Mutual Funds Project
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MUTUAL FUNDS IN INDIA
EXECUTIVE SUMMARY Investment may be defined as an activity that commits funds in any financial/physical form in the present with an expectation of receiving additional return in the future. The expectation brings with it a probability that the quantum of return may vary from a minimum to a maximum. The possibility of variation in the actual return is known as investment risk. Thus every investment involves a return and risk. The investor can choose the investment funds he wants to invest his money, providing the investor an opportunity to have a direct stake in the performance of the financial markets. He can also benefit from attractive tax advantages. A mutual fund is a professionally managed firm of collective investments that collects money from many investors and puts it in stocks, bonds, short-term money market instruments, and/or other securities. The fund manager, also known as portfolio manager, trades the fund's underlying securities, realizing capital gains or losses and passing any proceeds to the individual investors. Today, the worldwide value of all mutual funds totals more than $26 trillion in assets. The principal paid are invested in fund/funds of the investor’s choice (depending on the allocation rate) & units are allocated depending on the price of units for the fund/funds.
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MUTUAL FUNDS IN INDIA
STATEMENT OF PROBLEM: The premiums that are collected are invested in different funds like equity fund, mid-cap fund, debt fund, balanced fund and cash fund. The funds must be allocated such that their performance is stable and improves so that the investor gets high returns. Due to the increasing competition it becomes necessary that the companies fund is the best performing fund with highest return. Among the different mutual funds this study is to find out the best fund which will yield high returns to the investor and minimize there risk.
OBJECTIVES OF THE STUDY: •
To study the different investment guidelines prescribed by IRDA.
•
To analyze the present performance of different mutual funds
•
To analyze the competition among different sectors for investment.
•
Based on the findings suitable suggestions are given.
PLACE OF THE STUDY: The study was conducted at Deutsche asset management, Raheza tower, M.G. Road, Bangalore. Also some of the software companies were covered including Accenture, Oracle, HP, etc. Even bank ATM’s of Axis Bank in Wilson garden and ICICI Bank in kormangala were covered.
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DEFINITIONS:EQUTY DIVERSIFIED:• Equity Fund – This fund provides the scope of high appreciation over a long term. The fund will primarily invest in equities & is expected to match returns given by NSE NIFTY. This fund will invest at least 90% in equities and maximum 10% in cash.
• Equity Gain Fund - The investment objective of this Fund is to provide capital appreciation through investment in select equity stocks that have the potential for high capital appreciation. This fund will invest at least 85% in equities and maximum 15% in debt & cash instruments. • Equity MidCap Fund - The Investment objective of this Fund is to achieve capital appreciation by investing in a diversified basket of mid cap stocks and large cap stocks. The fund shall primarily invest in mid cap stocks (at least 50% of the investment shall be in mid cap stocks). Investment portfolio shall also include large cap stocks and cash with cash not exceeding 20% of the portfolio value.
BALANCE:• Balanced Fund – The balanced fund is primarily for those who prefer a mix of steady returns & growth. The balanced fund will invest 30% to 50% in the equity fund and 50%to 70% in the debt fund.
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• Cash Fund – The cash fund will invest conservatively in money market & short-term investments to ensure that return on investments shall never be negative. 100% of this fund will be invested in money market instruments. The price of the units in this fund is guaranteed never to go down.(i.e :- gold, govt. securities, etc)
• Debt Fund - This fund provides the scope for steady returns at low risk through investment in high quality fixed income securities. This fund will be invested fully in debt instruments
EQUITY LINKED SAVING SCHEME •
ELSS funds have a lock-in period of three years. This could be restricting, but look at the other side of the picture -- the lock-in period prevents unnecessary withdrawals and helps your money grow over a period of time.
If you are wondering why a three-year lock-in period is necessary, it is because you need to take a long-term view when you invest in equity. The real potential of equities starts to show only after a few years. This allows you to ignore the short-term slumps and stay invested for the long haul. The tax benefit: •
Investments in ELSSs fall under Section 80C.
•
The limit under this section is Rs 100,000.
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MUTUAL FUNDS IN INDIA •
This is irrespective of how much you earn and under which tax bracket you fall.
•
Also, there are no sub-limits under this overall Rs 100,000 amount.
•
The dividends you earn in an ELSS are tax free.
METHODOLOGY / RESEARCH DESIGN Type of Study: The study at Mahindra finance is a combination of analytical and practical study. It is based on data collected from records of the company and is administered
to
various
departmental
heads
connected
with
Fund
Management.
Types of Data: Primary Data: This data was collected from discussions and interactions with respective departmental heads and clients. Secondary Data: This data was collected through various newsletters, publications through researchers in the field of fund management, journals magazine reports and consolidated records from Mahindra finance.
Sampling plan: The sampling universe consisted of various mutual funds and their returns.
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MUTUAL FUNDS IN INDIA
CONTENT TABLE Chapter 1 – Introduction: It contains the subject background and is a review of fund management.
Chapter 2 – Research Design: Under this a brief introduction about the subject is given. The problem is formulated and a suitable procedure is adopted to analyze the problem and arrive at a feasible solution.
Chapter 3 – My Profile In Mahindra Finance : At Mahindra Finance we have a wide range of products and services, with something to suit everyone’s needs. Right from finance for two wheelers, tractors, farm equipment, cars and utility vehicles to commercial vehicles and construction equipment, we also have a group of experts providing investment advice,(i.e.—MUTUAL FUND, INSURANCE
etc.)Surveying available market products
and choosing the most suitable to our customers’ needs.
Chapter 4 – Analysis and interpretation of data: The data collected is tabulated and compared, analyzed in order to draw inferences.
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MUTUAL FUNDS IN INDIA
Chapter 5 – Conclusion and recommendations: Based on the above findings, suitable suggestions and recommendations are proposed
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MUTUAL FUNDS IN INDIA
CHAPTER 1 INTRODUCTION
An investor earns or expects to earn additional monetary value from the mode of investment that could be in the form of financial assets. FUND Instead of directly buying equity shares or fixed income instruments an investor can participate in various schemes floated by mutual fund. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart
below
describes
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broadly
the
working
of
a
mutual
fund:
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MUTUAL FUNDS IN INDIA
The advantages of investing in a Mutual Fund are: • Professional Management • Diversification • Convenient Administration • Return Potential • Low Costs • Liquidity • Transparency • Flexibility • Choice of schemes • Tax benefits • Well regulated
There are different types of mutual funds are available in the investment market. An investor who wants to invest his money in mutual funds must have the knowledge about different kinds of mutual funds.
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GOALS OF THE FUND: Many funds are designed to invest in companies that meet specific investor goals, like growth, value, dividend or income to name a few. Only companies that meet certain criteria will be included in the fund. For example, a growth fund looks for companies with significant, untapped growth potential, whereas a value fund will look for companies that are undervalued by the market as a way to increase investor returns. Both of these types of funds are designed for long-term capital appreciation. If you need the funds to generate income either because you have retired, are saving to buy a house or are unable to work, you need to look at funds that will not only grow over time, but will also provide you with an income. For example, dividend funds are designed to pay you dividends on a quarterly or annual basis.
DIFFERENT TYPES OF FUNDS: GROWTH FUNDS: Are the type of funds where the collected money is invested in different stocks in order to capital appreciation over a long term. IBMR, Bangalore.
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Value of these mutual funds increase with the upward in stock market and decrease with a downfall in the stock market. The collected money is invested in common stocks of the companies that have a solid growth rates, as well as a history of consistent dividend payout.
BOND FUNDS / FIXED INCOME FUND: Bond funds typically invest in bonds issued by governments and large companies. Bond fund returns are based on a combination of interest payments and price changes of the bonds in the fund. The market value of bonds is affected by prevailing interest rates. When interest rates fall, existing bonds will generally rise in value; when interest rates rise, bonds will generally fall in value. Overall, bond funds are affected in the same way. Fund managers attempt to control risk by managing the credit quality and the average term of the bonds in the fund. Fixed income funds generally have the potential for higher returns than money market or guaranteed funds, but there tends to be a greater risk of a loss. The risk on a bond fund is that the bond issuer is not able to repay the borrowed amount. IBMR, Bangalore.
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MUTUAL FUNDS IN INDIA
Under this category funds are invested in the opportunities that can provide a regular profit on the invested money.
BALANCED FUNDS / DIVERSIFIED FUND: Balanced funds invest in a mix of stocks, bonds, and cash investments. The mix will change as market conditions change, but it usually stays within pre-determined ranges. (For example, stocks 40-60%, bonds 30-50%, cash 0-30%). The benefit of a balanced fund is that it provides automatic diversification by investing in a variety of asset classes and thereby reduces the risk of one asset class performing poorly. Balanced funds tend to be more risky than bond funds and less risky than equity funds. The main objective is to earn a high rate of return on the invested money.
MONEY MARKET FUND / GUARANTEED FUND: Money market funds invest primarily in short-term (less than one year) government Treasury Bills (also called T-Bills) and corporate notes which pay a fixed rate of interest. The rate of return of money market funds tends to be lower than that of funds that are managed for long-term gains, but they are a very low-risk investment. IBMR, Bangalore.
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Money market funds are ideal for parking your cash while you decide where to invest for the long haul, or for money you will need in the near future.
ASSET ALLOCATION FUNDS: Asset allocation funds are similar to balanced funds in that they invest in all of the asset classes. Asset allocation funds differ from balanced funds because the fund manager isn't restricted to the percentage of the money they can put in a specific type of investment (stocks, bonds, and so on). A tactical asset allocation fund is one where the manager frequently makes decisions about the best asset allocation, sometimes every few months. The manager of a strategic asset allocation fund will generally revise the fund's asset allocation once a year. Asset allocation funds provide a "one stop shopping" approach to asset allocation.
INDEX FUND: Index funds include stock or bond funds that closely match the performance of a market index, such as the BSE.
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Over time, index fund performance will slightly lag that of the actual index as result of cash flows and transaction costs. Since index fund investments are not actively researched, the management fees on index funds are generally very low. The risks associated with index fund investing are similar to those of bond and equity funds; however, index funds can have significant exposure to individual stocks when the weighting in the index is in excess of that allowed for actively managed funds. This can reduce the diversification in the fund. The risk level in this category is at the minimum level.
EQUITY FUNDS: Equity funds invest primarily in stocks. Because stocks have traditionally risen in value more than other types of investments, they offer the greatest potential for long-term growth. Investing in stocks is also riskier than other investments as stock prices can fluctuate more than other types of investments. The market price of a stock will vary with the company's financial performance, general economic conditions in the country in which it operates, as well as investor perceptions.
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MUTUAL FUNDS IN INDIA ALSO, PERHAPS MOST COMMONLY FUNDS ARE DIVIDED BY THEIR GEOGRAPHIC MARKETS, COMPANY SIZE AND INDUSTRY.
GEOGRAPHY: Specific countries: Funds can invest primarily in investments in one country. For example, Canadian equity funds invest primarily in Canadian companies. International: These funds can generally invest in any country around the world except for Canada. Most international funds invest in the U.S., Europe, Australia and the Far East, sometimes referred to as the EAFE countries. Global funds: These funds invest in any country around the globe, including Canada. Foreign equity funds provide an opportunity to diversify across many markets and reduce the risks associated with the health of any one economy and its stock market. These funds do have risks associated with political and market conditions in other countries. In addition, foreign funds are exposed to currency risk. If the Value of the Canadian dollar rises, or the currencies of the countries the fund invests in fall, your return calculated in Canadian dollars will be lower.
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Different accounting practices and securities regulations around the world may affect the fund managers' ability to value and trade in some securities. Portfolio managers seek to reduce these risks by investing in different countries and industries.
COMPANY SIZE: Many funds restrict the types of stocks they buy for the fund based on the size of the company. The size of the company is measured by its market capitalization (market cap - measures the company's worth by multiplying its stock price by the number of shares outstanding). Generally speaking, small cap funds are more risky than large cap funds as minor changes in a small cap company's stock price can have a major impact on its market cap. However, if you can take the ups and downs, there can be greater rewards for investors in small cap funds.
INDUSTRY: Some funds concentrate all their investments in a specific sector or industry
of
the
economy.
For
example,
biotechnology,
communications, natural resources, etc. Industry specific funds provide an opportunity to capitalize on the strength of a particular IBMR, Bangalore.
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MUTUAL FUNDS IN INDIA
sector of the economy. Investing a significant portion of your portfolio in one industry can be risky, especially if that industry falls on hard times. However, the upside can be equally as good if the industry performs well. (We have seen this in the technology sector.) However, if you have a diversified portfolio you may be able to reap some incremental returns by investing in an industryspecific fund.
INVESTMENT ALTERNATIVES: EQUITY SHARES: Equity shares represent ownership capital. As an equity shareholder, you have an ownership stake in the company. This essentially means that you have a residual interest in income and wealth. Perhaps the most romantic among various investment avenues, equity shares are classified into the following broad categories by stock market analysts: Blue chip shares Growth shares Income shares Cyclical shares Speculative shares
BONDS: Bonds or debentures represent long-term debt instruments. The issuer of a bond promises to pay a stipulated stream of cash flows. Bonds may be classified into the following categories:
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MUTUAL FUNDS IN INDIA Government securities Government of India relief bonds Government agency securities PSU bonds Debentures of private sector companies Preference shares
MONEY MARKET INSTRUMENTS: Debt instruments which have a maturity of less than one year at the time of issue are called money market instruments. The important money market instruments are: Treasury bills Commercial paper Certificate of deposit
MUTUAL FUNDS: Instead of directly buying equity shares and / or fixed income instruments, you can participate in various schemes floated by mutual funds which, in turn, invest in equity shares and fixed income securities. There are three broad types of mutual fund schemes: Equity schemes Debt schemes Balanced schemes
LIFE INSURANCE: In a broad sense, life insurance may be viewed as an investment. Insurance premiums represent the sacrifice and the assured sum the benefit. The important types of insurance policies in India are:
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MUTUAL FUNDS IN INDIA Endowment assurance policy Money back policy Whole life policy Term assurance policy
INVESTMENT ATTRIBUTES For evaluating an investment avenue, the following attributes are relevant. •
Rate of return
•
Risk
•
Marketability/Liquidity
•
Safety
•
Tax Shelter
•
Convenience
RATE OF RETURN: Investments are made with the primary objective of deriving a return. The expectation of a return may be from income (yield) as well as through capital appreciation. The dividend or interest from the investment is the yield. Different types of investments promise different rates of return. The expectation of return from an investment depends upon the nature of investment, maturity period, market demand, and so on.
RISK:
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MUTUAL FUNDS IN INDIA Risk is inherent in any investment. Risk may relate to loss of capital, delay in repayment of capital, nonpayment of interest, or variability of returns. While some investments such as government securities and bank deposits are almost without risk, others are more risky. The risk of an investment is determined by the investment’s maturity period, repayment capacity, nature of return commitment, and so on.
SAFETY: The safety of investment is identified with the certainty of return of capital without loss of money or time. Safety is another feature that an investor desires from investments. Every investor expects to get back the initial capital on maturity without loss and without delay. Investment safety is gauged through the reputation established by the borrower of funds. A highly reputed and successful corporate entity assures the investors of their initial capital.
MARKETABILITY/LIQUIDITY: An investment that is easily saleable or marketable without loss of money and without loss of time is said to possess the characteristic of liquidity. Some investments such as deposits in unknown corporate entities, bank deposits, post office deposits, national savings certificates, and so on are not marketable. Investment instruments such as preference shares and debentures listed on a stock exchange are marketable. The extent of trading however depends on the demand and supply of such instruments in the market for the investors. Equity shares of companies listed on recognized
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MUTUAL FUNDS IN INDIA stock exchanges are easily marketable. A well-developed secondary market for securities increases the liquidity of the instruments traded therein.
TAX SHELTER: Some investments provide tax benefits; others do not. They are of three kinds. Initial tax benefit referring to tax relief enjoyed at the time of making the investment. For Eg:, when you make a deposit in a Public Provident Fund account, we get a tax rebate under section 88 of the Income Tax Act.. Continuing tax benefit represents the tax shield associated with the periodic returns from the investment. For Eg:, dividend income and income from certain other sources is tax-exempt, up to a certain limit, in the hands of the recipient. Terminal tax benefit Refers to relief from taxation when an investment is realized or liquidated. For E.g.: a withdrawal from a Public Provident Fund account is not subject to tax.
CONVENIENCE: The degree of convenience associated with investments varies widely. At one end of the spectrum is the deposit in a savings bank account that can be made readily and that does not require any maintenance effort. At the other end of the spectrum is the purchase of a property that may involve a lot of procedural and legal hassles at the time of acquisition alIot a great deal of maintenance effort subsequently.
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MUTUAL FUNDS IN INDIA An investor tends to prefer maximization of expected return, minimization of risk, safety of funds and liquidity of investments
FOR THE PURPOSE OF FUND MANAGEMENT TYPICALLY THERE IS: A fund manager or investment manager who manages the investment decisions. A trustee or board who safeguards the assets and ensures compliance with the laws and rules. The shareholders or unitholders who own (or have rights to) the assets. A "Marketing" or "Distribution" company to promote and sell the fund.
NET ASSET VALUE: The Net Asset Value or NAV is the value of a scheme's assets less the value of its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.The method for calculating this varies between scheme types and jurisdiction and can be subject to complex regulation.
OPEN-ENDED FUND: An open-ended fund is equitably divided into shares (or units) which vary in price in direct proportion to the variation in value of the funds net asset value. Each time money is invested new shares or units are created to match the prevailing share price; each time shares are redeemed the assets sold match
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MUTUAL FUNDS IN INDIA the prevailing share price. In this way there is no supply or demand created for shares and they remain a direct reflection of the underlying assets.
CLOSED-ENDED FUND: A closed-ended fund issues a limited number of shares (or units) in an initial public offering (or IPO). The shares are then traded on an exchange or directly through the fund manager to create a secondary market subject to market forces. If demand for the shares are high they may trade at a premium to net asset value. If demand is low they may trade at a discount to net asset value. Further share (or unit) offerings may be made by the scheme if demand is high although this may affect the share price.The added element of market forces tends to amplify the performance of the fund increasing investment risk through increased volatility.
ADVANTAGES OF INVESTING THROUGH FUNDS: DIVERSITY AND RISK: One of the main advantages of investment through different fund is the reduction in investment risk (capital risk) by diversification. An investment in a single equity may do well, but it may collapse for investment or other reasons. If your money is invested in such a failed holding you could lose your capital. By investing in a range of equities (or other securities) the capital risk is reduced.
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MUTUAL FUNDS IN INDIA The more diversified your capital, the lower the capital risk this investment principle is often referred to as spreading risk. Collective investments by their nature tend to invest in a range of individual securities. However, if the securities are all in a similar type of asset class or market sector then there is a systematic risk that all the shares could be affected by adverse market changes. To avoid these systematic risk investment managers may diversify into different non-correlated asset classes. If any one of the three is failing, because each is Non-correlated (i.e. behaves independently) then by logical extension at least one of the other two is doing well.
REDUCED DEALING COSTS: If one investor were to buy a large number of direct investments, the amount they would be able to invest in each holding is likely to be small. Dealing costs are normally based on the number and size of each transaction, therefore the overall dealing costs would take a large chunk out of the capital (affecting future profits). Pooling your money with that of other investors means you have the advantages of buying in bulk making dealing costs an insignificant part of the investment.
DISADVANTAGES OF INVESTING THROUGH FUNDS COSTS: The fund manager managing the investment decisions on behalf of the investors requires remuneration. This is often taken directly from the fund assets as a fixed percentage each year or sometimes a variable (performance
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MUTUAL FUNDS IN INDIA based) fee. If the investor managed their own investments, this cost would be avoided. Often the cost of advice given by a stock broker or financial adviser is built into the scheme. Often referred to as commission or load (in the U.S.) this charge may be applied at the start of the plan or as an ongoing percentage of the fund value each year. While this cost will diminish your returns it could be argued that it reflects a separate payment for an advice service rather than a detrimental feature of collective investment schemes. Indeed it is often possible to purchase units or shares direct from the providers without bearing this cost.
LACK OF CHOICE: Although the investor can choose the type of fund to invest in, they have no control over the choice of individual holdings that make up the fund.
LOSS OF OWNER'S RIGHTS: If the investor holds shares directly, they may be entitled to shareholders' perks (for example, discounts on the company's products) and the right to attend the company's annual general meeting and vote on important matters. Investors in a collective investment scheme often have none of the rights connected with individual investments within the fund.
INVESTMENT AIMS AND BENCHMARKING: Each fund has a defined investment goal to describe the remit of the investment manager and to help investors decide if the fund is right for them.
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MUTUAL FUNDS IN INDIA The investment aims will typically fall into the broad categories of Income (value) investment or Growth investment. Income or value based investment tends to select stocks with strong income streams, often more established businesses. Growth investment selects stocks that tend to reinvest their income to generate growth. Each strategy has its critics and proponents; some prefer a blend approach using aspects of each.
TYPES OF RISK: Depending on the nature of the investment, the type of 'investment' risk will vary. A common concern with any investment is that you may lose the money you invest - your capital. This risk is therefore often referred to as capital risk. If the assets you invest in are held in another currency there is a risk that currency movements alone may affect the value. This is referred to as currency risk.Many forms of investment may not be readily salable on the open market (e.g. commercial property) or the market has a small capacity and can therefore may take time to sell. Assets that are easily sold are termed liquid therefore this type of risk is termed liquidity.
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MUTUAL FUNDS IN INDIA
Why Mutual fund? Investment
Rate
option SAVING A/C
interest (%) 3.75
FIXED
8-9.5
of Inflation (%) 6 6
G D P (%)
DIFFERENCE
8.5
-2.25(NEGATIVE
8.5
RETURN) THE
DEPOSIT
ACCOMMODATE BY
GOVT. BOND 7-8 REAL
30+
6 6
PRESENT
8.5
VALUE FACTOR -0.5 (NEGATIVE
8.5
RETURN) HIGH AMOUNT
ESTATE
OF
MONEY
REQURIED FOR PURCHASE KISSAN
7-8
VIKAS
6
8.5
OF
REAL ESTATE -1(NEGATIVE RETURN)
PATRA
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MUTUAL FUNDS IN INDIA POST
6.5-8.5
6
8..5
20-30
6
8.5
AVERAGE
OFFICE DEPOSIT MUTUAL
CHAPTER 2 RESEARCH DESIGN
METHODOLOGY / RESEARCH DESIGN Type of Study: The study at Mahindra finance is a combination of analytical and practical study. It is based on data collected from records of the company and is administered
to
various
departmental
heads
connected
with
Fund
Management.
Types of Data: Primary Data: This data was collected from discussions and interactions with respective departmental heads and clients. Secondary Data: This data was collected through various newsletters, publications through researchers in the field of fund management, journals magazine reports and consolidated records from Mahindra finance.
Sampling Plan: The sampling universe consisted of various mutual funds and their returns .
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MUTUAL FUNDS IN INDIA
SWOT of the organization:SWOT analysis of organizations to provide recommendations on their performance and growth potential. It is a powerful tool for analyzing both complex qualitative and quantitative facets of an investment decision. The results of this analysis have been fed into marketing and organizational strategic plans and have been highly successful in strategy formulation. Through our SWOT analysis, our clients have been able to take advantage of niche markets and focus on product innovation which allows them to capture greater margins. Our SWOT analysis identifies strengths and weaknesses and relates them with forward looking opportunities and threats. This helps to identify company and industry specific critical drivers and catalysts. SWOT Analysis identifies your company’s: Strengths - to build on Weaknesses - to cover Opportunities - to capture Threats - to defend against
SWOT Analysis Strengths: * Rich experience of the management. * Good brand equity * Giving the very good return from inception * Stabilized and loyal clients. * Well combination of new energetic and experienced employees. IBMR, Bangalore.
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MUTUAL FUNDS IN INDIA * Wide variety of investment product to match with every level of customer * Giving the mutual fund exposure
Weakness: * Insufficient office equipments. * Not all employees have his/her cabin. * Work place (back office) is quite congested. * Not very popular in rural area
Opportunities: * Stability through increased brand awareness, market penetration and Service offerings * Across all categories of financial services. * Increase in customer’s wallet share. * Leveraging the latest technology for providing quality and client centric Services.
Threats; * Increasing interest rate scenario. * Execution risk. * Competition from local and multinational players. * Rising inflation could reduce savings and investments
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MUTUAL FUNDS IN INDIA
CHAPTER 3 MY JOB PROILE IN DEUTSCHE ASSET MANAGEMENT COMPANY On Job Training: Empanelment: For empanelment we have to call up the IFA in the Bangalore from the data base given by the company, have to fix the appointment then have to go for empanelling them.
Interaction & Calling: Had meetings with clients to check for their requirements which is based on satisfying their queries about the companies profile, schemes and it’s performance in the industry. The main work of the relationship manager is to build a strong relation between the company and the IFA, keep motivating them for giving the business to the company, assisting them to remain updated about the market activities, as they don’t have any sources of getting the updates of the market. PERFORMANCE APPARAISAL: It is the activity used to determine the extent to which an employee performs work effectively. Other terms of performance evaluation include performance
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MUTUAL FUNDS IN INDIA review, performance rating, performance appraisal, and employee appraisal and employee evaluation.
PURPOSE OF PERFORMANCE APPRAISAL: The purpose of performance appraisal is: 1. DEVELOPMENT: It is used to find out which employee need training, helps in subordinate-supervisor counseling relation and encourages subordinate behavior to help employee.
2. MOTIVATION: It encourages initiative, develops a sense of responsibility and stimulates efforts to perform better.
3. COMMUNICATION: It serves as a basis for ongoing discussion between superior and subordinate about job related matters and thus they get to know each other better.
4. LEGAL COMPLIANCE: It serves as a legally defensible reason for promotion, transfer, reward and discharges.
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MUTUAL FUNDS IN INDIA
WHO EVALUTE THE EMPLOYEE? Employees can be evaluated by: 1. Committee of Several supervisors. 2. By employee peers. 3. By employees subordinate. 4. By someone outside the work environment. 5. Self evaluation. 6. By using number of approaches. The performance appraisal used by the Mahindra finance is usually done by a subordinate that is employee subordinate. The employee is rated different areas. The areas are
1. Client interaction 2. Candidate interaction 3. Documentation 4. Job posting 5. Average CV received 6. Head hunting 7. Speed of Response 8. Client response 9. Performance against targets
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MUTUAL FUNDS IN INDIA 10. Attitude 11. Leadership 12. Attendance/Punctuality 13. Integrity 14. Loyalty 15. Additional areas of responsibility you would like to handle: 16. Overall rating The employee is rated of the areas and finally a cumulative sum is taken out. The employee would scored high is awarded best employee of the month (per semester) and the employee scoring low is given training for the improvement of the work.
COMPENSATION AND BENEFITS COMPENSATION: It is the human resource management function that deals with every type of reward individuals receive in exchange for performing organizational tasks. compensation consists of pay an employee receives in form of wages, salaries, bonuses or commission.
Objective of compensation: The objective of the compensation function is to crate a system of rewards that is equitable to the employee and employer alike. The desired outcome is an employee who is attracted to the work and motivated to do a good job for the employer. Compensation should be 1. Adequate 2. Equitable 3. Balanced
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MUTUAL FUNDS IN INDIA 4. Cost-effective 5. Secure 6. Incentive – providing 7. Acceptable to the employee
CHAPTER 4 ANALYSIS AND INTERPRETATION OF DATA
SEGMENTATION, TARGETING, POSITIONING; company discovers different needs and groups in the market place, targets those needs and group that it can satisfy in a superior way, and than positions its offering in a way so that target market recognizes the company’s distinctive offering and image. Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the mind of target market. The end result of positioning is the successful creation of customer - focused value proposition, a cogent reason why the target market will buy the product.
REASON BEHIND S.T.P--A total Market can be defined as people or organization with needs, want, demand however within the total market there is always some diversity among buyers, not all consumers who drink hot drink wants tea. Similarly not all consumers who wear pants wants to wear jeans. So within the same general market there are group of customer with different needs and buying preference. Hence a market should never commit the mistake to taking up the whole market uniformly at a time. The best way is to segment or break the
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MUTUAL FUNDS IN INDIA market into groups of buyers with similar needs and preference and than select the more attractive groups/segments as part of their marketing strategy.
POSITIONING----Here in the case of Mahindra finance they did the very good segmentation, targeting, positioning in the market. They have positioned itself very well in the consumers mind by the way of attractive advertisement and excellent past record. Now Mahindra finance a brand in the market and its on the consumers mind as a CASH COW
TARGETING----Here in the case of Mahindra finance,Its targeting strategy is simply superb. Mahindra finance has basically targeting the all type of customer in every level. They have the vide variety of product range that suit for every customer.
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MUTUAL FUNDS IN INDIA
TABLE OF S.T.P. SEGMENT
TARGET
POSITIONING
BACHELOR
YOUTH
CREDIT CARD,
YOUTH
WHEELER- LOAN CREDIT CARD,
NEWLY MARRIED
TWO
MUTUAL FUND, ULIPFULLNEST ONE
YOUTH
PLAN ULIP-
PLAN,
LOAN, FULLNEST TWO
MIDDLE AGE
INSURANCE,
CAR LOAN EDUCATION SAFE HEALTH
HOME-
LOAN,
INVESTMENT, INSURANCE,
EMPTYNESS ONE
MIDDLE AGE
RETIREMENT PLAN EASY GROWTH FUND
EMPTYNESS TWO
OLD AGE
FIXED DEPOSIT
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MUTUAL FUNDS IN INDIA
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MUTUAL FUNDS IN INDIA
Comparision of ULIPS vs MFS (India) : Below is a brief comparision of ULIP (Unit Linked Insurance Product) vs MF (Mutual Funds) specific to the Indian market. Primary Objective: MFs: Investments ULIPs: Protection + Investments Investment Duration: MFs: Works out for Medium term, Long Term Investors. Risky for Short Term investors. ULIPs: Works out for Long Term Investors only. Flexibility: MFs: Very flexible. Plenty of scope to correct your mistakes if you made any wrong investment decisions. You can easily shuffle your portfolio in MFs. ULIPs: Flexibility is limited to moving across the different funds offered with your policy. Correcting mistakes can turn out to be expensive. Moving funds from one ULIP to an other ULIP of a different fund house can be expensive. Liquidity: MFs: Very liquid. You can sell your MF units any time(except ELSS). Some MF's like those from Reliance have introduced redemptions at ATMs. ULIPs: Limited liquidity. Need to stay invested for the minimum number of years specified before you can redeem. Investment Objective: MFs: MF's can be used as your vechile for investments to achive different objectives.(Eg: Buying a car three years from now. Downpayment for a home IBMR, Bangalore.
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MUTUAL FUNDS IN INDIA five years from now. Childrens education 10 years from now. Childrens marriage 15 years from now. Retirement planning 25 years from now. Medical expenses after retirement 25 years from now) ULIPs: ULIPs can be used for achieving only long term objectives (Childrens education, Childrens marriage, Retirement planning) Tax Implications: MFs: All investments in MF's don't qualify for section 80C. Only investments in ELSS qualify for 80C. ULIPs: Provide Tax Benefits under section 80C. MFs: Returns on equity MF's are exempt from long term capital gains tax. (Unless tax laws change in the future). ULIPs: We are moving from EEE to EET. No clarity if ULIPs will be taxed under EET. MFs: Tax liabilities when moving across from debt to equity funds.(Returns from debt MF's are taxed.) ULIPs: Very flexible in moving between equity and debt funds(not tax implications until maturity of the policy). Strings Attached (fine print): MFs: None so ever. At most you pay a small exit load if any. ULIPs: Some strings attached for your policy to be in effect. Minimum number of premiums needs to be paid. Minimum fund balance needs to be always maintained. (I personally don’t like policies which say pay three years premium and get insurance cover for the next 25 years since there are a lot of ifs and butts involved. A lot of assumptions made and nothing is in your hand, it could turn out your fund balance might be exhausted after just 12 years of
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MUTUAL FUNDS IN INDIA insurance cover).
ADVANTAGES ULIPS: •
Can easily rebalance your risk between equity and debt without any tax implications.
•
Best suited for medium risk taking individuals who wish to invest in equity and debt funds(atleast 40% or higher exposure to debt). No additional tax burden for those investing mainly in debt unlike in MFs.
ADVANTAGE MFS: •
Better returns than ULIPs.
•
Lower charges than ULIPs.
•
Very flexible and enables you to switch your investments from non performing MF's to better performing MFs
•
Very Liquid can be redeemed at anytime.
•
Best suited for medium to high risk taking individuals who wish to invest a significant portion in equity funds(atleast 65% exposure in equities).
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MUTUAL FUNDS IN INDIA
CHAPTER 5 CONCLUSION AND RECOMMENDATION
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MUTUAL FUNDS IN INDIA
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MUTUAL FUNDS IN INDIA
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MUTUAL FUNDS IN INDIA
”MUTUAL FUND INVESTMENT IS SUBJECT TO MARKET RISKS. PLEASE READ THE OFFER DOCUMENT CAREFULLY BEFORE INVESTING”
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EXECUTIVE SUMMARY Investment may be defined as an activity that commits funds in any financial/physical form in the present with an expectation of receiving additional return in the future. The expectation brings with it a probability that the quantum of return may vary from a minimum to a maximum. The possibility of variation in the actual return is known as investment risk. Thus every investment involves a return and risk. The investor can choose the investment funds he wants to invest his money, providing the investor an opportunity to have a direct stake in the performance of the financial markets. He can also benefit from attractive tax advantages. A mutual fund is a professionally managed firm of collective investments that collects money from many investors and puts it in stocks, bonds, short-term money market instruments, and/or other securities. The fund manager, also known as portfolio manager, trades the fund's underlying securities, realizing capital gains or losses and passing any proceeds to the individual investors. Today, the worldwide value of all mutual funds totals more than $26 trillion in assets. The principal paid are invested in fund/funds of the investor’s choice (depending on the allocation rate) & units are allocated depending on the price of units for the fund/funds.
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MUTUAL FUNDS IN INDIA
STATEMENT OF PROBLEM: The premiums that are collected are invested in different funds like equity fund, mid-cap fund, debt fund, balanced fund and cash fund. The funds must be allocated such that their performance is stable and improves so that the investor gets high returns. Due to the increasing competition it becomes necessary that the companies fund is the best performing fund with highest return. Among the different mutual funds this study is to find out the best fund which will yield high returns to the investor and minimize there risk.
OBJECTIVES OF THE STUDY: •
To study the different investment guidelines prescribed by IRDA.
•
To analyze the present performance of different mutual funds
•
To analyze the competition among different sectors for investment.
•
Based on the findings suitable suggestions are given.
PLACE OF THE STUDY: The study was conducted at Deutsche asset management, Raheza tower, M.G. Road, Bangalore. Also some of the software companies were covered including Accenture, Oracle, HP, etc. Even bank ATM’s of Axis Bank in Wilson garden and ICICI Bank in kormangala were covered.
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MUTUAL FUNDS IN INDIA
DEFINITIONS:EQUTY DIVERSIFIED:• Equity Fund – This fund provides the scope of high appreciation over a long term. The fund will primarily invest in equities & is expected to match returns given by NSE NIFTY. This fund will invest at least 90% in equities and maximum 10% in cash.
• Equity Gain Fund - The investment objective of this Fund is to provide capital appreciation through investment in select equity stocks that have the potential for high capital appreciation. This fund will invest at least 85% in equities and maximum 15% in debt & cash instruments. • Equity MidCap Fund - The Investment objective of this Fund is to achieve capital appreciation by investing in a diversified basket of mid cap stocks and large cap stocks. The fund shall primarily invest in mid cap stocks (at least 50% of the investment shall be in mid cap stocks). Investment portfolio shall also include large cap stocks and cash with cash not exceeding 20% of the portfolio value.
BALANCE:• Balanced Fund – The balanced fund is primarily for those who prefer a mix of steady returns & growth. The balanced fund will invest 30% to 50% in the equity fund and 50%to 70% in the debt fund.
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MUTUAL FUNDS IN INDIA
• Cash Fund – The cash fund will invest conservatively in money market & short-term investments to ensure that return on investments shall never be negative. 100% of this fund will be invested in money market instruments. The price of the units in this fund is guaranteed never to go down.(i.e :- gold, govt. securities, etc)
• Debt Fund - This fund provides the scope for steady returns at low risk through investment in high quality fixed income securities. This fund will be invested fully in debt instruments
EQUITY LINKED SAVING SCHEME •
ELSS funds have a lock-in period of three years. This could be restricting, but look at the other side of the picture -- the lock-in period prevents unnecessary withdrawals and helps your money grow over a period of time.
If you are wondering why a three-year lock-in period is necessary, it is because you need to take a long-term view when you invest in equity. The real potential of equities starts to show only after a few years. This allows you to ignore the short-term slumps and stay invested for the long haul. The tax benefit: •
Investments in ELSSs fall under Section 80C.
•
The limit under this section is Rs 100,000.
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MUTUAL FUNDS IN INDIA •
This is irrespective of how much you earn and under which tax bracket you fall.
•
Also, there are no sub-limits under this overall Rs 100,000 amount.
•
The dividends you earn in an ELSS are tax free.
METHODOLOGY / RESEARCH DESIGN Type of Study: The study at Mahindra finance is a combination of analytical and practical study. It is based on data collected from records of the company and is administered
to
various
departmental
heads
connected
with
Fund
Management.
Types of Data: Primary Data: This data was collected from discussions and interactions with respective departmental heads and clients. Secondary Data: This data was collected through various newsletters, publications through researchers in the field of fund management, journals magazine reports and consolidated records from Mahindra finance.
Sampling plan: The sampling universe consisted of various mutual funds and their returns.
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MUTUAL FUNDS IN INDIA
CONTENT TABLE Chapter 1 – Introduction: It contains the subject background and is a review of fund management.
Chapter 2 – Research Design: Under this a brief introduction about the subject is given. The problem is formulated and a suitable procedure is adopted to analyze the problem and arrive at a feasible solution.
Chapter 3 – My Profile In Mahindra Finance : At Mahindra Finance we have a wide range of products and services, with something to suit everyone’s needs. Right from finance for two wheelers, tractors, farm equipment, cars and utility vehicles to commercial vehicles and construction equipment, we also have a group of experts providing investment advice,(i.e.—MUTUAL FUND, INSURANCE
etc.)Surveying available market products
and choosing the most suitable to our customers’ needs.
Chapter 4 – Analysis and interpretation of data: The data collected is tabulated and compared, analyzed in order to draw inferences.
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MUTUAL FUNDS IN INDIA
Chapter 5 – Conclusion and recommendations: Based on the above findings, suitable suggestions and recommendations are proposed
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MUTUAL FUNDS IN INDIA
CHAPTER 1 INTRODUCTION
An investor earns or expects to earn additional monetary value from the mode of investment that could be in the form of financial assets. FUND Instead of directly buying equity shares or fixed income instruments an investor can participate in various schemes floated by mutual fund. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart
below
describes
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broadly
the
working
of
a
mutual
fund:
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MUTUAL FUNDS IN INDIA
The advantages of investing in a Mutual Fund are: • Professional Management • Diversification • Convenient Administration • Return Potential • Low Costs • Liquidity • Transparency • Flexibility • Choice of schemes • Tax benefits • Well regulated
There are different types of mutual funds are available in the investment market. An investor who wants to invest his money in mutual funds must have the knowledge about different kinds of mutual funds.
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GOALS OF THE FUND: Many funds are designed to invest in companies that meet specific investor goals, like growth, value, dividend or income to name a few. Only companies that meet certain criteria will be included in the fund. For example, a growth fund looks for companies with significant, untapped growth potential, whereas a value fund will look for companies that are undervalued by the market as a way to increase investor returns. Both of these types of funds are designed for long-term capital appreciation. If you need the funds to generate income either because you have retired, are saving to buy a house or are unable to work, you need to look at funds that will not only grow over time, but will also provide you with an income. For example, dividend funds are designed to pay you dividends on a quarterly or annual basis.
DIFFERENT TYPES OF FUNDS: GROWTH FUNDS: Are the type of funds where the collected money is invested in different stocks in order to capital appreciation over a long term. IBMR, Bangalore.
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MUTUAL FUNDS IN INDIA
Value of these mutual funds increase with the upward in stock market and decrease with a downfall in the stock market. The collected money is invested in common stocks of the companies that have a solid growth rates, as well as a history of consistent dividend payout.
BOND FUNDS / FIXED INCOME FUND: Bond funds typically invest in bonds issued by governments and large companies. Bond fund returns are based on a combination of interest payments and price changes of the bonds in the fund. The market value of bonds is affected by prevailing interest rates. When interest rates fall, existing bonds will generally rise in value; when interest rates rise, bonds will generally fall in value. Overall, bond funds are affected in the same way. Fund managers attempt to control risk by managing the credit quality and the average term of the bonds in the fund. Fixed income funds generally have the potential for higher returns than money market or guaranteed funds, but there tends to be a greater risk of a loss. The risk on a bond fund is that the bond issuer is not able to repay the borrowed amount. IBMR, Bangalore.
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MUTUAL FUNDS IN INDIA
Under this category funds are invested in the opportunities that can provide a regular profit on the invested money.
BALANCED FUNDS / DIVERSIFIED FUND: Balanced funds invest in a mix of stocks, bonds, and cash investments. The mix will change as market conditions change, but it usually stays within pre-determined ranges. (For example, stocks 40-60%, bonds 30-50%, cash 0-30%). The benefit of a balanced fund is that it provides automatic diversification by investing in a variety of asset classes and thereby reduces the risk of one asset class performing poorly. Balanced funds tend to be more risky than bond funds and less risky than equity funds. The main objective is to earn a high rate of return on the invested money.
MONEY MARKET FUND / GUARANTEED FUND: Money market funds invest primarily in short-term (less than one year) government Treasury Bills (also called T-Bills) and corporate notes which pay a fixed rate of interest. The rate of return of money market funds tends to be lower than that of funds that are managed for long-term gains, but they are a very low-risk investment. IBMR, Bangalore.
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MUTUAL FUNDS IN INDIA
Money market funds are ideal for parking your cash while you decide where to invest for the long haul, or for money you will need in the near future.
ASSET ALLOCATION FUNDS: Asset allocation funds are similar to balanced funds in that they invest in all of the asset classes. Asset allocation funds differ from balanced funds because the fund manager isn't restricted to the percentage of the money they can put in a specific type of investment (stocks, bonds, and so on). A tactical asset allocation fund is one where the manager frequently makes decisions about the best asset allocation, sometimes every few months. The manager of a strategic asset allocation fund will generally revise the fund's asset allocation once a year. Asset allocation funds provide a "one stop shopping" approach to asset allocation.
INDEX FUND: Index funds include stock or bond funds that closely match the performance of a market index, such as the BSE.
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MUTUAL FUNDS IN INDIA
Over time, index fund performance will slightly lag that of the actual index as result of cash flows and transaction costs. Since index fund investments are not actively researched, the management fees on index funds are generally very low. The risks associated with index fund investing are similar to those of bond and equity funds; however, index funds can have significant exposure to individual stocks when the weighting in the index is in excess of that allowed for actively managed funds. This can reduce the diversification in the fund. The risk level in this category is at the minimum level.
EQUITY FUNDS: Equity funds invest primarily in stocks. Because stocks have traditionally risen in value more than other types of investments, they offer the greatest potential for long-term growth. Investing in stocks is also riskier than other investments as stock prices can fluctuate more than other types of investments. The market price of a stock will vary with the company's financial performance, general economic conditions in the country in which it operates, as well as investor perceptions.
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MUTUAL FUNDS IN INDIA ALSO, PERHAPS MOST COMMONLY FUNDS ARE DIVIDED BY THEIR GEOGRAPHIC MARKETS, COMPANY SIZE AND INDUSTRY.
GEOGRAPHY: Specific countries: Funds can invest primarily in investments in one country. For example, Canadian equity funds invest primarily in Canadian companies. International: These funds can generally invest in any country around the world except for Canada. Most international funds invest in the U.S., Europe, Australia and the Far East, sometimes referred to as the EAFE countries. Global funds: These funds invest in any country around the globe, including Canada. Foreign equity funds provide an opportunity to diversify across many markets and reduce the risks associated with the health of any one economy and its stock market. These funds do have risks associated with political and market conditions in other countries. In addition, foreign funds are exposed to currency risk. If the Value of the Canadian dollar rises, or the currencies of the countries the fund invests in fall, your return calculated in Canadian dollars will be lower.
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MUTUAL FUNDS IN INDIA
Different accounting practices and securities regulations around the world may affect the fund managers' ability to value and trade in some securities. Portfolio managers seek to reduce these risks by investing in different countries and industries.
COMPANY SIZE: Many funds restrict the types of stocks they buy for the fund based on the size of the company. The size of the company is measured by its market capitalization (market cap - measures the company's worth by multiplying its stock price by the number of shares outstanding). Generally speaking, small cap funds are more risky than large cap funds as minor changes in a small cap company's stock price can have a major impact on its market cap. However, if you can take the ups and downs, there can be greater rewards for investors in small cap funds.
INDUSTRY: Some funds concentrate all their investments in a specific sector or industry
of
the
economy.
For
example,
biotechnology,
communications, natural resources, etc. Industry specific funds provide an opportunity to capitalize on the strength of a particular IBMR, Bangalore.
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MUTUAL FUNDS IN INDIA
sector of the economy. Investing a significant portion of your portfolio in one industry can be risky, especially if that industry falls on hard times. However, the upside can be equally as good if the industry performs well. (We have seen this in the technology sector.) However, if you have a diversified portfolio you may be able to reap some incremental returns by investing in an industryspecific fund.
INVESTMENT ALTERNATIVES: EQUITY SHARES: Equity shares represent ownership capital. As an equity shareholder, you have an ownership stake in the company. This essentially means that you have a residual interest in income and wealth. Perhaps the most romantic among various investment avenues, equity shares are classified into the following broad categories by stock market analysts: Blue chip shares Growth shares Income shares Cyclical shares Speculative shares
BONDS: Bonds or debentures represent long-term debt instruments. The issuer of a bond promises to pay a stipulated stream of cash flows. Bonds may be classified into the following categories:
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MUTUAL FUNDS IN INDIA Government securities Government of India relief bonds Government agency securities PSU bonds Debentures of private sector companies Preference shares
MONEY MARKET INSTRUMENTS: Debt instruments which have a maturity of less than one year at the time of issue are called money market instruments. The important money market instruments are: Treasury bills Commercial paper Certificate of deposit
MUTUAL FUNDS: Instead of directly buying equity shares and / or fixed income instruments, you can participate in various schemes floated by mutual funds which, in turn, invest in equity shares and fixed income securities. There are three broad types of mutual fund schemes: Equity schemes Debt schemes Balanced schemes
LIFE INSURANCE: In a broad sense, life insurance may be viewed as an investment. Insurance premiums represent the sacrifice and the assured sum the benefit. The important types of insurance policies in India are:
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MUTUAL FUNDS IN INDIA Endowment assurance policy Money back policy Whole life policy Term assurance policy
INVESTMENT ATTRIBUTES For evaluating an investment avenue, the following attributes are relevant. •
Rate of return
•
Risk
•
Marketability/Liquidity
•
Safety
•
Tax Shelter
•
Convenience
RATE OF RETURN: Investments are made with the primary objective of deriving a return. The expectation of a return may be from income (yield) as well as through capital appreciation. The dividend or interest from the investment is the yield. Different types of investments promise different rates of return. The expectation of return from an investment depends upon the nature of investment, maturity period, market demand, and so on.
RISK:
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MUTUAL FUNDS IN INDIA Risk is inherent in any investment. Risk may relate to loss of capital, delay in repayment of capital, nonpayment of interest, or variability of returns. While some investments such as government securities and bank deposits are almost without risk, others are more risky. The risk of an investment is determined by the investment’s maturity period, repayment capacity, nature of return commitment, and so on.
SAFETY: The safety of investment is identified with the certainty of return of capital without loss of money or time. Safety is another feature that an investor desires from investments. Every investor expects to get back the initial capital on maturity without loss and without delay. Investment safety is gauged through the reputation established by the borrower of funds. A highly reputed and successful corporate entity assures the investors of their initial capital.
MARKETABILITY/LIQUIDITY: An investment that is easily saleable or marketable without loss of money and without loss of time is said to possess the characteristic of liquidity. Some investments such as deposits in unknown corporate entities, bank deposits, post office deposits, national savings certificates, and so on are not marketable. Investment instruments such as preference shares and debentures listed on a stock exchange are marketable. The extent of trading however depends on the demand and supply of such instruments in the market for the investors. Equity shares of companies listed on recognized
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MUTUAL FUNDS IN INDIA stock exchanges are easily marketable. A well-developed secondary market for securities increases the liquidity of the instruments traded therein.
TAX SHELTER: Some investments provide tax benefits; others do not. They are of three kinds. Initial tax benefit referring to tax relief enjoyed at the time of making the investment. For Eg:, when you make a deposit in a Public Provident Fund account, we get a tax rebate under section 88 of the Income Tax Act.. Continuing tax benefit represents the tax shield associated with the periodic returns from the investment. For Eg:, dividend income and income from certain other sources is tax-exempt, up to a certain limit, in the hands of the recipient. Terminal tax benefit Refers to relief from taxation when an investment is realized or liquidated. For E.g.: a withdrawal from a Public Provident Fund account is not subject to tax.
CONVENIENCE: The degree of convenience associated with investments varies widely. At one end of the spectrum is the deposit in a savings bank account that can be made readily and that does not require any maintenance effort. At the other end of the spectrum is the purchase of a property that may involve a lot of procedural and legal hassles at the time of acquisition alIot a great deal of maintenance effort subsequently.
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MUTUAL FUNDS IN INDIA An investor tends to prefer maximization of expected return, minimization of risk, safety of funds and liquidity of investments
FOR THE PURPOSE OF FUND MANAGEMENT TYPICALLY THERE IS: A fund manager or investment manager who manages the investment decisions. A trustee or board who safeguards the assets and ensures compliance with the laws and rules. The shareholders or unitholders who own (or have rights to) the assets. A "Marketing" or "Distribution" company to promote and sell the fund.
NET ASSET VALUE: The Net Asset Value or NAV is the value of a scheme's assets less the value of its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.The method for calculating this varies between scheme types and jurisdiction and can be subject to complex regulation.
OPEN-ENDED FUND: An open-ended fund is equitably divided into shares (or units) which vary in price in direct proportion to the variation in value of the funds net asset value. Each time money is invested new shares or units are created to match the prevailing share price; each time shares are redeemed the assets sold match
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MUTUAL FUNDS IN INDIA the prevailing share price. In this way there is no supply or demand created for shares and they remain a direct reflection of the underlying assets.
CLOSED-ENDED FUND: A closed-ended fund issues a limited number of shares (or units) in an initial public offering (or IPO). The shares are then traded on an exchange or directly through the fund manager to create a secondary market subject to market forces. If demand for the shares are high they may trade at a premium to net asset value. If demand is low they may trade at a discount to net asset value. Further share (or unit) offerings may be made by the scheme if demand is high although this may affect the share price.The added element of market forces tends to amplify the performance of the fund increasing investment risk through increased volatility.
ADVANTAGES OF INVESTING THROUGH FUNDS: DIVERSITY AND RISK: One of the main advantages of investment through different fund is the reduction in investment risk (capital risk) by diversification. An investment in a single equity may do well, but it may collapse for investment or other reasons. If your money is invested in such a failed holding you could lose your capital. By investing in a range of equities (or other securities) the capital risk is reduced.
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MUTUAL FUNDS IN INDIA The more diversified your capital, the lower the capital risk this investment principle is often referred to as spreading risk. Collective investments by their nature tend to invest in a range of individual securities. However, if the securities are all in a similar type of asset class or market sector then there is a systematic risk that all the shares could be affected by adverse market changes. To avoid these systematic risk investment managers may diversify into different non-correlated asset classes. If any one of the three is failing, because each is Non-correlated (i.e. behaves independently) then by logical extension at least one of the other two is doing well.
REDUCED DEALING COSTS: If one investor were to buy a large number of direct investments, the amount they would be able to invest in each holding is likely to be small. Dealing costs are normally based on the number and size of each transaction, therefore the overall dealing costs would take a large chunk out of the capital (affecting future profits). Pooling your money with that of other investors means you have the advantages of buying in bulk making dealing costs an insignificant part of the investment.
DISADVANTAGES OF INVESTING THROUGH FUNDS COSTS: The fund manager managing the investment decisions on behalf of the investors requires remuneration. This is often taken directly from the fund assets as a fixed percentage each year or sometimes a variable (performance
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MUTUAL FUNDS IN INDIA based) fee. If the investor managed their own investments, this cost would be avoided. Often the cost of advice given by a stock broker or financial adviser is built into the scheme. Often referred to as commission or load (in the U.S.) this charge may be applied at the start of the plan or as an ongoing percentage of the fund value each year. While this cost will diminish your returns it could be argued that it reflects a separate payment for an advice service rather than a detrimental feature of collective investment schemes. Indeed it is often possible to purchase units or shares direct from the providers without bearing this cost.
LACK OF CHOICE: Although the investor can choose the type of fund to invest in, they have no control over the choice of individual holdings that make up the fund.
LOSS OF OWNER'S RIGHTS: If the investor holds shares directly, they may be entitled to shareholders' perks (for example, discounts on the company's products) and the right to attend the company's annual general meeting and vote on important matters. Investors in a collective investment scheme often have none of the rights connected with individual investments within the fund.
INVESTMENT AIMS AND BENCHMARKING: Each fund has a defined investment goal to describe the remit of the investment manager and to help investors decide if the fund is right for them.
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MUTUAL FUNDS IN INDIA The investment aims will typically fall into the broad categories of Income (value) investment or Growth investment. Income or value based investment tends to select stocks with strong income streams, often more established businesses. Growth investment selects stocks that tend to reinvest their income to generate growth. Each strategy has its critics and proponents; some prefer a blend approach using aspects of each.
TYPES OF RISK: Depending on the nature of the investment, the type of 'investment' risk will vary. A common concern with any investment is that you may lose the money you invest - your capital. This risk is therefore often referred to as capital risk. If the assets you invest in are held in another currency there is a risk that currency movements alone may affect the value. This is referred to as currency risk.Many forms of investment may not be readily salable on the open market (e.g. commercial property) or the market has a small capacity and can therefore may take time to sell. Assets that are easily sold are termed liquid therefore this type of risk is termed liquidity.
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MUTUAL FUNDS IN INDIA
Why Mutual fund? Investment
Rate
option SAVING A/C
interest (%) 3.75
FIXED
8-9.5
of Inflation (%) 6 6
G D P (%)
DIFFERENCE
8.5
-2.25(NEGATIVE
8.5
RETURN) THE
DEPOSIT
ACCOMMODATE BY
GOVT. BOND 7-8 REAL
30+
6 6
PRESENT
8.5
VALUE FACTOR -0.5 (NEGATIVE
8.5
RETURN) HIGH AMOUNT
ESTATE
OF
MONEY
REQURIED FOR PURCHASE KISSAN
7-8
VIKAS
6
8.5
OF
REAL ESTATE -1(NEGATIVE RETURN)
PATRA
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MUTUAL FUNDS IN INDIA POST
6.5-8.5
6
8..5
20-30
6
8.5
AVERAGE
OFFICE DEPOSIT MUTUAL
CHAPTER 2 RESEARCH DESIGN
METHODOLOGY / RESEARCH DESIGN Type of Study: The study at Mahindra finance is a combination of analytical and practical study. It is based on data collected from records of the company and is administered
to
various
departmental
heads
connected
with
Fund
Management.
Types of Data: Primary Data: This data was collected from discussions and interactions with respective departmental heads and clients. Secondary Data: This data was collected through various newsletters, publications through researchers in the field of fund management, journals magazine reports and consolidated records from Mahindra finance.
Sampling Plan: The sampling universe consisted of various mutual funds and their returns .
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MUTUAL FUNDS IN INDIA
SWOT of the organization:SWOT analysis of organizations to provide recommendations on their performance and growth potential. It is a powerful tool for analyzing both complex qualitative and quantitative facets of an investment decision. The results of this analysis have been fed into marketing and organizational strategic plans and have been highly successful in strategy formulation. Through our SWOT analysis, our clients have been able to take advantage of niche markets and focus on product innovation which allows them to capture greater margins. Our SWOT analysis identifies strengths and weaknesses and relates them with forward looking opportunities and threats. This helps to identify company and industry specific critical drivers and catalysts. SWOT Analysis identifies your company’s: Strengths - to build on Weaknesses - to cover Opportunities - to capture Threats - to defend against
SWOT Analysis Strengths: * Rich experience of the management. * Good brand equity * Giving the very good return from inception * Stabilized and loyal clients. * Well combination of new energetic and experienced employees. IBMR, Bangalore.
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MUTUAL FUNDS IN INDIA * Wide variety of investment product to match with every level of customer * Giving the mutual fund exposure
Weakness: * Insufficient office equipments. * Not all employees have his/her cabin. * Work place (back office) is quite congested. * Not very popular in rural area
Opportunities: * Stability through increased brand awareness, market penetration and Service offerings * Across all categories of financial services. * Increase in customer’s wallet share. * Leveraging the latest technology for providing quality and client centric Services.
Threats; * Increasing interest rate scenario. * Execution risk. * Competition from local and multinational players. * Rising inflation could reduce savings and investments
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MUTUAL FUNDS IN INDIA
CHAPTER 3 MY JOB PROILE IN DEUTSCHE ASSET MANAGEMENT COMPANY On Job Training: Empanelment: For empanelment we have to call up the IFA in the Bangalore from the data base given by the company, have to fix the appointment then have to go for empanelling them.
Interaction & Calling: Had meetings with clients to check for their requirements which is based on satisfying their queries about the companies profile, schemes and it’s performance in the industry. The main work of the relationship manager is to build a strong relation between the company and the IFA, keep motivating them for giving the business to the company, assisting them to remain updated about the market activities, as they don’t have any sources of getting the updates of the market. PERFORMANCE APPARAISAL: It is the activity used to determine the extent to which an employee performs work effectively. Other terms of performance evaluation include performance
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MUTUAL FUNDS IN INDIA review, performance rating, performance appraisal, and employee appraisal and employee evaluation.
PURPOSE OF PERFORMANCE APPRAISAL: The purpose of performance appraisal is: 1. DEVELOPMENT: It is used to find out which employee need training, helps in subordinate-supervisor counseling relation and encourages subordinate behavior to help employee.
2. MOTIVATION: It encourages initiative, develops a sense of responsibility and stimulates efforts to perform better.
3. COMMUNICATION: It serves as a basis for ongoing discussion between superior and subordinate about job related matters and thus they get to know each other better.
4. LEGAL COMPLIANCE: It serves as a legally defensible reason for promotion, transfer, reward and discharges.
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MUTUAL FUNDS IN INDIA
WHO EVALUTE THE EMPLOYEE? Employees can be evaluated by: 1. Committee of Several supervisors. 2. By employee peers. 3. By employees subordinate. 4. By someone outside the work environment. 5. Self evaluation. 6. By using number of approaches. The performance appraisal used by the Mahindra finance is usually done by a subordinate that is employee subordinate. The employee is rated different areas. The areas are
1. Client interaction 2. Candidate interaction 3. Documentation 4. Job posting 5. Average CV received 6. Head hunting 7. Speed of Response 8. Client response 9. Performance against targets
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MUTUAL FUNDS IN INDIA 10. Attitude 11. Leadership 12. Attendance/Punctuality 13. Integrity 14. Loyalty 15. Additional areas of responsibility you would like to handle: 16. Overall rating The employee is rated of the areas and finally a cumulative sum is taken out. The employee would scored high is awarded best employee of the month (per semester) and the employee scoring low is given training for the improvement of the work.
COMPENSATION AND BENEFITS COMPENSATION: It is the human resource management function that deals with every type of reward individuals receive in exchange for performing organizational tasks. compensation consists of pay an employee receives in form of wages, salaries, bonuses or commission.
Objective of compensation: The objective of the compensation function is to crate a system of rewards that is equitable to the employee and employer alike. The desired outcome is an employee who is attracted to the work and motivated to do a good job for the employer. Compensation should be 1. Adequate 2. Equitable 3. Balanced
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MUTUAL FUNDS IN INDIA 4. Cost-effective 5. Secure 6. Incentive – providing 7. Acceptable to the employee
CHAPTER 4 ANALYSIS AND INTERPRETATION OF DATA
SEGMENTATION, TARGETING, POSITIONING; company discovers different needs and groups in the market place, targets those needs and group that it can satisfy in a superior way, and than positions its offering in a way so that target market recognizes the company’s distinctive offering and image. Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the mind of target market. The end result of positioning is the successful creation of customer - focused value proposition, a cogent reason why the target market will buy the product.
REASON BEHIND S.T.P--A total Market can be defined as people or organization with needs, want, demand however within the total market there is always some diversity among buyers, not all consumers who drink hot drink wants tea. Similarly not all consumers who wear pants wants to wear jeans. So within the same general market there are group of customer with different needs and buying preference. Hence a market should never commit the mistake to taking up the whole market uniformly at a time. The best way is to segment or break the
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MUTUAL FUNDS IN INDIA market into groups of buyers with similar needs and preference and than select the more attractive groups/segments as part of their marketing strategy.
POSITIONING----Here in the case of Mahindra finance they did the very good segmentation, targeting, positioning in the market. They have positioned itself very well in the consumers mind by the way of attractive advertisement and excellent past record. Now Mahindra finance a brand in the market and its on the consumers mind as a CASH COW
TARGETING----Here in the case of Mahindra finance,Its targeting strategy is simply superb. Mahindra finance has basically targeting the all type of customer in every level. They have the vide variety of product range that suit for every customer.
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MUTUAL FUNDS IN INDIA
TABLE OF S.T.P. SEGMENT
TARGET
POSITIONING
BACHELOR
YOUTH
CREDIT CARD,
YOUTH
WHEELER- LOAN CREDIT CARD,
NEWLY MARRIED
TWO
MUTUAL FUND, ULIPFULLNEST ONE
YOUTH
PLAN ULIP-
PLAN,
LOAN, FULLNEST TWO
MIDDLE AGE
INSURANCE,
CAR LOAN EDUCATION SAFE HEALTH
HOME-
LOAN,
INVESTMENT, INSURANCE,
EMPTYNESS ONE
MIDDLE AGE
RETIREMENT PLAN EASY GROWTH FUND
EMPTYNESS TWO
OLD AGE
FIXED DEPOSIT
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MUTUAL FUNDS IN INDIA
IBMR, Bangalore.
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MUTUAL FUNDS IN INDIA
Comparision of ULIPS vs MFS (India) : Below is a brief comparision of ULIP (Unit Linked Insurance Product) vs MF (Mutual Funds) specific to the Indian market. Primary Objective: MFs: Investments ULIPs: Protection + Investments Investment Duration: MFs: Works out for Medium term, Long Term Investors. Risky for Short Term investors. ULIPs: Works out for Long Term Investors only. Flexibility: MFs: Very flexible. Plenty of scope to correct your mistakes if you made any wrong investment decisions. You can easily shuffle your portfolio in MFs. ULIPs: Flexibility is limited to moving across the different funds offered with your policy. Correcting mistakes can turn out to be expensive. Moving funds from one ULIP to an other ULIP of a different fund house can be expensive. Liquidity: MFs: Very liquid. You can sell your MF units any time(except ELSS). Some MF's like those from Reliance have introduced redemptions at ATMs. ULIPs: Limited liquidity. Need to stay invested for the minimum number of years specified before you can redeem. Investment Objective: MFs: MF's can be used as your vechile for investments to achive different objectives.(Eg: Buying a car three years from now. Downpayment for a home IBMR, Bangalore.
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MUTUAL FUNDS IN INDIA five years from now. Childrens education 10 years from now. Childrens marriage 15 years from now. Retirement planning 25 years from now. Medical expenses after retirement 25 years from now) ULIPs: ULIPs can be used for achieving only long term objectives (Childrens education, Childrens marriage, Retirement planning) Tax Implications: MFs: All investments in MF's don't qualify for section 80C. Only investments in ELSS qualify for 80C. ULIPs: Provide Tax Benefits under section 80C. MFs: Returns on equity MF's are exempt from long term capital gains tax. (Unless tax laws change in the future). ULIPs: We are moving from EEE to EET. No clarity if ULIPs will be taxed under EET. MFs: Tax liabilities when moving across from debt to equity funds.(Returns from debt MF's are taxed.) ULIPs: Very flexible in moving between equity and debt funds(not tax implications until maturity of the policy). Strings Attached (fine print): MFs: None so ever. At most you pay a small exit load if any. ULIPs: Some strings attached for your policy to be in effect. Minimum number of premiums needs to be paid. Minimum fund balance needs to be always maintained. (I personally don’t like policies which say pay three years premium and get insurance cover for the next 25 years since there are a lot of ifs and butts involved. A lot of assumptions made and nothing is in your hand, it could turn out your fund balance might be exhausted after just 12 years of
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MUTUAL FUNDS IN INDIA insurance cover).
ADVANTAGES ULIPS: •
Can easily rebalance your risk between equity and debt without any tax implications.
•
Best suited for medium risk taking individuals who wish to invest in equity and debt funds(atleast 40% or higher exposure to debt). No additional tax burden for those investing mainly in debt unlike in MFs.
ADVANTAGE MFS: •
Better returns than ULIPs.
•
Lower charges than ULIPs.
•
Very flexible and enables you to switch your investments from non performing MF's to better performing MFs
•
Very Liquid can be redeemed at anytime.
•
Best suited for medium to high risk taking individuals who wish to invest a significant portion in equity funds(atleast 65% exposure in equities).
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MUTUAL FUNDS IN INDIA
CHAPTER 5 CONCLUSION AND RECOMMENDATION
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MUTUAL FUNDS IN INDIA
IBMR, Bangalore.
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MUTUAL FUNDS IN INDIA
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MUTUAL FUNDS IN INDIA
”MUTUAL FUND INVESTMENT IS SUBJECT TO MARKET RISKS. PLEASE READ THE OFFER DOCUMENT CAREFULLY BEFORE INVESTING”
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