final study on factors influencing investment decision on mutual funds

A PROJECT ON

“Factors influencing investment decisions in Mutual Funds"

Submitted By

Khushbu Bhanushali

T.Y. BBI Sem-V

(2015-2016)

Project Guide

Prof. Shruti Chavarkar

Affiliated to University of Mumbai

S.K.SOMAIYA COLLEGE OF ARTS, SCIENCE AND

COMMERCE

AURBINDO, VIDYANAGAR

VIDYAVIHAR [EAST]. MUMBAI-400077

ACKNOWLEDGEMENT

I, Khushbu Bhanushali, would take this opportunity to thank the University of

Mumbai for providing me an opportunity to study on a project on Factors

influencing investment decisions in Mutual Funds This has been a

huge learning experience for me.

With great pleasure I take this opportunity to acknowledge people who have

made this project work possible.

First of all I would sincerely like to express my gratitude towards my Project

Guide Prof. Shruti chavarkar for having shown so much flexibility, guidance

as well as supporting me in all possible ways whenever I needed help. I am

thankful for the motivation provided by my Project Guide throughout and

helped me to understand the topic in a very effective and easy manner.

I would also like to thank the Principal Dr. Sangeeta Kohli and other teaching

faculties of the college, my colleagues, Library staff and other people for

providing their help as and when required to complete this project.

I acknowledge my indebtedness and express my great appreciation to all people

behind this work.

Signature of the Student

`DECLARATION

I, Khushbu Bhanushali, a student of S.K.Somaiya College of Arts, Science

and Commerce in T.Y.B.Com. (Banking & Insurance) in Semester V hereby

declare that I have completed this Project on Banking in ___________________

as per the requirements of University of Mumbai as a part of the curriculum of

B.Com. (Banking & Insurance) course and this project has not been submitted

to any other university or Institute for the award of any degree, diploma etc. The

information is submitted by me is true and original to the best of my knowledge.

Date: Signature of the Student

INDEX

TABLE OF CONTENTS

CHAPTER NO CHAPTER NAME PAGE NO

INTRODUCTION OF MUTUAL FUND 2

NEED/IMPORTANCE OF STUDY 3

OBJECTIVES 4

METHODOLOGY 4

DATA 4

DATA SOURCES 5

TOOLS USED FOR ANALYSIS 5

LIMITATIONS 6

SCOPE OF STUDY 6

REVIEW OF LITERATURE 6

COMPANY PROFILE 14

BRIEF PROFILE OF ORGANIZATION 14

CORPORATE PROFILE OF SBI MUTUAL FUNDS 14

FUND HOUSE EXPERTISE 16

INDUSTRY PROFILE 18

HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY 18

KEY DEVELOPMENTS OVER THE YEARS 22

TRENDS IN MUTUAL FUND INDUSTRY IN INDIA 24

THEORY ON MUTUAL FUNDS 29

MUTUAL CONCEPT & DESIGN 29

ORGANISATION OF A MUTUAL FUND 30

MUTUAL FUNDS DEFINITION 33

ADVANTAGES OF MUTUAL FUNDS 34

DISADVANTAGES OF MUTUAL FUNDS 35

MUTUAL FUND VARIANTS 35

COSTS INVOLVED IN MUTUAL FUNDS 40

MUTUAL FUND SCHEMES IN SBI 42

TYPES OF MUTUAL FUNDS AND SBI FUNDS IN EACH CATEGORY 44

DATA ANALYSIS AND INTERPRETATION 29

FREQUENCIES 66

SUMMARY OF CONCLUSIONS 68

CONCLUDING OBSERVATIONS 68

BIBILOGRAPHY 69

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EXECUTIVE SUMMARY

Factors influencing investment decisions in Mutual Fund is a very vast topic hence covering

each and every concept isn’t possible. The emphasis of this research is on the theory and

practice of Factors influencing investment decisions in Mutual Fund, because of its critical

importance in the modern banking framework. Factors influencing investment decisions in

Mutual Fund is not a new phenomenon; banking activity can be traced back to as early as the

13th century. In this topic we understand the difference between Factors influencing

investment decisions in Mutual Fund.

Mutual fund helps us to know how important banking is, for the progress of India and also for

the counter. It is one of the most important factors responsible for economic growth of the

nation.

OBJECTIVES

1. To study on Factors influencing investment decisions in Mutual Fund.

2. To know about the Mutual fund.

3. To understand the measures taken by Indian banks.

4. To observe a case study in order to know the topic in a better way.

SCOPE

The scope of my topic covers the Effect of Factors influencing investment

decisions in Mutual Fund. It studies the variations in bank’s profitability during

the recent period of recession. A survey was conducted in the area of Mumbai.

Questionnaire was prepared for banks and customers.

INTRODUCTION

Introduction of

Mutual Fund

INTRODUCTION

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 mutual fund industry in India has come a long way. Significant spurts

in size were noticed in the late 80s, when public sector mutual funds were first

permitted, and then in the mid-90s, when private sector mutual funds

commenced operations. In the last few years, institutional distributors

increased their focus on mutual funds.

NEED/IMPORTANCE OF STUDY

Mutual fund has many variants which cater to even small savers and

many advantages like professional management, tax benefits, Systematic

investment, diversifies portfolio, simplicity and liquidity. Each fund has a

predetermined investment objective that tailors the fund's assets, regions of

investments and investment strategies.

Wide variety of Mutual Fund Schemes exists to cater to the needs such

as financial position, risk tolerance and return expectations. AUM of the

mutual fund industry, as of March 31, 2012 has touched Rs 587,217 from 1309

schemes offered by 44 mutual funds.

The business of Indian mutual funds (MFs) industry is largely confined

within the Tier 1 cities; however, the industry is focused on developing the

penetration ratio and increasing its presence in other cities. Currently, the top

five cities of India contribute to 74% of the entire pie, with the remaining 26%

distributed among other cities, according to the CII-PwC report on MFs.

According to the CII-PwC report, there is untapped potential in the

Indian MF market. In some advanced countries, mutual fund AUM is a multiple

of bank deposits. In India, mutual fund AUM is not even 10% of bank deposits.

This is indicative of the immense potential for growth of the industry.

The primary challenges are low awareness levels and financial literacy,

adapting the distribution channels, reach, scalability and cultural and

attitudinal change. In order to reach the bottom of the pyramid, challenges

remain in terms of unavailability of proper documentation like PAN card, bank

account etc.

This study on mutual funds aims at understanding the factors which

affect the investment decision with respect to mutual funds. The study is

conducted in a Branch office of SBI bank to understand the customer

preferences and their interest in different variants of mutual fund products

and their expectations from their choice of investment.

OBJECTIVES

The Main objective is to determine the factors affecting the Investment

decision in Mutual funds. The other objectives of the study are as follows:-

1. To understand the needs and expectations of the customers and the

products

2. To analyse the options that is attracting customers to invest in mutual

funds.

3. To understand the mutual fund industry.

METHODOLOGY

DATA:-

The study is based on primary data and secondary data.

The study is concluded with primary data analysis , Hence the sample of

100 respondents were administrated were administrated with a questionnaire.

The sample was randomly selected and convenience sampling was used.

The Nature of the project comprises of Descriptive and Inferential

statistics to understand customer preferences by way of descriptive research

with a questionnaire to understand customer preference by way of a cross

sectional study across many age groups, based on Gender, based on income,

occupation, qualification, investment requirements in terms of tenure and

return, savings pattern and liquidity requirements.

Close ended Questionnaire administrated was divided under four

sections Basic questions Investors profile, Perception and Factors affecting

investment decision. The scale used in the questionnaire is 5-point Likert scale.

DATA SOURCES:-

Primary data was collected randomly from 100 respondents comprising of

customers visiting SBI Mudfort Branch, a government office, housewives and

students to gather data from all varied groups and backgrounds.

Secondary data for the project was collected from from various websites like

www.amfiindia.com www.nsim.ac.in www.sbimf.com

www.mutualfundsindia.com

TOOLS USED FOR ANALYSIS:-

SPSS statistics 20 software was used to analyze the data.

The Investor's choice of approach for new products, information for

Investment, mode of approach was also estimated by using Frequency tool.

Cross tabulations between 2 variables was processed to estimate the

association through Chi- square analysis, Contingency coefficient, Correlation.

Cross tabulations gave an insight understanding about influence of one

variable over the other.

A T-test of independent samples was conducted to understand the perception

difference between Existing Investors and Non-Investors and future

prospective customers.

The data obtained from the study in the last section i.e, factors affecting

investor's decision was analyzed by using Factor Analysis for identification of

the key features preferred by the respondents in a mutual fund product.

http://www.amfiindia.com/

http://www.nsim.ac.in/

http://www.sbimf.com/

http://www.mutualfundsindia.com/

Factor analysis identifies common dimensions of factors from the observed

variables that have a high correlation with the observed and seemingly

unrelated variables but no correlation among the factors.

Principal Component Analysis is the commonly used method for grouping the

variables under few unrelated factors. However the data was run under

varimax rotation to reduce, if there was any chance of co -linearity among

these factors. Variables with a factor loading of higher than 0.45 are grouped

under a factor.

LIMITATIONS:-

The respondents of the questionnaire have been selected randomly and

the responses are based on their current understanding and perceptions

and can be change over a period of short span.

SCOPE OF STUDY:-

The present study is confined to understanding the demographics of the

respondents and their investment preferences .However the present

study has not covered how much investors are investing and how

frequently are they investing.

REVIEW OF LITERATURE

Dr Tapan K Panda and Dr Nalini Prava Tripathy have made a research on

customer orientation in designing mutual fund products to understand the

customer key buying criteria for mutual fund products. Their study aims at

tracking investor's preferences and priorities towards different types of mutual

fund products and for identifying key features of a mutual fund for deciphering

sustainable marketing variables in the design of a new mutual fund product.

The data obtained from the study were analyzed by using Factor Analysis

for identification of the key features preferred by the respondents in a mutual

fund product.

24 factors were considered to understand the investor's preferences.

Core Product was identified which constitute the awareness, product features,

convenience, exclusive for small investors, public/private ownership,

technology, lock in period and brand name. The other factors identified was

Investors Expectations, Service behaviour, Persuasive promotion, Investor

Confidence.

The study has concluded that the small investors purchase behavior

does not have a high level of coherence due to the influence of different

purchase factors. The buying intent of a mutual fund product by a small

investor can be due to multiple reasons depending upon customers risk return

trade off. Due to the reduction in the bank interest rates and high degree of

volatility in Indian stock market, investors are looking for an alternative for

their small time investments which will provide them a higher return and

also safety to their investments.

K.Viyyanna Rao and Nirmal Daita have made a research study on Fundamental

factors Influencing Investments in Mutual Funds -The EIC Approach : A Case

study on RCAML which identified the correlation between Key economic

variables and also studied the breakup of various schemes and the correlation

between the fund attributes on the mutual funds. Descriptive statistics of

reliance products was analyzed and concluded that Fund size has a positive

correlation with NAV and P/E ratio indicating that earnings increases with

increase in fund size. The high negative correlation is found with turnover and

standard deviation which signifies that increase in turnover is reducing the risk

of the funds.

Dr. Ravi Vyas, has made a research study On Mutual Fund Investor's Behaviour

And Perception In Indore City and found that Gold is most preferred

investment option. It is found that mutual fund has got average in all

parameters like safety, liquidity, reliability, tax benefits and high returns,

amongst all popular investment avenues. 58% investor select lump sum mode

and occupation has significant association with mode of investment. The risk

perception towards mutual funds was tested and surprising that nearly 53%

investors analyze the risk in their mutual fund investment though risk

awareness percentage was 73% and 74% investors feel that Mutual investment

is profitable than Share market. It was concluded that about 90% investor hold

their investment for not less than six years.

R.Padmaja, has made a research study on A Study of Consumer Behavior

towards Mutual Funds with Special Reference To ICICI Prudential Mutual

Funds, Vijayawada and found that Awareness on Mutual fund products was

high and respondents were aware of tax benefits and basic purpose of

investment in mutual funds was found to be savings.One on the basis of Tax

benefits SBI Magnum Tax gain schemes were highly rated.Age wise investment

preference to mutual funds was give by 20-30 year age group. In Business class

respondents,30-40 year age group preferred mutual funds. In professional

Class Age groups below 40 years preferred mutual funds.Equity funds were

mostly preferred by all respondents.The study was concluded with ICICI

Mutual funds were most preferred by Service class in Equity.

Dr. G. Malyadri And B. Sudheer Kumar(2013) have conducted study on Mutual

funds with reference to HDFC and concluded that Open ended schemes are

very popular option for investment for short term and high return while close

ended option are popular for long term investment and for low return with

minimum risk. Awareness level of mutual fund products was

73% among respondents still only 12 % preferred mutual funds.

Dr. Binod Kumar Singh(2012) research on study on investors' attitude towards

mutual funds as an investment option was conducted on 250 respondents, 71

respondents have a positive attitude, 117 respondents have a neutral attitude

and 62 respondents have a negative attitude towards the mutual funds.

Variables like age, sex, income and educational qualification were tested by Chi

square analysis at 5% significance level and conclusions were gender ,income

and level of education have significant influence on investor's attitude.

Weighted scores were assigned to various factors and the factors responsible

for investing in mutual funds is concerned return potential has got first rank,

liquidity has got second rank, flexibility, transparency and affordability have

been ranked third, fourth and fifth respectively.

Sanjay Das has conducted research on small investor's perceptions on

mutual funds in assam: an empirical analysis and it reveals that liquidity,

flexibility, tax savings, service quality and transparency etc. are the factors

which have a higher impact on perception of investors. The factors influencing

investment in the Mutual Funds were the capital gains, returns, diversification

of risk. Some draw backs such as low awareness, too many formalities, difficult

to select were identified and concluded that MFs business in Assam is still in as

embryonic stage and needs high returns, professional competence of Fund

managers to succeed. The investigation outlined that mostly the

investors have positive approach towards investing in MF.

K. Lakshmana Rao(2011) research on analysis of individual investors'

behaviour towards mutual fund schemes (a study on awareness and adoption

of educational levels) which concludes that respondents with P.G. professional

and Graduation level qualifications have adopted more, in comparison to

respondents without formal qualification or U.G. qualification and the

awareness and adoption of schemes increases proportional to an increase in

education. It is found that the awareness of equity fund schemes is the highest

(35.71 per cent) followed by balanced fund schemes (32.86 per cent). ELSS

(26.29 per cent) in respect of respondents with a P.G graduates. However, the

awareness and adoption of debt Funds in comparison to other schemes is

found to be the least.

Dr.Hayat M.Awan And Shanza Arshad(2011) research on Factors Valued By

Investors While Investing In Mutual Funds-A Behavioral Context in 5 cities of

Pakistan showed that investor education level and occupation, income level

has no effect on Four main variables ,investor behavior, market conditions,

fund related qualities, sponsor & investor related qualities. This means that on

basis of education level and occupations investor preferences does not differ.

While age group has an association with fund related qualities, but other three

variables does not have relationship with age group. Multinomial logistic

regression is applied on categories investor type i.e. professional investor,

image conscious, professional plus image conscious on four variables of study.

Image conscious investors and professional plus image conscious investors give

more importance to sponsor & investor related qualities than professional

investors. Professional plus image conscious give more emphasis to fund

qualities than professional investor and as well as image conscious.

Professional investor and image conscious investors are more confident and

more risk averse than professional plus image conscious investors. This means

that on geographic basis i.e. city investor exhibits the different investment

behavior in term of overconfidence and risk attitude and their preferences

about the fund related qualities also differ.

Dr.Nishi Sharma(2012)studied Indian Investor's Perception towards Mutual

Funds trough Factor Analysis and concluded Factor 1 as Scheme / Fund related

Attributes which includes Regular Updates on every trading day (regarding

investment, NAV etc.), Safety of Investment, Full Disclosure of Information

regarding Scheme / Fund like objective, periodicity of valuation,

scheme's sale/ repurchase etc., Favorable Credit Rating of Scheme, Factor 2 as

Monetary Benefits which includes six variables viz., Capital Appreciation,

Charges (Expense Ratio, Entry Load and Exit Load), Regular Return on

Investment, Early Bird Incentives, Fringe Benefits like Tax Benefits, Free

Insurance, Free Credit Card, Loans on Collateral etc., Liquidity and Factor 3

as Sponsor's Attributes which includes four variables viz., Reputation of

Sponsor, Sponsor's Expertise, Promptness in Service and Retaliation of

Investor's Grievances.

Mohamed.zaheeruddin, Pinninti Sivakumar, K.Srinivas Reddy(2013) studied

Performance evaluation of mutual funds in India with special reference to

selected financial intermediaries and investigated the financial performance of

the mutual funds with the tools of return, standard deviation and beta and

evaluated selected funds assessment on the basis of various performance

ratios (Sharpe, Treynor, Jensen) .The selected 3 mutual funds are HDFC, Birla

sun life and ICICI equity funds performance with their benchmark as S&P CNX

Nifty Index concluded that ICICI is ranked best followed by HDFC and Birla

based on beta value for low risk, various performance ratios and returns.

Gunjan Adhikari, Mustfa Hussain, Syed Md Faisal Ali Khan, Divya Rana and

Amal Mohammed Sheikh Damanhouri(2013) have conducted a research on

Preferences of Investors for Investment in Mutual Funds in India using factor

analysis and concluded Monetary Benefits was major factor which included

Dividend, Return ,Safety, Growth, NAV; Factor -2 was Service which includes

Bonus, Reinvestment of fund, payout facility; Factor-3 as Investor's Protection

which includes Tax benefits and sector preferred. Followed by Factor-4 as Fund

Management and Factor-5 as Fund Strength which includes Knowledge of

mutual fund and Advertising.

T.R. Rajeswari conducted a research on An Empirical Study on Factors

Influencing the Mutual Fund/Scheme Selection by Retail Investors to analyze

the variables under factors Scheme Qualities, Fund Sponsor Qualities and

Investor services. In the factors influencing investors the Scheme qualities was

the major influencer followed by Investors service and Fund Sponsor qualities.

Factor Analysis to understand each of the Major factors was done and

concluded that in Scheme Qualities factor 1 was Intrinsic Product Qualities,

factor 2 was Portfolio Management and factor 3 was Image. The factors

underlying Identification of sponsor related factors in fund/scheme selection

were infrastructure and Reputation. For Identification of Service related factors

in Fund/Scheme Selection were Subsequent disclosure followed by Preliminary

disclosures and Fringe benefits as underlying factors.

Subramanya P R and T P Renuka Murthy conducted research on Investors

Attitude Towards Mutual Fund (Special Reference to Chikkamagalore District,

Karnataka State, India)(2013) which concludes that the socio economic

variables like age, gender, qualification, income and occupation have been

encouraging the attitude of investors towards Mutual fund and are

significantly associated. This study reveals that out of 150 respondents

surveyed said the saving level of the respondents and their attitude towards

mutual fund are dependent of each other.32% of the respondents are rational

and invest their money for the purpose of safety for the principal

followed by safety for family, retirement life and safety for their own life.

Hence the study concluded that majority of them invest for the safety of the

invested amount and keeping their family needs in consideration. This

converges to the point that investors look for safety while investing in MF's as

the invested amount will be put into various portfolios i.e. it is diversified.

Dhimen Jani and Dr. Rajeev Jain (2013) conducted A Comparative Analysis of

Investors Buying Behavior of Urban Rural for Financial Assets specifically

focused On Mutual Fund and concluded that both investors(urban and rural)

are having same behavioral pattern. Demographics like Age, Gender,

Occupation, Marital status, Income and level of Education has a significant

association with investment in mutual fund for both urban and rural investor.

The ranking suggested that both urban and rural investors prefer advice of

financial planner/agent at the first place, risk and return profile also plays

crucial role in determining the investment decision in financial assets, both of

the investors have placed risk and return profile on the second rank. Past

performance is placed at the third rank, which indicates that investors do

observe past performance but do not take decision only on it. Investors had

placed tax consideration into fourth place. Brand being the fifth ranked by

both the investors.

Manasa Vipparthi and Ashwin Margam(2013) have conducted a research on

Perceptions of investors on mutual funds: A comparative study on public and

private sector mutual funds. The study concluded that that the investors Age,

Marital status and occupation has direct impact on the investors' choice of

investment. It reveals that Liquidity. Flexibility, Tax savings, Service Quality and

Transparency are the primary factors which have a higher impact on

perception of investors. The factor analysis concluded that for both the public

and private sector mutual funds on factors influencing the investment decision

on mutual funds were Monetary and Core product were the major influencers

followed by Fund strength, Promotional measures Customer Expectations and

Service quality.

Introduction

to

Companies

COMPANY PROFILE

Brief Profile of Organization:-

State Bank of India is a multinational banking and financial services

company based in India. It is a government owned corporation founded in 1st

July, 1955, with its headquarters in Mumbai, Maharashtra. It's origin goes back

to the first decade of the 19th century with the establishment of Bank Of

Calcutta on 2nd June, 1806.

The State Bank of India was thus born with a new sense of social

purpose aided by the 480 offices comprising branches, sub offices and three

Local Head Offices inherited from the Imperial Bank. The concept of banking as

mere repositories of the community's savings and lenders to creditworthy

parties was soon to give way to the concept of purposeful banking sub serving

the growing and diversified financial needs of planned economic development.

The State

Bank of India was destined to act as the pacesetter in this respect and

lead the Indian banking system into the exciting field of national development.

The Government of India is the single largest shareholder of this Fortune 500

entity with 61.58% ownership. SBI is ranked 60th in the list of Top 1000 Banks

in the world by "The Banker" in July 2012.

Corporate Profile of SBI Mutual Funds

SBI Mutual Funds is a Joint Venture between SBI and AMUNDI (France),

one of the world's leading fund management companies. It has a network of

over 222 points of acceptance across India, which is known to deliver value and

nurture the trust of our vast and varied family of investors.

SBI has been actively managing investor's assets not only through

investment expertise in domestic mutual funds, but also offshore funds and

portfolio management advisory services for institutional investors. This makes

SBI one of the largest investment management firms in India, managing

investment mandates of over 5.4 million investors.

Vision

"To be the most preferred and the largest fund house for all asset classes, with

a consistent track record of excellent returns and best standards in customer

service, product innovation, technology and HR practices."

Services

1. Mutual Funds -

SBI's mission has been to establish Mutual Funds as a viable investment

option to the masses in the country. Working towards it, SBI has developed

innovative, need-specific products and educated the investors about the

added benefits of investing in capital markets via Mutual Funds. SBI has

been actively managing investor's assets not only through investment

expertise in domestic mutual funds, but also offshore funds and portfolio

management advisory services for institutional investors.

2. Portfolio Management and Advisory Services –

SBI Funds Management has emerged as one of the largest player in India

advising various financial institutions, pension funds, and local and

international asset management companies. SBI have excelled by

understanding the investor's requirements and terms of risk / return

expectations, based on which it suggests customized asset portfolio

recommendations. It also provides an integrated end-to-end customized

asset management solution for institutions in terms of advisory service,

discretionary and non-discretionary portfolio management services.

3. Offshore Funds –

SBI Funds Management has been successfully managing and advising India's

dedicated offshore funds since 1988. SBI Funds Management was the 1st

bank sponsored asset management company fund to launch an offshore

fund called 'SBI Resurgent India Opportunities Fund' with an objective to

provide our investors with opportunities for long-term growth in capital,

through well-researched investments in a diversified basket of stocks of

Indian Companies.

Fund House Expertise

Investment Expertise –

The best investment strategies put together by the best minds, SBI Fund

Managers. With a sharp eye to monitor, gauge and understand the

changes in the market, fund managers and analysts gear up to meet new

challenging environments. Their ability to capture the growth potential

of Indian securities and manage complex portfolios as well as the drive

to deliver optimum results is their forte. With superior securities

selection, incisive research, intensive coverage including internal

forecasts, active monitoring and regular tracking, our dedicated team

ensures minimization of risks while protecting the investor's interest.

Investment Philosophy –

"Growth through innovation."

SBI's expert team of experienced and market savvy researchers prepare

comprehensive analytical and informative reports on diverse sectors and

identify stocks that promise high performance in the future. SBI also seeks to

provide investors with opportunities for progressive growth through our

innovative products, superior stock selection and active portfolio

management. Accordingly, SBI also enhance and optimize asset allocation and

stock selection based on internal and external research. Derivatives are used to

hedge and rebalance portfolios to keep the risk factors at reasonable levels,

The three main phrases, which act as a guiding force for the investment

performance, are as follows:

1. Long-term capital appreciation for the investor: SBI's fund manager's

view is not guided by any momentum play but by the objective of

generating sustainable performance for the investor.

2. Superior stock selection: SBI's team is encouraged to be ahead of the

rest of the industry in terms of identifying new ideas & opportunities.

3. Active fund management: While the performance of all the funds is

benchmarked against a specific index, SBI do not encourage the

investment team to replicate the index composition with the fund

portfolio.

4. Optimal Risk Management Risk Management : is an inherent part of

any business. As one of the core focus areas, each of our strategies is

subject to close scrutiny on a continuous basis. Regulatory agencies

around the world are placing increasing pressure on institutions to

measure and manage risk better.

SBI Funds Management follow enterprise wide approach to risk

management with a dedicated, experienced and professional risk

management team covering significant functions of the organization.

Risk Management focuses on:

1. Identifying actual and potential areas of risk

2. Assessing the adequacy of internal controls

3. Proposing risk mitigating measures and

4. Safeguarding investor interest through ongoing analysis and

monitoring

Investment Objective –

"Setting benchmarks time and again. For our investors."

SBI objective is to endeavor to outperform the benchmarks through well

researched investments in Indian equities. This is achieved by

implementing an active management style based on fundamental analysis,

leading to the construction of a portfolio. It could be blended, large cap,

mid cap, or specific sector oriented - which aims at capturing the growth

potential of Indian equities.

INDUSTRY PROFILE

History of the 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 of

India. 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. It

was set up by the Reserve Bank of India and functioned under the Regulatory

and administrative control of the Reserve Bank of India. In 1978 UTI was de-

linked from the RBI and the Industrial Development Bank of India (IDBI) took

over the regulatory and administrative control in place of RBI. The first scheme

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

crores of assets under management.

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 Canbank Mutual Fund (Dec

87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund

(Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC

established its mutual fund in June 1989 while GIC had set up its mutual fund

in December 1990.

At the 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)

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

mutual fund industry, giving the Indian investors a wider choice of fund

families. Also, 1993 was the year in which the first Mutual Fund Regulations

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

registered and governed. The erstwhile Kothari Pioneer (now merged with

Franklin Templeton) was the first private sector mutual fund registered in July

1993.

The 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.

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

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

several mergers and acquisitions. As at the end of January 2003, there were 33

mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India

with Rs.44,541 crores of assets under management was way ahead of other

mutual funds.

Fourth Phase - since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI

was bifurcated into two separate entities. One is the Specified Undertaking of

the Unit Trust of India with assets under management of Rs.29,835 crores as at

the end of January 2003, representing broadly, the assets of US 64 scheme,

assured return and certain other schemes. The Specified Undertaking of

Unit Trust of India, functioning under an administrator and under the rules

framed by Government of India and does not come under the purview of the

Mutual Fund Regulations.

The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is

registered with SEBI and functions under the Mutual Fund Regulations. With

the bifurcation of the erstwhile

UTI which had in March 2000 more than Rs.76,000 crores of assets under

management and with the setting up of a UTI Mutual Fund, conforming to the

SEBI Mutual Fund Regulations, and with recent mergers taking place among

different private sector funds, the mutual fund industry has entered its current

phase of consolidation and growth.

The graph indicates the growth of assets over the years.

Current Mutual funds Market in India

The first introduction of a mutual fund in India occurred in 1963, when

the Government of India launched Unit Trust of India (UTI). Until 1987, UTI

enjoyed a monopoly in the Indian mutual fund market. Then a host of other

government-controlled Indian financial companies came up with their own

funds. These included State Bank of India, Canara Bank, and Punjab National

Bank. This market was made open to private players in 1993, as a result of the

historic constitutional amendments brought forward by the then Congress-led

government under the existing regime of Liberalization, Privatization and

Globalization (LPG). The first private sector fund to operate in India was

Kothari Pioneer, which later merged with Franklin Templeton.

Key Developments over the Years

The mutual fund industry in India has come a long way. Significant spurts

in size were noticed in the late 80s, when public sector mutual funds were first

permitted, and then in the mid-90s, when private sector mutual funds

commenced operations. In the last few years, institutional distributors

increased their focus on mutual funds.

The emergence of stock exchange brokers as an additional channel of

distribution, the continuing growth in convenience arising out of technological

developments, and higher financial literacy in the market should drive the

growth of mutual funds in future.

AUM of the industry, as of March 31, 2012 has touched Rs 587,217 from

1309 schemes offered by 44 mutual funds. These were distributed as follows:

(Source:www.amfiindia.com)

In some advanced countries, mutual fund AUM is a multiple of bank deposits.

In India, mutual fund AUM is not even 10% of bank deposits. This is indicative

of the immense potential for growth of the industry.

The high proportion of AUM in debt, largely from institutional investors is not

in line with the role of mutual funds, which is to channelize retail money into

the capital market. Various regulatory measures to reduce the costs and

increase the conveniences for investors are aimed at transforming mutual

funds into a truly retail vehicle of capital mobilization for the larger benefit of

the economy.

The mutual fund industry has registered a compound annual growth rate

(CAGR) of 18% from 2009 - 2013, but the national population is still largely

underbanked with a very low level of financial inclusion.

Investors pumped in more than Rs 37,000 crore in various mutual fund

schemes in May 2013 taking the total funds mobilisation during the first two

months of the current fiscal to Rs 1.44 lakh crore. The funds mobilisation in

May comes after net inflow of Rs 1.06 lakh crore in the preceding month.

As per the latest data available with market regulator Securities and

Exchange Board of India (SEBI), there was a net inflow of Rs 37,435 crore

during May as against Rs 1.06 lakh crore infused in April. The April's figure was

the highest net inflow by investors in mutual fund (MF) schemes in a single

month since April 2011, when investors had put in Rs 1.84 lakh crore.

At gross level, mutual funds mobilized Rs 7.03 lakh crore in May, while

there was redemption worth Rs 6.65 lakh crore as well during the period. This

resulted in a net inflow of Rs 37,435 crore.

The fund mobilization has also helped the total asset under

management (AUM) of mutual funds to grow to Rs 8.68 lakh crore as on May

31, 2013. The net mobilization by investors in various mutual fund schemes

during the current fiscal (April-May) reached Rs 1.44 lakh crore.

TRENDS IN MUTUAL FUND INDUSTRY IN INDIA

The business of Indian mutual funds (MFs) industry is largely confined

within the Tier 1 cities, however, the industry is focused on developing the

penetration ratio and increasing its presence in other cities. Currently, the top

five cities of India contribute to 74% of the entire pie, with the remaining 26%

distributed among other cities, according to the CII-PwC report on MFs.

According to the report, there is untapped potential in the Indian MF

market. The primary challenges are low awareness levels and financial literacy,

adapting the distribution channels, reach, scalability and cultural and

attitudinal change. In order to reach the bottom of the pyramid, challenges

remain in terms of unavailability of proper documentation like PAN card, bank

account etc. However, it is likely that the roll out of 'Aadhaar' initiative will to

some extent resolve these problems.

Mutual fund industry manifests big opportunity for growth and further

penetration, and this can be achieved over time, with support from

technology. It is also important to market MFs as a 'concept' in order to

createa strong pull from customers.

The report suggests that mobile banking can be a potential game

changer, because it can use existing infrastructure to reach out to un-banked

rural population. With a subscriber base of over 900 million, mobile phones

can be used as a huge facilitator to investing, redeeming and exiting funds.

Additionally, new distribution channels can be explored for cash transactions

beyond PoS (Point of Service) and ATM networks of banks.

The report also recommends use of social media to engage with

customers for product innovation, customer service and distribution of real

time information with the aim to create unique solutions and experiences. Best

practices will need to be adopted from Micro-finance Institutions (MFIs), the

FMCG industry, the telecom industry and the postal channel to bring about

innovation in distribution model. Looking ahead, the CII-PwC report points out

that the industry needs to have a relook at their distribution path, product

design, technology mix, awareness programs for investors and service

initiatives among other things to increase penetration and business as a whole.

Average assets under management (AUM) of mutual fund industry rose

3.7 per cent to a record high of Rs 8.47 lakh crore in the April-June quarter,

making it the fifth consecutive quarterly rise, despite the fall in equity funds

assets, a Crisil report said today.

The AUM of the previous quarter was at Rs 8.17 lakh crore for the industry.

"The rise was led by heavy inflows into debt mutual funds on the back of

interest rate cuts by the Reserve Bank," the report said.

However, equity funds' assets witnessed highest fall in past six quarters, which

fell around 5 per cent in the June quarter to Rs 1.99 lakh crore led by heavy

outflows.

As per the report, assets under debt and gilt funds saw a rise on strong

inflows on the back of expectation of easing interest rate cycle in the coming

months. While assets of long-term debt funds rose 31 per cent to Rs 1.12 lakh

crore, gilt funds rose by 10 per cent to Rs 8,600 crore in the quarter.

Similarly, AUMs of short-term debt and ultra short term debt funds also rose

on the back of improvement in the banking system's liquidity in the first

quarter of this fiscal.

While assets in short-term debt funds rose to Rs 72,800 crore in the June

quarter, ultra short-term category's AUM gained by Rs 5,600 crore to Rs 1.05

lakh crore during this period.

However, equity funds' assets saw highest fall in past six quarters with AUM

falling for the sixth quarter in a row by around 5 per cent to Rs 1.99 lakh crore,

led by heavy outflows despite mark to market gains seen during the quarter.

Meanwhile, average AUM of gold ETF saw a record fall of around 11 per cent

to Rs 10,600 crore in the June quarter.

Most fund houses post a rise in average AUM during the June quarter as per

the agency with 24 fund houses reporting rise in AUM out of the 44 MF

houses.

Mutual fund industry is set for a slew of regulatory changes, including setting

up of a single SRO (Self Regulatory Organisation) for all distributors, who would

also be allowed to access the stock exchange platforms.

Besides, the fund houses may also be allowed to conduct proprietary trades on

the debt segments of stock exchanges, while separate changes are also in

works to further strengthen the newly launched independent debt platforms

of the bourses. The proposed measures are expected to be discussed by the

capital markets regulator SEBI at its board meeting here tomorrow, sources

said.

SEBI is of the view that a single SRO for the mutual fund distributors would

help remove complexity and duplication and also lower the costs while it

would also help in a better oversight by the various regulatory authorities.

Some entities have already evinced interest in setting up SROs for the

distributors of mutual fund products and a single applicant would be selected

from amongst them by SEBI after getting formal applications from them. SEBI

may soon finalise the deadline for accepting such applications and the same

would be communicated to the interested parties, sources said.

Regarding the separate debt segment of stock exchanges, SEBI would also

consider various steps for their growth and the proposals being considered

include mutual funds being allowed to trade on them as 'proprietary trading

members'. Besides, the mutual fund distributors may also get access to

infrastructure at the stock exchanges by getting their memberships was also

proposed.

Keeping in mind these views, SEBI is likely to deliberate on alternatives such as

admitting subsidiary floated by mutual funds as member with the stock

exchange with distributors effectively being authorised persons of these

subsidiaries. These subsidiaries would be responsible towards the investors

and for complying with the regulatory norms.

The regulator might also suggest distributors to take 'limited purpose

membership' of the stock exchanges that would involve lesser financial and

compliance burden. Under this category the distributors may be allowed to use

the infrastructure at the bourses to deal in mutual funds but may not be

permitted to handle payout and pay-in of funds on behalf of the investors.

For enabling mutual funds to directly trade on the debt platform, SEBI plans to

permit Asset Management Company (AMC) appointed by these fund houses to

take the membership under the 'proprietary trading members'. Further, SEBI is

likely to bring in some changes to the broker norms related to the debt

segment such as a deposit of Rs 10 lakh for the new clearing members and an

annual fee of Rs 50,000, among others

Theory On Mutual Funds

THEORY ON MUTUAL FUNDS

MUTUAL CONCEPT AND DESIGN

CONCEPT

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 broadly the working of a mutual fund:

ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the

organizational set up of a mutual fund:

SEBI

SEBI regulates mutual funds, depositories, custodians and registrars & transfer

agents in the country.

Sponsors

The application to SEBI for registration of a mutual fund is made by the

sponsor/s. Thereafter, the sponsor invests in the capital of the AMC.

Trustee

The trustees have a critical role in ensuring that the mutual fund complies with

all the regulations, and protects the interests of the unit-holders.

AMC

Day to day operations of asset management are handled by the AMC. It

therefore arranges for the requisite offices and infrastructure, engages

employees, provides for the requisite software, handles advertising and sales

promotion, and interacts with regulators and various service providers.

Custodian

The custodian has custody of the assets of the fund. As part of this role, the

custodian needs to accept and give delivery of securities for the purchase and

sale transactions of the various schemes of the fund.

Other Service providers

RTA

The RTA maintains investor records. Their offices in various centres serve as

Investor Service Centres (ISCs), which perform a useful role in handling the

documentation of investors

Auditors

Auditors are responsible for the audit of accounts.Accounts of the schemes

need to be maintained independent of the accounts of the AMC.

Fund Accountants

The fund accountant performs the role of calculating the NAV, by collecting

information about the assets and liabilities of each scheme.

Distributors

Distributors have a key role in selling suitable types of units to their clients i.e.

the investors in the schemes.

Collecting Bankers

The investors' moneys go into the bank account of the scheme they have

invested in. These bank accounts are maintained with collection bankers who

are appointed by the AMC

KYC Registration Agencies

To do away with multiple KYC formalities with various intermediaries, SEBI has

mandated a unified KYC for the securities market through KC Registration

Agencies registered with SEBI.

Constitution of SBI Mutual Funds

MUTUAL FUNDS DEFINITION

A mutual fund is a collection of stocks and/or bonds. A mutual fund as a

company is that brings together a group of people and invests their money in

stocks, bonds, and other securities. Each investor owns shares, which

represent a portion of the holdings of the fund.

An Investor can make money from a mutual fund in three ways:

1. Income is earned from dividends on stocks and interest on bonds. A fund

pays out nearly all of the income it receives over the year to fund

owners in the form of a distribution.

2. If the fund sells securities that have increased in price, the fund has a

capital gain. Most funds also pass on these gains to investors in a

distribution.

3. If fund holdings increase in price but are not sold by the fund manager,

the fund's shares increase in price. An Investor can then sell your mutual

fund shares for a profit.

Funds will also usually give you a choice either to receive a check for

distributions or to reinvest the earnings and get more shares that is Growth

option or Dividend option Net asset value (NAV), which is a fund's assets minus

liabilities, is the value of a mutual fund. NAV per share is the value of one share

in the mutual fund

When one buy shares, one pays the current NAV per share plus any sales front-

end load. When one sells shares, the fund will pay the customer NAV less any

back-end load.

Advantages of Mutual Funds

1. Professional Management - The primary advantage of funds is the

professional management of your money. Investors purchase funds

because they do not have the time or the expertise to manage their own

portfolios. A mutual fund is a relatively inexpensive way for a small

investor to get a full-time manager to make and monitor investments.

2. Diversification - By owning shares in a mutual fund instead of owning

individual stocks or bonds, your risk is spread out. The idea behind

diversification is to invest in a large number of assets so that a loss in any

particular investment is minimized by gains in others.

3. Economies of Scale - Because a mutual fund buys and sells large

amounts of securities at a time, its transaction costs are lower than what

an individual would pay for securities transactions.

4. Liquidity - Like an individual stock, a mutual fund allows the customer to

request that your shares be converted into cash at any time.

5. Simplicity - Buying a mutual fund is easy and the minimum investment is

small.

Disadvantages of Mutual Funds

1. Professional Management - Management is by no means infallible, and,

even if the fund loses money, the manager still gets paid.

2. Costs - Creating, distributing, and running a mutual fund is an expensive

proposition. Everything from the manager's salary to the investors'

statements cost money. Those expenses are passed on to the investors.

3. 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. Taxes - When a fund manager sells a security, a capital-gains tax is

triggered. Investors who are concerned about the impact of taxes need

to keep those concerns in mind when investing in mutual funds. Taxes

can be mitigated by investing in tax-sensitive funds or by holding non-tax

sensitive mutual fund in a tax-deferred account.

MUTUAL FUND VARIANTS

Each fund has a predetermined investment objective that tailors the

fund's assets, regions of investments and investment strategies. At the

fundamental level, there are three varieties of mutual funds:

1. Equity funds (stocks)

2. Fixed-income funds (bonds)

3. Money market funds

1. Equity Funds -The primary objective is to invest in equity shares.

The investment style box gives a clear idea about the Equity fund

investments to customers.

• Value:- The term value refers to a style of investing that looks

for high quality companies that are out of favor with the market.

These companies are characterized by low P/E and price-to-book

ratios and high dividend yields.

• Growth:- The opposite of value is growth, which refers to

companies that have had strong growth in earnings, sales and

cash flow.

• Blend:- A compromise between value and growth is blend,

which simply refers to companies that are neither value nor

growth stocks and are classified as being somewhere in the

middle.

• Large Cap and Value:- A mutual fund that invests in large-cap

companies that are in strong financial shape but have recently

seen their share prices fall would be placed in the upper left

quadrant of the style box .

• Small Cap and Growth :-The opposite of this would be a fund that

invests in startup technology companies with excellent growth

prospects. Such a mutual fund would reside in the bottom right

quadrant.

Global/International Funds

An international fund (or foreign fund) invests only outside your home country.

Global funds invest anywhere around the world, including your home country.

It's tough to classify these funds as either riskier or safer than domestic

investments. They do tend to be more volatile and have unique country and/or

political risks. But, on the flip side, they can, as part of a well-balanced

portfolio, actually reduce risk by increasing diversification. Although the

world's economies are becoming more inter-related, it is likely that another

economy somewhere is outperforming the economy of your home country.

Specialty Funds

This classification of mutual funds is more of an all-encompassing category that

consists of funds that have proved to be popular. This type of mutual fund

forgoes broad diversification to concentrate on a certain segment of the

economy.

Sector funds

Sector funds are targeted at specific sectors of the economy such as financial,

technology, health, etc. Sector funds are extremely volatile. There is a greater

possibility of big gains, but you have to accept that your sector may tank.

Regional funds

Regional funds make it easier to focus on a specific area of the world. This may

mean focusing on a region or an individual country . An advantage of these

funds is that they make it easier to buy stock in foreign countries, which is

otherwise difficult and expensive. Just like for sector funds, you have to accept

the high risk of loss, which occurs if the region goes into a bad recession.

Socially responsible funds

Socially-responsible funds (or ethical funds) invest only in companies that meet

the criteria of certain guidelines or beliefs. Most socially responsible funds

don't invest in industries such as tobacco, alcoholic beverages, weapons or

nuclear power. The idea is to get a competitive performance while still

maintaining a healthy conscience.

Index Funds

The last but certainly not the least important are index funds. This type of

mutual fund replicates the performance of a broad market index . An investor

in an index fund figures that most managers can't beat the market. An index

fund merely replicates the market return and benefits investors in the form of

low fees.

2. Bond/Income Funds

Income funds purpose is to provide current income on a steady basis.

When referring to mutual funds, the terms "fixed-income," "bond," and

"income" are synonymous. These terms denote funds that invest primarily in

government and corporate debt. While fund holdings may appreciate in value,

the primary objective of these funds is to provide a steady cash flow to

investors.

Bond funds are likely to pay higher returns than certificates of deposit

and money market investments, but bond funds aren't without risk. Because

there are many different types of bonds, bond funds can vary dramatically

depending on where they invest.

3. Money Market Funds

The money market consists of short-term debt instruments, mostly Treasury

bills. This is a safe place to park your money. A typical return is twice the

amount you would earn in a regular checking/savings account and a little less

than the average certificate of deposit (CD).

Others

Balanced Funds

The objective of these funds is to provide a balanced mixture of safety,

income and capital appreciation. The strategy of balanced funds is to invest in

a combination of fixed income and equities. A typical balanced fund might

have a weighting of 60% equity and 40% fixed income. The weighting might

also be restricted to a specified maximum or minimum for each asset class.

The portfolio manager is therefore given freedom to switch the ratio of

asset classes as the economy moves through the business cycle.

Capital Protected Schemes

Capital Protected Schemes are close-ended schemes, which are structured to

ensure that investors get their principal back, irrespective of what happens to

the market. This is ideally done by investing in Zero Coupon Government

Securities whose maturity is aligned to the scheme's maturity.

Real Estate Funds

They take exposure to real estate. Such funds make it possible for small

investors to take exposure to real estate as an asset class.

Exchange Traded Funds

Exchange Traded funds (ETF) are open-ended funds, whose units are traded in

a stock exchange.A feature of open-ended funds, which allows investors to buy

and sell units from the mutual fund, is made available only to very large

investors in an ETF.

Commodity Funds

The investment objective of commodity funds would specify the commodities

it proposes to invest in. As with gold, such funds can be structured as

Commodity ETF or Commodity Sector Funds. In India, mutual fund schemes are

not permitted to invest in commodities, other than Gold

Therefore, the commodity funds in the market are in the nature of Commodity

Sector Funds, i.e. funds that invest in shares of companies that are into

commodities. Like Gold Sector Funds, Commodity Sector Funds too are a kind

of equity fund.

Fund of Funds

The feeder fund was an example of a fund that invests in another fund.

Similarly, funds can be structured to invest in various other funds, whether in

India or abroad. Such funds are called fund of funds.

COSTS INVOLVED IN MUTUAL FUNDS

Fees can be broken down into two categories:

1. Ongoing yearly fees to keep you invested in the fund.

2. Transaction fees paid when you buy or sell shares in a fund (loads).

The Expense Ratio

Two kinds of expenses come up:

Initial Issue Expenses - These are one-time expenses that come up when the

scheme is offered for the first time (NFO). These need to be borne by the AMC.

Recurring Expenses - These can be charged to the scheme. Since the recurring

expenses drag down the NAV, SEBI has laid down the expenses, which can be

charged to the scheme. The ongoing expenses of a mutual fund is represented

by the expense ratio. This is sometimes also referred to as the management

expense ratio (MER). The expense ratio is composed of the following:

• The cost of hiring the fund manager(s) - Also known as the management

fee, this cost is between 0.5% and 1% of assets on average.

• Administrative costs - These include necessities such as postage, record

keeping, customer service etc.

On the whole, expense ratios range from as low as 0.2% (usually for index

funds) to as high as 2%. The average equity mutual fund charges around 1.3%-

1.5%. You'll generally pay more for specialty or international funds, which

require more expertise from managers.

Loads

Loads are just fees that a fund uses to compensate brokers or other

salespeople for selling you the mutual fund.

• Front-end loads - These are the most simple type of load: you pay the

fee when you purchase the fund.

• Back-end loads (also known as deferred sales charges) - These are

charged one sells a fund within a certain time frame.

• A no-load fund sells its shares without a commission or sales charge.

Transaction Charges

In order to enable people with small saving potential and to increase reach of

Mutual Fund products in urban areas and smaller towns, SEBI has allowed a

transaction charge per subscription of Rs. 10,000/- and above to be paid to

distributors of the Mutual Fund products. However, there shall be no

transaction charges on direct investments. The transaction charge, if any, shall

be deducted by the AMC from the subscription amount and paid to the

distributor; and the balance shall be invested.

MUTUAL FUND SCHEMES IN SBI

Wide variety of Mutual Fund Schemes exist to cater to the needs such as

financial position, risk tolerance and return expectations etc. The table below

gives an overview into the different options available to customers.

• Open-ended funds are open for investors to enter or exit at any time,

even after the NFO.

• Close-ended funds have a fixed maturity. Investors can buy units of a

close-ended scheme, from the fund, only during its NFO.

• Interval funds combine features of both open-ended and close-ended

schemes. They are largely close-ended, but become open-ended at pre-

specified intervals. In a Dividend Payout Option, the fund declares a

dividend from time to time. In a Dividend Reinvestment, the amount is

reinvested in the same scheme and additional units are allotted to the

investor. In a Growth Option, the NAV would therefore capture the full

value of portfolio gains. Direct Option can be chosen to deal directly

with AMC without intermediaries and have no entry load. Regular

option is an option to invest through intermediaries and any further

updations are assisted by intermediaries for a nominal fee as entry fee.

OTHER OPTIONS AVAILABLE TO INVESTORS

The investor also has an option to opt for one time investment or systematic

Investment plan, known as SIP is an approach where the investor invests

constant amounts at regular intervals.

SIP:- Mutual funds also offer facilities that help investor invest amounts

regularly through a

Systematic Investment Plan (SIP).

SWP:-Withdraw amounts regularly through a Systematic Withdrawal Plan

(SWP)

STP:-Move moneys between different kinds of schemes through a Systematic

Transfer Plan (STP).

Such systematic approaches like SIP and STP promote an Systematic Approach

to Investments investment discipline, which is useful in long-term wealth

creation and protection. SWPs allow the investor to structure a regular cash

flow from the investment account.

Actively Managed Funds and Passive Funds

Actively managed funds are funds where the fund manager has the flexibility

to choose the investment portfolio, within the broad parameters of the

investment objective of the scheme. Since this increases the role of the fund

manager, the expenses for running the fund turn out to be higher. Investors

expect actively managed funds to perform better than the market.

Passive funds invest on the basis of a specified index, whose performance it

seeks to track. Thus, a passive fund tracking the BSE Sensex would buy only the

shares that are part of the composition of the BSE Sensex. The proportion of

each share in the scheme's portfolio would also be the same as the weightage

assigned to the share in the computation of the BSE Sensex. Thus, the

SIP:-

performance of these funds tends to mirror the concerned index. They are not

designed to perform better than the market.

Types of Mutual Funds and SBI Funds in each category

There are six basic asset classes, which SBI manage, and variations of these six

asset classes form various products:

Equity Schemes

The primary objective of the equity asset class is to provide capital growth /

appreciation by investing in the equity and equity related instruments of

companies over medium to long term.

Equity/ Growth Funds

• SBI Magnum Equity Fund

• SBI Magnum Global Fund

• SBI BlueChip Fund

• SBI Magnum Multicap Fund

• SBI Magnum Multiplier Plus 1993

• SBI Magnum Midcap Fund

Sectoral Funds

• SBI Emerging Businesses Fund

• SBI Contra Fund

• SBI FMCG Fund

• SBI IT Fund

• SBI Pharma Fund

Thematic Funds

• SBI Magnum COMMA Fund

• SBI Infrastructure Fund

• SBI PSU Fund

ELSS Funds

• SBI Magnum Taxgain Scheme 1993

• SBI Tax Advantage Fund - Series I

• SBI Tax Advantage Fund - Series II

Index Funds

• SBI Nifty Index Fund

Market Neutral Strategy

• SBI Arbitrage Opportunities Fund

Hybrid Schemes

These schemes invest in a mixture of debt and equity securities in different

proportions as prescribed in the Scheme Information Document.

• SBI EDGE Fund

• SBI Magnum Balanced Fund

• SBI Regular Savings Fund

• SBI Magnum Monthly Income Plan

• SBI Magnum Monthly Income Plan - Floater

• SBI Capital Protection Oriented Fund - Series II

• SBI Capital Protection Oriented Fund - Series III

Debt / Income Schemes

The schemes in this asset class generally invest in fixed income securities such

as bonds, corporate debentures, government securities (gilts), money market

instruments, etc. and provide regular and steady income to investors.

• SBI Magnum Children's Benefit Plan

• SBI Magnum Income Fund Floating Rate Plan - Savings Plus Bond Plan

• SBI Magnum Income Fund Floating Rate Plan - Long Term

• SBI Magnum Income Fund

• SBI Dynamic Bond Fund

• SBI Magnum Gilt Fund - Short Term Plan

• SBI Magnum Gilt Fund - Long Term Plan

• SBI Short Term Debt Fund

• SBI Ultra Short Term Debt Fund

Fixed Maturity Plans

These are closed ended debt schemes with a fixed maturity date and

they invest in debt & money market instruments maturing on or before the

date of the maturity of the scheme.

• SBI Debt Fund Series 13 MONTHS 14












• SBI Debt Fund Series 366 DAYS 4




























Liquid Schemes

The strategy for liquid funds include investments in short investment horizon,

which includes 'cash' assets such as treasury bills, certificates of deposit and

commercial paper.

• SBI Magnum InstaCash Fund

• SBI Magnum InstaCash Fund - Liquid Floater

• SBI Premier Liquid Fund

Exchange Traded Schemes

Exchange Traded Funds/ Schemes (ETFs) are a basket of securities that are

traded on the stock exchange.

• SBI Gold Exchange Traded Scheme

• SBI SENSEX ETF

Fund of Funds Schemes

A "Fund of Funds Scheme" means a mutual fund scheme that invests primarily

in other schemes of the same mutual fund or other mutual funds.

• SBI Gold Fund

Data Analysis and

Interpretation

DATA ANALYSIS AND INTERPRETATION

Frequencies

1. AGE

Table 1:- Age

Interpretation:-

The sample of respondents collected consisted of different age groups in

proportionate number.

2. Gender

Table 2 :-Gender

Interpretation:-

The respondents were 36% female and 64 % Male.

3. Income

Table 3:- Income

Interpretation:-

The sample respondents are maximum in the range of Rs.15000-25000 income

per month followed by above Rs.40000 and 22 % below Rs.15000 and least

number of respondents in range of Rs.25000-40000 and sample consists of a

combination of all income groups.

4. Occupation

Table 4:- Occupation

Interpretation:-

45% of the respondents are Service men,13% business men,15%- professionals

and 27% consisted of others(students, retired and housewives) constitute the

sample.

5. Investment pattern

Table 5:- Investment pattern

Interpretation:-

50% of the respondents have plans to invest for a long tenure whereas 42% of

respondents want short term investment while 8% are looking for a an open

investment option which can be liquidated in short term but can continue for a

long tenure if no emergency arises.

6. Rate of Return expectations of customers

Table 6:- Rate of Return expectations of customers

Interpretation:-

The majority of respondents,41% expect a return of 10-12% return,26% expect

RoR<10% , 17% would expect RoR>15% and 16% of respondents require 12-

15% return from investment.

7. Liquidity Requirement

Table 7:- Liquidity Requirement

Interpretation:-

40% of the respondents said they would liquidate their investments in 1-3

years time period and 35% preferred anytime liquidity and 13% said 3-5 tenure

is time period they would wait and only 12% said would liquidate after more

than 5 years

8. Reputation

Table 8:- Reputation

Interpretation:-

The reputation of the investment opportunity should be atleast be good for an

investor to consider the option though it gives high rate of return and other

benefits.36% wanted very good reputation, 30% said reputation should be

excellent to invest and only 4% said they would compromise on fair reputation

and rest said good reputation was acceptable to invest.

9. Mutual fund already considered as investment option

Table 9:- Mutual fund already considered as investment option

Interpretation:-

The survey found 41% of the respondents have already invested in mutual

funds and 59% of respondents did not invest in mutual funds.

10. Investment opinion on Mutual funds

Table 10:- Investment opinion on Mutual funds

Interpretation:-

31% respondents have showed interest in investing in mutual funds and 15%

are already planning to invest and 13% said would never invest and the rest

have already invested.

11. Major Factors preventing respondents to invest/Reinvest

Table 11:- Major Factors preventing respondents to invest/Reinvest

Interpretation:-

Factors such as Lack of knowledge and difficulty in selection from various

schemes was major hindrance. Previous experience and improper investment

advisors have also prevented many customers from investing/reinvesting.

12. Customers Preference of approach

Table 12:- Customers Preference of approach

Interpretation:-

Factors such as Lack of knowledge and difficulty in selection from various

schemes was major hindrance. Previous experience and improper investment

advisors have also prevented many customers from investing/reinvesting.

13. Respondents preferred mode of knowing investment information

Table 13:- Respondents preferred mode of knowing investment

information

Interpretation:-

The least preferred mode is through mails(7%) and respondents preference is

divided between customer care representative, internet and customer care call

center.

14. The frequency of investors checking the investment performance

Table 14:- The frequency of investors checking the investment

performance

Interpretation:-

The frequency of checking is neither daily nor at the time of maturity, the

respondents usually check their investment performance based on their

interest and convenience weekly,monthly or once in a while.

15. Respondents Preferred mode of Communication

Table 15:- Respondents Preferred mode of Communication

Interpretation:-

The preference is divided between the respondents, but majority prefer to

know the offers by personal communication.

Summary Of Conclusions

CONCLUDING OBSERVATIONS

The study was conducted to understand the customer expectations and

the factors which affect their decision to invest. The factors concluded that

Image of the investment plays a major factor which convinces a customer

followed by Future potential and attractiveness of the product.

The respondent's positive response towards investment and 41%

respondents having already invested shows modest penetration among the

customers.

The global economic conditions have made mutual fund investments a

lucrative option for investors to mitigate risk and diversify with many options

available to customers. The debt market conditions are attracting customers in

Mutual fund debt instruments as they are considered to provide good returns

owing to volatility in equity market.

The technological advancements of providing real time information and

convenience to customer in terms of purchase, payment and redemption has

made mutual fund industry a booming investment option to customers.

The Preference of customers is mutual fund offices/banks to approach

rather than investment advisors hence would advise more mutual fund

representatives should be allotted to banks. Investors interest in various

options shows a huge mass potential for investments in Mutual

funds.

BIBILOGRAPHY

Book:

Marketing Research by Nedwenkar

Business research Methods,Naval Bajpai,Pearson

publications.ISBN:978-81-317-5448-1

Journal/Magazine :

K.Viyyanna Rao &Nirmal Daita (June 2012),Fundamental Factors

Influencing Invetsments In Mutual Funds-The EIC Approach: A

Case study of RCAML, Indian Journal of Finance

Electronic version

Dr Tapan K Panda & Dr Nalini Prava Tripathy Customer Orientation

in Designing Mutual Fund

Products-An Analytical Approach to Indian Market

Preferences.[2000]

Dr. Ravi Vyas,Mutual Fund Investor's Behaviour And Perception In

Indore City, International

Refereed Research Journal , Vol.- III, Issue-3(1),July. 2012 [71]

Dr.Vikas Kumar,Performance Evaluation Of Open Ended Schemes

Of Mutual Funds, International Journal of Multidisciplinary

Research Vol.1 Issue 8, December 2011, ISSN 2231 5780.

R.Padmaja, Study Of Consumer Behavior Towards Mutual Funds

With Special Reference To

Websites

www.amfiindia.com

www.nsim.ac.in

www.sbimf.com

www.mutualfundsindia.com

www.investopedia.com

Economic Times

Indian express

http://www.amfiindia.com/

http://www.nsim.ac.in/

http://www.sbimf.com/

http://www.mutualfundsindia.com/

http://www.investopedia.com/

final study on factors influencing investment decision on mutual funds

Documents

types of mutual funds

mutual funds definition

disadvantages of mutual

mutual fund schemes

mutual fund variants

indian mutual fund industry

mutual concept design

sbi funds