.

–

HDFC High Interest Fund- Short term Plan. 35

–

HDFC Multiple Yield Fund- Plan 2005.

–

HDFC Cash Management Fund- Treasury Advantage

Fund. –

HDFC Gilt Fund- Short term Plan.

–

HDFC Income Fund.

–

HDFC Multiple Yield Fund.

–

HDFC Short term Plan.

–

HDFC Floating rate Income Plan- Short term Plan.

–

HDFC MF Monthly Income Plan- Long term Plan.

–

HDFC High Interest Fund.

–

HDFC Gilt Fund- Long term Plan.

HDFC Quarterly Income Fund HDFC Fixed Maturity Fund

MEASURING AND EVALUATING PERFORMANCE Every investor investing in the mutual funds is driven by the motto of either wealth creation or wealth increment or both. Therefore it’s very 36

necessary to continuously evaluate the funds’ performance with the help

of

factsheets

and

newsletters,

websites,

newspapers

and

professional advisors. If the investors ignore the evaluation of funds’ performance then he can loose hold of it any time. In this everchanging industry, he can face any of the following problems: –

Variation in the funds’ performance due to change in its management/ objective.

– –

The funds’ performance can slip in comparison to similar funds. There may be an increase in the various costs associated with the fund.

–

The funds’ ratings may go down in the various lists published by independent rating agencies.

–

It can merge into another fund or could be acquired by another fund house.

Performance measures Equity funds- The performance of equity funds can be measured on the

basis

of:

NAV

Growth,

Total

Return;

Total

Return

with

Reinvestment at NAV, Annualized Returns and Distributions, Computing Total Return (Per Share Income and Expenses, Per Share Capital Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio Turnover Rate, Fund Size, Transaction Costs, Cash Flow, Leverage. Debt fund- The performance of debt funds can be measured on the basis of: Peer Group Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs, besides NAV Growth, Total Return and Expense Ratio.

37

Liquid funds- The performance of the highly volatile liquid funds can be measured on the basis of: Fund Yield, besides NAV Growth, Total Return and Expense Ratio. DISTRIBUTION CHANNELS Mutual funds posses a very strong distribution channel so that the ultimate customers doesn’t face any difficulty in the final procurement. The various parties involved in distribution of mutual funds are: Direct marketing by the AMCs: The forms could be obtained from the AMCs directly. The investors can approach to the AMCs for the forms. Some of the top AMCs of India are; Reliance ,Birla Sun life, Tata, SBI magnum, Kotak Mahindra, HDFC, IDFC, ICICI, LIC, AXIS etc. whereas foreign AMCs include: Standard Chartered, Franklin Templeton, Fidelity, JP Morgan, HSBC, DSP Merill Lynch, etc. Broker/ sub broker arrangements: The AMCs can simultaneously go for broker/sub-broker to popularize their funds. AMCs can enjoy the advantage of large network of these brokers and sub brokers. Individual agents, Banks, NBFC: Investors can procure the funds through individual agents, independent brokers, banks and several non- banking financial corporations too, whichever he finds convenient for him.

38

COSTS ASSOCIATED Expenses AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries, advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges Rs1.50 for every Rs100 in assets under management. A fund's expense ratio is typically to the size of the funds under management and not to the returns earned. Normally, the costs of running a fund grow slower than the growth in the fund size - so, the more assets in the fund, the lower should be its expense ratio Loads Entry Load/Front-End Load (0-2.25%) - It’s the commission charged at the time of buying the fund to cover the cost of selling, processing etc however the RBI has waived off this charge w.e.f 1 Aug 2009. Exit Load/Back- End Load (0.25-2.25%) -It is the commission or charged paid when an investor exits from a mutual fund; it is imposed to discourage withdrawals. It may reduce to zero with increase in holding period.

39

WHY HAS IT BECOME THE LARGEST AND ATTRACTIVE INVESTMENET INSTRUMENT? If we take a look at the recent scenario in the Indian financial market then we can find the market flooded with a variety of investment options which includes mutual funds, equities, fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life insurance, gold, real estate etc. All these investment options could be judged on the basis of various parameters such as- return, safety convenience, volatility and liquidity. Measuring these investment options on the basis of the mentioned parameters, we get this in a tabular form: Return

Safety

Volatility

Liquidity

Convenienc

Equity Bonds Co.

High Moderate Moderate

Low High Moderate

High Moderate Moderate

High Moderate Low

e Moderate High Low

Debentures Co. FDs Bank

Moderate Low

Low High

Low Low

Low High

Moderate High

Deposits PPF Life

Moderate Low

High High

Low Low

Moderate Low

High Moderate

Insurance Gold Real Estate Mutual

Moderate High High

High Moderate High

Moderate High Moderate

Moderate Low High

Gold Low High

Funds

40

We can very well see that mutual funds outperform every other investment option. On three parameters: – It scores high whereas it’s moderate at one. – Comparing it with the other options, we find that equities gives us high returns with high liquidity but its volatility too is high with low safety which doesn’t makes it favorite among persons who have low risk- appetite. – Even the convenience involved with investing in equities is just moderate. Now looking at bank deposits, it scores better than equities at all fronts but lags badly in the parameter of utmost important i.e.; it scores low on return , so it’s not an appropriate option for person who can afford to take risks for higher return. The other option offering high return is real estate but that even comes with high volatility and moderate safety level, even the liquidity and convenience involved are too low. Gold have always been a favorite among Indians but when we look at it as an investment option then it definitely doesn’t gives a very bright picture. Although it ensures high safety but the returns generated and liquidity are moderate. Similarly the other investment options are not at par with mutual funds and serve the needs of only a specific customer group.

Straightforward, we can say that mutual fund

emerges as a clear winner among all the options available. The reasons for this being: Mutual funds combine the advantage of each of the investment products Mutual fund is one such option which can invest in all other investment options. Its principle of diversification allows the investors to taste all the fruits in one plate. Just by investing in it, the investor can enjoy the best investment option as per the investment objective. 41

Dispense the shortcomings of the other options Every other investment option has more or les some shortcomings. Such as if some are good at return then they are not safe, if some are safe then either they have low liquidity or low safety or both, likewise, there exists no single option which can fit to the need of everybody. But mutual funds have definitely sorted out this problem. Now everybody can choose their fund according to their investment objectives. Returns get adjusted for the market movements As the mutual funds are managed by experts so they are ready to switch to the profitable option along with the market movement. Suppose they predict that market is going to fall then they can sell some of their shares and book profit and can reinvest the amount again in money market instruments. Flexibility of invested amount Other then the above mentioned reasons, there exists one more reason which has established mutual funds as one of the largest financial intermediary and that is the flexibility that mutual funds offer regarding the investment amount. One can start investing in mutual funds with amount as low as Rs. 500 through SIPs and even Rs. 100 in some cases.

42

43

RESEARCH STUDY

RESEARCH DESIGN 44

6.1 Introduction The project consisted of working mainly two Banking Channels HDFC Bank and DBS Bank in Pune, chosen for the survey. The reason for choosing these two particular Banking Channel is that they have lot of potential and were amongst the highest revenue generator for HDFC AMC. It consisted of three stages: Stage 1: Gathering data from the company and plan schedule to meet the concerned person. Stage 2: Collecting the data by survey method, on the basis of questionnaire. Stage 3: Analyzing and interpreting the primary data collected. 6.2 Review of Literature Study Literature given from the company was studied in order to gain an insight of past market and future prospects of mutual fund industry. Also the requirements of various concepts were understood using the help of internet and various other books. 6.3 Type of Research It is a framework or blueprint for conducting the marketing research project. The research design used here is Descriptive Research Design which is used for description of something. Here it is used to describe the characteristics of Existent and Potential Customers with respect to the services expected HDFC AMC. 6.4 Data Collection Technique The survey method of collecting data is based on the questioning of respondents. They were asked variety of questions regarding their behavior,

intensions,

attitude,

awareness

and

motivations.

In

Structured data collection, a formal Questionnaire is prepared thus the process is direct. The questionnaire designed for this project consists of questions based on various parameters which a relationship manager 45

would consider before selling a mutual fund. Each question is based on different variables like investment decisions, selling decisions, company policies, serving issues etc. 6.5 Scope of the study The research was carried on in the Pune Region of Maharashtra. It is restricted to Pune where it has got its head office at Shivaji Nagar and operates or sells its products through a large network of Distribution Channels. I have visited people randomly while pitching for products and also existing customers of HDFC and DBS (Development Bank of Singapore). 6.6 Data sources Research is totally based on primary data. Secondary data can be used only for the reference. Research has been done by primary data collection, and primary data has been collected by interacting with various people. The secondary data has been collected through various journals and websites and some special publications of HDFC AMC.

6.7 Sampling procedure The sample is selected in a random way, irrespective of them being investor or not or availing the services or not. It was collected through mails personal visits to the known persons, by formal and informal talks at HDFC Bank and DBS Bank and through filling up the questionnaire prepared. The data has been analyzed by using the measures of central tendencies like mean, median, mode. The group has been selected and the analysis has been done on the basis statistical tools available.

6.8 Sample size The sample sizes of my project is limited to 100 only and have got 46

questionnaires filled only with the ones who invest in various other and HDFC AMC’s however have taken different opinions as to why certain people or respondents are not Investing in the current Market Scenario.

6.9 Technique of analysis Percentage analysis was used to analyze the data collected. 6.10 Statistical tools used for Data presentation Data has been presented with the help of bar graph, pie charts, line graphs etc.

6.11 Limitations –

Time limitation.

–

Research has been done only at Pune.

–

Some of the persons were not so responsive.

–

Possibility of error in data collection.

–

Possibility of error in analysis of data due to small sample

size.

47

7. DATA ANALYSIS 7.1 Have you ever invested/ interested to invest in mutual funds? YES NO

100 0

YES NO

Graph 7.1 DATA INTERPRETATION Analysis is carried on only for those respondents who are already Investing in Mutual Funds and the reasons for not Investing( Non Investors) citied while filling or while interacting with the respondents were

•

Lack of Knowledge about Mutual Funds.

•

Enjoy Investing in other financial instruments.

•

Its benefits are not that lucrative or better than other instruments.

•

No trust over the schemes. 48

•

No trust over the Fund manager or AMC.

•

Current Market scenario.

•

Complex KYC procedure.

•

PAN Card a Mandate.

7.2 In which of the following type funds you have invested? Equity Debt Balanced ELSS Gilt

18 23 29 30 0

Graph 7.2 DATA INTERPRETATION 18% of the respondents have Invested in Equity Funds, 23% have invested in Debt Schemes while 29% and 30% have invested in Balanced and ELSS schemes respectively. FINDINGS Respondents in the Current market scenario have Invested mostly in 49

Balanced schemes which give leverage to their investments and have switched their investments to balances or debt schemes in the recession period because it helps them to accumulate more Units as the NAV’s are low. Respondents who have invested in Tax saving schemes have a Lock in period of 3 years so they still are continuing to invest in Recession period as it gives them leeway in terms of saving Tax over a period of time.

50

7.3 Preferred Investment Period? Less than 1 Year 1 to 3 years 3 to 5 years More than 5 years

2 42 41 15

Graph7.3 DATA INTERPRETATION 42% prefer to stay invested for a period of 1-3 years, while 41% for the period of 3-5 years and 15 % for more than 5 years and only 2% stay invested for less than a year. FINDINGS It was found out that most Respondents have either invested for a time spam of 1 to 3 years or more than 5 years. Investment period purely and solely depends on the Investment Objective and the Schemes thus chosen. Respondents who have invested in Equity diversified funds have invested for a time spam of 1-3 years and Debt schemes customer 51

usually invest for a period of 3 to 5 years and ELSS customers have to invest in a lock in period of 3 years so they opt for 3 year Investment strategy. 7.4 AMC in which money is Invested? Kotak Reliance HDFC SBI DSP Black Rock DSP M Lynch ICICI Religare IDFC

6 8 36 16 5 6 15 6 2

Graph 7.4 DATA INTERPRETATION 36% have Invested with HDFC AMC, 16% with SBI and 15% with ICICI Securities, 8% have invested with Reliance AMC and the rest 6%, 5%, 6% and 2% have invested with other AMC’s such as DSP, Kotak, Religare, IDFC etc.

52

FINDINGS It was found out that Respondents have not invested in a particular AMC or their Portfolio is managed by single AMC. They have simultaneously invested in two AMC’s and the ones which are popular are HDFC and ICICI and the others have got place in the reckoning.

53

7.5 Which according to you are the factors important while investing in Mutual Funds? Risk factor Returns Tax savings Performance if the particular

8 9 9 9

Fund NAV AMC Safety Ratings of a particular fund Portfolio of the Fund Profile of the Fund Manager

10 10 11 11 11 12

54

Graph 7.5 DATA INTERPRETATION 12% say that profile of Fund manager is an important element, 11% prefer safety, portfolio and Ratings of the fund to be an Important factor,while 10% say services by the AMC and the NAV value play an Important role and rest of them prefer investing to safe tax and look at returns over a short period of time. FINDINGS Different Investors have different needs for Investment purposes. However people if Investing in Equtiy Instruments would look for better returns in a short spam of time as it carries equal risk. And other factors which are considerate with the investement purposes would be Performance or Rating of a Particular Fund and Fund manager also plays a important role as generally people invest in funds keeping 55

in mind the profile of the Fund Manager and for Instance Prashant Jain who is a pass out of IIT and has done is MBA from IIM having over 14 years of experience in Equity research market has lot of funds in his Kitty to manage.

7.6 Preferred Channels through which Investments are made? Directly through AMC Through Distributor Broker/ Sub Broker

27 40 33

56

Graph 7.6

DATA INTERPRETATION 27% dodge entry load and prefer to invest directly through AMC, while 33% prefer to Invest through a Sub- broker who can manage their portfolio’s and 40% invest it through authorized Distributors.

FINDINGS It was found out that most Investors usually invest through Brokers or Distributors because they get the advantage of having statements on timely basis and also switching or redeeming of funds becomes an ease as they are just a phone call away. They

can

easily

review

they

portfolio

and

seek

Investment

recommendation in order to suffice their short term needs and also to manage their assets.

57

However all of this comes with a charge which is usually known as Commission charged in the form of Entry Load which is usually between 0-2.5% for retail customers and there are few who manage their own portfolio and invest directly through the AMC’s and the entry load or the commission charge is weaved off for those Investors.

58

7.7 Have you invested in the current Recession period?

YES NO

38 62

59

Graph 7.7 DATA INTERPRETATION 62% say no that they rather prefer to stay out the stock markets during Recession and 38% want to enjoy the benefit of Rupee cost averaging that’s why they haven’t redeemed their Units. FINDINGS It was observed that people are not investing the current market scenario as it is hard of them to believe that the market is facing a U shaped recovery mode where in the positivity will be reflected in the Market over the period of time as per the new Changes and Amendments bought in by the new UPA Govt. However Existing customers have also redeemed or switched their funds as they lost a lot of money in the year 2008. However there are some Investors who are positive about the Market and have Switched to Balanced funds because that helps them fetch more units as the NAV is low and have Invested money in the NFO’s that were out in the market for e.g. Reliance Infrastructure fund and DSP Black Rock World Energy Fund.

60

7.8 In the recession period which type of funds are the best option? Equity Diversified Debt Balanced Tax Saving Schemes

4 8 60 28 61

Graph 7.8 DATA INTERPRETATION In recession period 60% of the respondents prefer to stay invested with Balanced schemes while 28% are with ELSS schemes and 8% have invested in Debt Schemes while only 4% have Invested in Equity schemes. FINDINGS It is observed that most of the Investors during the recession period have taken a step back in terms of Investments in Mutual Funds as the share market saw an Impeccable down fall last year and had lost a lot of money last year. However what is more promising is the confidence amongst these Investors who are betting on an attitude that shows a sign of recovery for the market right now and have kept their fingers crossed in terms of Promises by the Congress. So either balanced schemes are the one’s for a safe bet right now or else tax saving schemes have always given investors a leeway under Section 80©. 62

63

7.9 Other Financial Instruments that are a safe bet right now? Bank FD’s NBFC’s PPF NSC’s ULIP

14 17 19 21 29

64

Graph 7.9 DATA INTERPRETATION 14% prefer to park their money with FD’s, 29% prefer to stay connected with ULIP’s as that gives them benefit of saving tax and 21% prefer to invest in NSC’s and 19% and 17% prefer to Invest with PPF’s and NBFC’s. FINDINGS Bank FD’s are one of the means for the different banks to get NTB’s and helps investors to park their money for a spam of 1-2 years in attractive FD’s thus offered. However after maturity is the main Game Plan through which Banks anticipate to invest the same in the Equity markets after they take a respectable position. It scores better than equities at all fronts but lags badly in the parameter of utmost important i.e.; it scores low on returns. ULIP schemes have sustainably taken a peek in the recession period where in they not only provide leverage to one’s investment in debt and equity market but also insurance for a life time.

65

66

RESEARCH CONCLUSIONS

67

•

At the survey conducted upon approx 100 people, most of them are already mutual fund investors or are interested to invest in future and the remaining are not interested in it.

So there is

enough scope for the advisors to convert those leads into potential investors through their offerings and services. •

Now, when people were asked about the reason for not investing in mutual funds, then most of the people held their ignorance responsible for that. They lacked knowledge and information about the mutual funds. Whereas just few people enjoyed investing in other option. For few people, the benefits arousing from these investments were not enough to drive them for investment in MFs and few of them expressed no trust over the fund managers’ decision. Again the financial advisors can tap upon these people by educating them about mutual funds.

•

Out of the people who already have invested in mutual funds/ are interested to invest, only few have sound knowledge of MFs, and few have a sound knowledge of the mutual funds and its operations and thereby prefer to Invest it directly through the AMC’s and maintain their own Portfolio’s. However it is important to realize that a lot of investors are aware of the schemes and the operations of the Indian Market but prefer a Financial Advisor to cater to their Investment Objectives as they are well versed with the markets and are qualified advisors to recommend them

68

on

Investment

strategies

with

minimal

Commission

co-

responding to the portfolio managed. •

When asked about the most alluring feature of MFs during the current market conditions, most of them opted for diversification, followed by reduction in risk, helps in achieving long term goals and helps in achieving long term goals respectively and also helps them in terms of Tax saving benefits.

•

The other financial instruments that are a lucrative option for the Investors in the recession are ULIP plans, NSC’s, Bank FD’s however are not in the same reckoning of Mutual funds in terms of returns.

RECOMMENDATIONS 69

•

The most vital problem spotted is of ignorance. Investors should be made aware of the benefits and the current status of Economy. Nobody will invest until and unless he is fully convinced of the future of one’s Investments. Investors should be made to realize that ignorance is no longer bliss and what they are losing by not investing.

•

Mutual funds offer a lot of benefit which no other single option could offer. But most of the people are not even aware of what actually a mutual fund is? They only see it as just another investment option. So the advisors should try to change their mindsets. The advisors should target for more and more young investors. Young investors as well as persons at the height of their career would like to go for advisors due to lack of expertise and time.

•

The advisors may try to highlight some of the value added benefits of MFs such as tax benefit, rupee cost averaging, and systematic transfer plan, rebalancing etc. These benefits are not offered by other options single handedly. So these are enough to 70

drive the investors towards mutual funds. Investors could also try to increase the spectrum of services offered. •

Now the most important reason for not availing the services of Banking Channel; was being expensive. The advisors should try to charge a nominal fee at the beginning. But if not possible then they could go for offering more services and benefits at the existing rate. They should also maintain their Banking Channels should try to attract more and more persons and turn them into investors and finally their clients.

•

With the globalize economy and immense competition among countries for faster development of their respective economies, the significance of Mutual Funds and Foreign investment has taken manifold. With a buoyant vibrant and experienced stock market, India today is looking ahead to surpass China in terms of foreign Investment and growth prospects. Stock exchange being the barometer of the economy plays a vital role in showcasing growth of an economy and luring investment.

•

While studying the role of Mutual fund and FIIs in Stock Market, I discussed with a few persons who are into stock broking business. And the information they have provided shows that though the investment and participation of domestic investors are rising, still, they have not been able to prove themselves to be as influential as mutual funds and FIIs.

•

Importance and the role of Mutual funds and FIIs play in the Indian stock market can be seen from the fact that the recent surge in Sensex and NIFTY is attributed to the active Participation of FIIs in the Stock Market. Despite being aware of the Asian economic crisis where FIIs role was of a major concern, the importance of foreign capital in the development of economy can not be undermined in anyway so the people more emphasis on mutual fund to earn more return increasing our benefit . 71

72

ANNEXURE

Exhibit 1 QUESTIONNAIRE 1. Have you ever invested in mutual funds? a. Yes b. No

2. In which of the following type funds you have invested? a. EQUITY b. DEBT c. BALANCED d. GILT 73

e. TAX SAVING SCHEMES

3. What is your preferred investment period? a. Less than 1 yr b. 1 yr—3yr c. 3 yr—5yr d. more than 5 yr

4. Which AMC you have invested in? Please specify

5. Rank according to importance the factor you look for while investing in MF (1 being the most important and 5 the least important) a. Risk factor b. Return c. Tax saving d. Performance e. NAV f.

AMC

g. Safety h. Ratings of the fund i.

portfolio of fund

j.

Profile of the Fund manager

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6. How have you invested in MF? a. Directly b. Through Distributor c. Through Sub-brokers/Brokers.

7. Have you invested or would you like to invest in the current period? a. Yes b. No

8. If yes then rank in 1-5 (with 1 being best and 4 being worst) of the following options a. Mutual funds are no doubt the best investment option in

spite of the current economic slowdown b. I am getting more units as NAV is low, so I will definitely

earn profit when market goes up. c. Mutual fund are still giving better return for longer

period( 5yrs) than other investment option d. Despite all the slowdown, I will prefer MF as it gives me tax

benefit

9. If yes in which kind of fund you will prefer to invest now? a. Equity b. Debt c. Balanced d. Tax savers 75

e. ETFs

10.

Which is your preferred mood of investment in mutual fund? a. Lump sum Plan)

b.

SIP (Systematic Investment

11. Rank the option which u think best describe your views ( 1 being the best & 5 being worst) i.

I will better invest in FDs of Banks in this condition as it is the safest

ii.

I will invest in FDs of NBFC as they give better interest

iii.

I will go for PPF

iv.

I will invest in NSC

v.

I will put my money in ULIPs because it will give me insurance cover.

Bibliography Websites www.the-finapolis.com www.mutualfundsindia.com www.valueresearchonline.com www.moneycontrol.com www.morningstar.com www.yahoofinance.com www.theeconomictimes.com www.rediffmoney.com www.bseindia.com www.nseindia.com www.investopedia.com Journals & other references HDFC AMC manual The Economic Times 76

Business Standard The Telegraph Business India Fact sheet and statements of various fund houses

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