sbi mutual fund marketing summer training report
TRANSCRIPT
A
PROJECT REPORT
ON
“MERITS AND DEMERITS OF MUTUAL FUND”
TRAINING UNDERTAKEN AT
SUBMITTED FOR THE
PARTIAL FULFILLMENT OF TWO YEARS FULL TIME COURSE
MASTERS IN BUSINESS ADMINISTRATION
Batch(2010-2012)
Submitted To: Submitted By: -
FMS MAIET ,Jaipur. Aman Gupta
MBA SEM-III(2010-2012)
Faculty of Management Studies
Maharishi Arvind Institute of Engineering & Technology, Jaipur
[Affiliated to Rajasthan Technical University]
1
DECLERATION
I hereby declare that this Project Report entitled “Mutual Funds: “MERITS AND
DEMERITS OF MUTUAL FUND” submitted in the partial fulfillment of the requirement of
Master of Business Administration (M.B.A) of MAIET, Jaipur . It is based on primary &
secondary data found by me in various institutes, books, magazines and websites & collected
by me in under guidance of PRAVEEN SIR .
DATE: 15.07.2011
Aman Gupta
M.B.A
2
ACKNOWLEDGMENT
The project would not be complete without a mention of those, who have spared their
valuable time and shared their rich experience, in making this project happen.
I owe indebtedness to Mr. Sameer saxena, Branch Manager, Jaipur for sbi mutual fund AMC,
for granting me an opportunity to work with the esteemed organization. He has been
benevolent enough to lend his help and spare his valuable time throughout the project. I am
thankful for his continuous motivation and encouragement.
I extend my heartfelt thanks to Mr.Praveen saini, & Mrs.Alka jain for their incessant
guidance and support all through the project. I also feel privileged to place on record the
excellent financial and marketing tactics, which I had learnt from them during the project.
I express my deep gratitude to all the staff members at SBI MUTUAL FUND AMC,
JAIPUR; who gave me a full-fledged support to complete my project on time.
(Aman Gupta)
3
PREFACE
A professional course like business management demands in depth theoretical knowledge and
practical exposure to its realistic application. For the same purpose, the course designs one
and a half month summer training. The course aims to groom the students professionally and
offer him/her a chance to work in corporate world, so as to have an opportunity to gain
experience on practical aspects and supplement his/her theoretical knowledge.
Mutual Funds being the ideal investments vehicle in today’s complex and modern financial
scenario. Mutual Funds are emerging as the most attractive investment avenue as the
investments across is globally facing a southern trend and volatility prevails in all the global
markets.
I was fortunate enough to closely watch and learn the working of a mutual fund, during my
Project Training at one of the Indian pioneers in Mutual Funds- “SBI MUTUAL FUND”
The project assigned was “MERITS AND DEMERITS OF MUTUAL FUND ”
The relevance of mutual funds increases as the international financial situations going in
tailspins day by day and India now is by real means being attached to global swings of Fed
rate cuts, Sub Prime crises, crude oil prices etc.
4
EXECUTIVE SUMMARY
Today’s mutual fund industry is characterized by cut throat competition, so it is very
important for a company, which offers a basket of offerings, to design clear cut strategies.
The project that I had worked upon in my training provided a lot of scope to learn, right from
the basics, about the investment opportunities available in mutual funds in India, various
factors involved in selecting an investment option. It further included a market research
where I interacted with different people, to gain more knowledge about the different
investment opportunities in India.
The research work contains a comprehensive study of the Mutual Funds in India and how it
emerged as one of the most rapidly growing investment avenue. The project also involves
some practical learning of working in the bank as well. It involves interaction with the
customers that walk in to the bank to understand their needs to invest in which fund and
market, and to draw out the information which is necessary.
I tried to introduce different marketing strategies and put up new ideas to attract more
customers that helped SBI MUTUAL FUND the sales process and to generate leads.
Finally, it included a market research using questionnaires to find out awareness of mutual
funds among people as compared to other investment avenues. I also need to find out the
various investment avenues of people.
5
CONTENTS
Sr. no. Chepter Page.No.
1. Introduction to the industry 7-9
2. History of Indian mutual fund 10-11
3. Introduction to the Organization 12-26
4. Concept of mutual fund 27-43
5. Various investment options available for investors 43-46
6. Factors to be considered before selecting mutual fund 47-51
7. Merits and demerits of mutual funds
Merits of mutual funds 52-55
Demerits of mutual funds 56
Systematic Investment Plan(SIP) 57-60
8. Research Methodology 61-65
9. Data Analysis and Interpretation 66-79
10. Facts and Findings 80-81
11. SWOT Analysis 82-83
12. Conclusion 84
13. Recommendations and Suggestions 85-86
14. Bibliography 87
15. Appendix- Questionnaire 88-90
1. INTRODUCTION TO THE INDUSTRY
A mutual fund is a professionally-managed form of collective investments that pools
money from many investors and invests it in stocks, bonds, short-term money market
6
instruments, and/or other securities. In a mutual fund, the fund manager, who is also known as
the portfolio manager, trades the fund's underlying securities, realizing capital gains or losses,
and collects the dividend or interest income. The investment proceeds are then passed along to
the individual investors. The value of a share of the mutual fund, known as the net asset value
per share (NAV) is calculated daily based on the total value of the fund divided by the number
of shares currently issued and outstanding.
Mutual fund is a trust that pools the savings of a number of investors who share a
common financial goal. This pool of money is invested in accordance with a stated objective.
The joint ownership of the fund is thus “Mutual”, i.e. the fund belongs to all investors. 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
appreciations realized are shared by its unit holders in proportion 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.
A Mutual Fund is an investment tool that allows small investors access to a well-
diversified portfolio of equities, bonds and other securities. Each shareholder participates in
the gain or loss of the fund. Units are issued and can be redeemed as needed. The funds Net
Asset value (NAV) is determined each day.
Investments in securities are spread across a wide cross-section of industries and
sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may
not move in the same direction in the same proportion at the same time. Mutual fund issues
units to the investors in accordance with quantum of money invested by them. Investors of
mutual funds are known as unit holders.
When an investor subscribes for the units of a mutual fund, he becomes part
owner of the assets of the fund in the same proportion as his contribution amount put up
with the corpus (the total amount of the fund). Mutual Fund investor is also known as a
mutual fund shareholder or a unit holder.Any change in the value of the investments
made into capital market instruments (such as shares, debentures etc) is reflected in the
Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the
Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by
dividing the market value of scheme's assets by the total number of units issued to the
investors.
7
GROWTH OF MUTUAL FUNDS IN INDIA
The Indian Mutual Fund has passed through three phases. The first phase was
between 1964 and 1987 and the only player was the Unit Trust of India, which had a total asset
of Rs. 6,700 crores at the end of 1988. The second phase is between 1987 and 1993 during
which period 8 Funds were established (6 by banks and one each by LIC and GIC). The total
assets under management had grown to 61,028 crores at the end of 1994 and the number of
schemes was 167.
The third phase began with the entry of private and foreign sectors in the Mutual Fund
industry in 1993. Kothari Pioneer Mutual Fund was the first Fund to be established by the
private sector in association with a foreign Fund. As at the end of financial year 2000(31st
march) 32 Funds were functioning with Rs. 1, 13,005 crores as total assets under management.
As on august end 2000, there were 33 Funds with 391 schemes and assets under management
with Rs 1, 02,849 crores.
The securities and Exchange Board of India (SEBI) came out with comprehensive
regulation in 1993 which defined the structure of Mutual Fund and Asset Management
Companies for the first time. Several private sectors Mutual Funds were launched in 1993 and
1994. The share of the private players has risen rapidly since then.
Currently there are 34 Mutual Fund organizations in India managing 1,02,000 crores.
8
VALUATION OF MUTUAL FUND
The net asset value of the Fund is the cumulative market value of the assets Fund net
of its liabilities. In other words, if the Fund is dissolved or liquidated, by selling off all the
assets in the Fund, this is the amount that the shareholders would collectively own. This gives
rise to the concept of net asset value per unit, which is the value, represented by the ownership
of one unit in the Fund. It is calculated simply by dividing the net asset value of the Fund by
the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring
the “per unit”. We also abide by the same convention.
Calculation of NAV
The most important part of the calculation is the valuation of the assets owned by the
Fund. Once it is calculated, the NAV is simply the net value of assets divided by the number of
units outstanding. The detailed methodology for the calculation of the net asset value is given
below.The net asset value is the actual value of a unit on any business day. NAV is the
barometer of the performance of the scheme.
The net asset value is the market value of the assets of the scheme minus its
liabilities and expenses. The per unit NAV is the net asset value of the scheme divided by the
number of the units outstanding on the valuation date.
9
HISTORY OF MUTUAL FUND INDUSTRY IN INDIA
The origin of Mutual Fund industry in India is with the introduction of the concept of
mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from
the year 1987 when non-UTI players entered the industry. In the past decade, Indian Mutual
Fund industry had seen dramatic improvements, both quality wise as well as quantity wise.
Before, the Monopoly of the Market had seen an ending phase; the Assets Under
Management (AUM) was Rs. 67bn. The private sector entry to the fund family raised the
AUM to Rs. 470 bn in March 1993 and till April 2004; it reached the height of 1,540 bn.
Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less
than the deposits of SBI alone, constitute less than 11% of the total deposits held by the
Indian banking industry. The main reason of its poor growth is that the Mutual Fund industry
in India is new in the country. Large sections of Indian investors are yet to be intellectuated
with the concept. Hence, it is the prime responsibility of all mutual fund companies, to
market the product correctly abreast of selling. The Mutual Fund industry can be broadly put
into four phases according to the development of the sector. Each phase is briefly described
as under.
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)
Entry of non-UTI mutual funds. SBI Mutual Fund was the first 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 in 1989
and GIC in 1990. The end of 1993 marked Rs.47, 004 as assets under management.
10
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
This phase brought bitter experience for UTI. It was bifurcated into two separate
entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29, 835
crores (as on January 2003). 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
Ltd, 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 AUM 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. As at the end of September, 2004, there were 29 funds, which
manage assets of Rs.153108 crores under 421 scheme
11
3. INTRODUCTION TO THE ORGANIZATION
SBI Mutual Fund
SBI Mutual Fund (SBI MF) is one of the largest mutual funds in the country
with an investor base of over 4.6 million. With over 20 years of rich experience in fund
management, SBI MF brings forward its expertise in consistently delivering value to its
investors.
Proven Skills in wealth generation:
SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable
track record in judicious investments and consistent wealth creation.
The fund traces its lineage to SBI - India’s largest banking enterprise. The institution
has grown immensely since its inception and today it is India's largest bank, patronized
by over 80% of the top corporate houses of the country.
SBI Mutual Fund is a joint venture between the State Bank of India and Société
General Asset Management, one of the world’s leading fund management companies
that manages over US$ 500 Billion worldwide.
History of SBIMF
SBI mutual fund was setup on June 29th, 1987 and incorporated on February 7th,
1992. It is a result of joint venture between State Bank of India and Societe Generale
Asset Management of France. This is a bank sponsored mutual fund and has a base of
3.5 million investors (approx). Over the years it has carved a niche for itself through
prudent investment decisions and consistent wealth creation for its customers. They
offer Mutual Fund products in Equity Funds, Index Funds, Balanced Funds, Debt
Funds, etc.
The assets under management are Rs 33,727.90 crores as of June, 30, 2010.
InvestmentYogi analyses the best performing SBI mutual fund in the Balanced Fund,
Equity Fund and Equity Linked Savings Scheme (ELSS) categories.
12
SBI Mutual Fund operates under State Bank of India and Société Générale Asset
Management of France and has asset management experience of more than 25 years. SBI
Mutual Fund offers different kinds of products like growth based products, income based
products and balanced funds.
The SBI Mutual Fund operates under State Bank of India and Société Générale Asset
Management of France. With over twenty years of experience in asset management, the
company has grown immensely since its establishment. SBI Mutual Funds offer innovative
mutual fund products to its wide pool of customers and its products are available across India.
It has a wide portfolio of products that meet the requirements of different types of investors.
The SBI Mutual Fund is headed by Mr Syed Shahabuddin, Managing Director of the
company.
Contact details of SBI Mutual Fund are as follows:
Corporate Office :
191, Maker Tower 'E', Cuffe Parade,
Mumbai - 400 005.
Email : [email protected]
SBI Mutual Funds Investor's Service Center are located at Ahmedabad, Bangalore, Bhillai,
Bhubaneshwar, Bhopal, Chandigarh, Chennai, Coimbatore, Cochin, Goa, Guwahati,
Hyderabad, Indore, Jaipur, Kanpur, Kolkata, Lucknow, Ludhiana, Mumbai, New Delhih,
Patna, Pune, Ranchi, Siliguri, Vadodara, and Vijaywada.
SBI Mutual Fund
Mutual Fund SBI Mutual Fund
Setup Date Jun-29-1987
Incorporation Date Feb-07-1992
Sponsor State Bank of India
Trustee SBI Mutual Fund Trustee Company Private Limited
Chairman Mr. Pratip Chaudhri
CEO / MD Mr. Deepak Kumar Chatterjee
CIO Mr. Navneet Munot
13
Compliance Officer Ms. Vinaya Datar
Investor Service Officer Mr. C A Santosh
Assets Managed Rs. 47874.46 crore (Jun-30-2011)
Other Details
Auditors Haribhakti & Co / M/S. Chandabhoy & Jassoobhoy
CustodiansBank of Nova Scotia / Citi Bank / HDFC Bank / Stock Holding
Corporation of India
Registrars
Computer Age Management Services Pvt. Ltd, Computronics
Financial Services (I) Ltd, Datamatics Financial Software Services
Ltd
Address 191 Maker Tower E, Cuffe Parade, Mumbai - 400005.
Telephone Nos. 022 - 22180221-27
Fax Nos. 022 – 22189663
E-mail [email protected]
ORGANISATIONAL STRUCTURE OF
SBI MUTUAL FUND
14
CEO
NATIONAL SALES HEAD
BRANCH MANAGER
S
VICE PRESIDENT CIO
FUND MANAGERS
AWARDS AND ACHIEVEMENTS
SBI Mutual Fund (SBIMF) has been the proud recipient of the ICRA Online
Award - 8 times, CNBC TV - 18 Crisil Award 2006 - 4 Awards, The Lipper
Award (Year 2005-2006) and most recently with the CNBC TV - 18 Crisil
Mutual Fund of the Year Award 2007 and 5 Awards for our schemes.
15
16
SBI- MUTUAL FUND PRODUCTS:
EQUITY SCHEMES:
The investments of these schemes will predominantly be in the stock
markets and endeavor will be to provide investors the opportunity to benefit from the
higher returns which stock markets can provide. However they are also exposed to the
volatility and attendant risks of stock markets and hence should be chosen only by such
investors who have high risk taking capacities and are willing to think long term.
Equity Funds include diversified Equity Funds, Sectoral Funds and Index Funds.
Diversified Equity Funds invest in various stocks across different sectors while
Sectoral funds which are specialized Equity Funds restrict their investments only to
shares of a particular sector and hence, are riskier than Diversified Equity Funds. Index
Funds invest passively only in the stocks of a particular index and the performance of
such funds move with the movements of the index.
Magnum COMMA Fund
Magnum Equity Fund
Magnum Global Fund
Magnum Index Fund
Magnum MidCap Fund
Magnum Multicap Fund
Magnum Multiplier Plus 1993
Magnum Sector Funds Umbrella
MSFU - FMCG Fund
MSFU - Emerging Businesses Fund
MSFU - IT Fund
MSFU - Pharma Fund
MSFU - Contra Fund
SBI Arbitrage Opportunities Fund
SBI Blue chip Fund
SBI Infrastructure Fund - Series I
SBI Magnum Taxgain Scheme 1993
SBI ONE India Fund
17
SBI TAX ADVANTAGE FUND - SERIES I
DEBT SCHEMES:
Debt Funds invest only in debt instruments such as Corporate Bonds,
Government Securities and Money Market instruments either completely avoiding any
investments in the stock markets as in Income Funds or Gilt Funds or having a small
exposure to equities as in Monthly Income Plans or Children's Plan. Hence they are
safer than equity funds. At the same time the expected returns from debt funds would
be lower. Such investments are advisable for the risk-averse investor and as a part of
the investment portfolio for other investors.
Magnum Children’s Benefit Plan
Magnum Gilt Fund
Magnum Gilt Fund (Long Term)
Magnum Gilt Fund (Short Term)
Magnum Income Fund
Magnum Income Plus Fund
Magnum Income plus Fund (Saving Plan)
Magnum Income plus Fund (Investment Plan)
Magnum Insta Cash Fund
Magnum InstaCash Fund -Liquid Floater Plan
Magnum Institutional Income Fund
Magnum Monthly Income Plan
Magnum Monthly Income Plan Floater
Magnum NRI Investment Fund
SBI Capital Protection Oriented Fund - Series I
SBI Debt Fund Series
SDFS 15 Months Fund
SDFS 90 Days Fund
SDFS 13 Months Fund
SDFS 18 Months Fund
SDFS 24 Months Fund
SDFS 30 DAYS
18
SDFS 30 DAYS
SDFS 60 Days Fund
SDFS 180 Days Fund
SDFS 30 DAYS
SBI Premier Liquid Fund
SBI Short Horizon Fund
SBI Short Horizon Fund - Liquid Plus Fund
SBI Short Horizon Fund - Short Term Fund
BALANCED SCHEMES:
Magnum Balanced Fund invests in a mix of equity and debt investments. Hence they are less
risky than equity funds, but at the same time provide commensurately lower returns. They
provide a good investment opportunity to investors who do not wish to be completely
exposed to equity markets, but is looking for higher returns than those provided by debt
funds.
Magnum Balanced Fund
Magnum NRI Investment Fund - Flexi Asset Plan
Magnum Multiplier Plus 1993
Investment Objective:
Magnum Multiplier Plus is an open-ended diversified equity fund and the investment
objective of the scheme is to provide investors long term capital appreciation along
with the liquidity of an open-ended scheme. The scheme will invest in a diversified
portfolio of equities of high growth companies.
Asset Allocation
Instrument % of Portfolio of Plan A
& B
Risk Profile
Equity and related
instruments
Not less than 70 % Medium to High
Debt instruments Not more than 30% Low to Medium
19
(including Securitized
debt) and Govt. Securities
Money Market
instruments
Balance Low
Scheme Highlights:
1. An open-ended equity scheme aiming for aggressive growth from
investments in equities.
2. Scheme opens for Resident Indians, Trusts, and Indian Corporates and
on a fully repatriable basis for NRIs, FIIs & Overseas Corporate
Bodies.
3. Facility to reinvest dividend proceeds into the scheme at NAV.
4. Easy entry and exit on the basis of sales and repurchase prices determined daily.
NAV will be declared on every business day.
5. Nomination facility available for individuals applying on their behalf either singly or
jointly upto three.
Launch Date Minimum Application
February 28, 1993 Rs. 1000
Entry Load Exit Load
Investments below Rs. 5 crore - 2.25%
Investments of Rs 5 crores and above-
Nil
Investments below Rs 5 crores <= 6 months
- 1.00% and NIL thereafter. Investments of
Rs 5 crores and above - NIL
SIP SWP
Rs 500/month - 12 months, Rs
1000/month - 6 months, Rs 1500/quarter
- 12 months
A minimum of Rs 500 can be withdrawn
every month or quarter by issuing advance
instructions to the Registrars at any time.
MSFU - Emerging Businesses Fund
20
Investment Objective
To provide the investors maximum growth opportunity through equity investments in
stocks of growth oriented sectors of the economy. There are five sub-funds dedicated to
specific investment themes viz. Information Technology, Pharmaceuticals, FMCG,
Contrarian (investment in stocks currently out of favour) and Emerging Businesses.
The investment objective of the Emerging Business Fund would be to participate in the
growth potential presented by various companies that are considered emergent and
have export orientation/outsourcing opportunities or are globally competitive by
investing in the stocks representing such companies. The fund may also evaluate
emerging businesses with growth potential and domestic focus.
Asset Allocation
Instrument % of Portfolio of
Plan A & B Risk Profile
Equities or equity related instruments
including derivatives across diversified
sectors *
At least 90% Medium to High
Money market instruments 0%-10% Low
Scheme Highlights
1. An open-ended scheme in which there are five sub-funds, viz. Information
Technology (IT), Pharmaceuticals, Fast Moving Consumer Goods (FMCG) and a
Contra sub fund - investing in stocks currently out of favour and Emerging Businesses
Fund to participate in the growth potential presented by various companies that are
considered emergent and have export orientation / outsourcing opportunities or are
globally competitive by investing in the stocks representing such companies. The fund
may also evaluate emerging businesses with growth potential and domestic focus.
Accordingly, investors can chose to invest in one or more of the five sub funds. The
fund allows free switchover from one sector to another. The merits of each of the five
sectors are detailed in the following pages.
21
2. Growth and Dividend Option available under Contra, Pharmaceuticals and Emerging
Businesses Fund.
3. Switch-over facility at NAV related price to other open-ended schemes of SBI
Mutual Fund, is available. This facility is not available to NRIs.
Launch Date Minimum Application
11/10/2004 Rs. 2000/- and multiples of Rs. 500/-
Entry Load Exit Load
Investments below Rs 5 crores - 2.25%
Investments of Rs 5 crores and above -
NIL
Investments below Rs 5 crores <= 6
months - 1.00% and NIL thereafter.
Investments of Rs 5 crores and above - NIL
SIP SWP
Rs 500/month - 12 months, Rs
1000/month - 6 months, Rs 1500/quarter
- 12 months
A minimum of Rs 500 can be withdrawn
every month or quarter by issuing advance
instructions to the Registrars at any time.
SBI Magnum Taxgain Scheme 1993
Investment Objective
The prime objective of scheme is to deliver the benefit of investment in a portfolio of
equity shares, while offering tax rebate on such investments made in the scheme under
section 80 C of the Income-tax Act, 1961. It also seeks to distribute income
periodically depending on distributable surplus.
Asset Allocation
Instrument % of Portfolio of
Plan A & B Risk Profile
Equity,PCD’s and FCD’s and bonds 80-100% Medium to High
Money market instruments 0 – 20% Low
22
Scheme Highlights
1. There is a statutory lock-in period of three years for investments in a Tax Saving
Scheme (irrespective of the fact whether the investors claim the rebate u/s 80C or any
other section or not).
2. Dividends may be declared depending on distributable profits of the scheme. Facility
to reinvest dividend proceeds into the scheme at NAV.
3. Switchover facility to any other open-ended schemes of SBI Mutual Fund at NAV
related prices available after the statutory lock-in period.
Launch Date Minimum Application
March 31, 1993 Rs. 500 and Multiples of Rs 500
Entry Load Exit Load
Investments below Rs. 5 crores - 2.25%
Investments of Rs.5 crores and above -
NIL
Nil
SIP SWP
Rs.500/month - 12 months
Rs.1000/month - 6months
Rs.1500/quarter - 12 months
A minimum of Rs. 500 can be withdrawn
every month or quarter by issuing advance
instructions to the Registrars at any time.
This facility is available only after the
lock-in period of three years.
SBI Magnum Equity Fund
23
Objective : To provide the investor Long-term capital appreciation by investing in high
growth companies along with the liquidity of an open-ended scheme through investments
primarily in equities and the balance in debt and money market instruments.
Structure : Open-ended Diversified Equity Fund
Inception Date : January 02, 1991
Plans and Options under the Plan :
Growth & Dividend Option
Face Value (Rs/Unit): Rs. 10
Minimum Investment : Rs.1000
Entry Load : For investments below Rs. 5 crores, Entry load is 2.25%. For Investments of Rs.
5 crores and above, Entry Load is Nil.
Exit Load : If redeemed before 6 Months; and Amount less than 5 crores, Exit load is 1%.
For Amount greater than 5 crores, Exit load is Nil.
SBI Magnum Global Fund
Objective : To provide the investors maximum growth opportunity through well researched
investments in Indian equities, PCDs and FCDs from selected industries with high growth
potential and Bonds.
Structure : Open-ended Equity Scheme
Inception Date : September 30, 1994
Plans and Options under the Plan :
Growth & Dividend Option
Face Value (Rs/Unit): Rs. 10
Minimum Investment : Rs.2000
Entry Load : For investments below Rs. 5 crores, Entry load is 2.25%. For Investments of Rs.
5 crores and above, Entry Load is Nil.
Exit Load : If redeemed before 6 Months; and Amount less than 5 crores, Exit load is 1%.
For Amount greater than 5 crores, Exit load is 0%.
SBI Magnum Emerging Businesses Fund
24
Objective : To participate in the growth potential presented by various companies that are
considered emergent and have export orientation/outsourcing opportunities or are globally
competitive by investing in the stocks representing such companies. The fund may also
evaluate emerging businesses with growth potential and domestic focus.
Structure : Open-ended Equity Scheme
Inception Date : October 11, 2004
Plans and Options under the Plan :
Growth & Dividend Option
Face Value (Rs/Unit): Rs. 10
Minimum Investment : Rs. 2000/- and multiples of Rs. 500/-
Entry Load : For investments below Rs. 5 crores, Entry load is 2.25%. For Investments of Rs.
5 crores and above, Entry Load is Nil.
Exit Load : If redeemed before 6 Months; and Amount less than 5 crores, Exit load is 1%.
For Amount greater than 5 crores, Exit load is 0%.
Best performing “Equity Funds” are:
SBI Magnum Global Fund 94: The objective of the scheme is to provide growth
opportunities through investment in equities. This scheme was launched on
September, 30th 1994. The benchmark index is BSE 100. The top sector allocations
are Engineering, Information Technology and Automobiles. This fund has given
14.50% returns from its inception date. The fund manager is Mr. R.
Srinivasan.
SBI Magnum Contra Fund: The objective of the scheme is to invest in under value
stocks which are currently out of favor but have potential to grow in the long term.
This scheme was launched on July, 5th 1999. The benchmark index is BSE 100. The
top sector allocations are BFSI, Energy. This fund has given 14.48% returns from its
inception date. The fund manager is Mr. Pankaj Gupta.
25
The annualized return for SBI Magnum Global Fund 94 is volatile. During the
recession (in last 3 years) returns of this fund dropped drastically to 5.21%. Now,
when the markets have been recovering the fund has managed to recover quickly and
it’s giving 40.96% returns.
On the other hand, the SBI Mangum Contra Fund had delivered 9.78% during
recession which is 4.57% higher returns while comparing with SBI Magnum Global
Fund 94. But, when the markets were recovering there was only nominal increase in
returns of SBI Mangum Contra Fund by comparing to other fund.
In the long term, the annualized 5 year return is 2.61% higher for SBI Magnum
Contra fund while comparing with SBI Magnum Global Fund 94.
Best performing “Tax Saving Schemes” are:
SBI MAGNUM TAXGAIN SCHEME: The objective of the scheme is to invest in a
portfolio of equities and offering tax benefits to investors. This scheme was launched
on March, 31st 1993. The benchmark index is BSE 100. The top sector allocations are
Engineering, BFSI, Oil and Gas. This fund has given 19.40% returns from its
inception date. This is an open ended scheme. The fund manager is Mr. Jayesh
Shroff.
SBI Tax Advantage Fund - Series 1: The objective of the scheme is to generate capital
appreciation in the long term by investing in large cap, mid cap and small cap
companies. Also, offering income tax benefit to its investors. This scheme was
launched on March, 3rd 2008. The benchmark index is BSE 100. The top sector
allocations are Engineering, BFSI, Information Technology. This fund has given
8.95% returns from its inception date. This is a close ended scheme. The fund
26
manager is Mr. Dharmendra Grover
CONCEPT OF MUTUAL FUND
When an investor subscribes for the units of a mutual fund, he becomes part
owner of the assets of the fund in the same proportion as his contribution
amount put up with the corpus (the total amount of the fund). Mutual Fund
investor is also known as a mutual fund shareholder or a unit holder.
Any change in the value of the investments made into capital market
instruments (such as shares, debentures etc) is reflected in the Net Asset Value
(NAV) of the scheme. NAV is defined as the market value of the Mutual Fund
scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing
the market value of scheme's assets by the total number of units issued to the
investors.
27
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 appreciations 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.
MUTUAL FUND
There are many entities involved and the diagram below illustrates the organizational set up
of a mutual fund:
THREE-TIER STRUCTURE OF MUTUAL FUNDS
The structure of Mutual Funds in India is governed by the SEBI (Mutual Fund) Regulations,
1996 (hereinafter referred to as SEBI Regulations). These regulations make it mandatory for
Mutual Funds to have a Three-tier Structure of Sponsor Trustee- Asset Management
Company (AMC).
Sponsor
28
The sponsor is the promoter of the mutual fund. The sponsor establishes the mutual fund and
registers same with SEBI. It appoints the trustees, Custodians and the AMC with prior
approval of SEBI, and in accordance with SEBI Regulations. Sponsor is required to
contribute at least 40% of the capital of the AMC.
Trustees
The Mutual Fund, which is a trust, is managed by a Trust Company or a Board of Trustees.
Board of trustees and trust companies are governed by the provisions of the Indian Trust Act.
The appointment of all the trustees has to be done with the prior approval of SEBI. There
must be at least 4 members in the board of Trustees and at least 213 of the members of the
board of trustees must be independent. One of the major tasks of the Trustees is to appoint
AMC, in consultation with the Sponsor and SEBI regulations.
Asset Management Company (AMC)
Asset Management Company, registered with SEBI, can be appointed as investment
managers of mutual funds. AMC must have a minimum net worth of 10 crore at all times. An
AMC cannot be an AMC or Trustee of another Mutual Fund. AMC appoints the Fund
Managers in consultation with trustees.
CATEGORIES OF MUTUAL FUND:
29
Mutual funds can be classified as follow :
Based on their structure:
Open-ended funds: Investors can buy and sell the units from the fund, at any
point of time.
Close-ended funds: These funds raise money from investors only once.
Therefore, after the offer period, fresh investments can not be made into the
fund. If the fund is listed on a stocks exchange the units can be traded like
stocks (E.g., Morgan Stanley Growth Fund). Recently, most of the New Fund
Offers of close-ended funds provided liquidity window on a periodic basis such
as monthly or weekly. Redemption of units can be made during specified
intervals. Therefore, such funds have relatively low liquidity.
Based on their investment objective:
Equity funds: These funds invest in equities and equity related instruments.
With fluctuating share prices, such funds show volatile performance, even
losses. However, short term fluctuations in the market, generally smoothens
out in the long term, thereby offering higher returns at relatively lower
volatility. At the same time, such funds can yield great capital appreciation as,
historically, equities have outperformed all asset classes in the long term.
Hence, investment in equity funds should be considered for a period of at least
3-5 years. It can be further classified as:
i) Index funds- In this case a key stock market index, like BSE Sensex or
Nifty is tracked. Their portfolio mirrors the benchmark index both in terms
of composition and individual stock weightages.
ii) Equity diversified funds- 100% of the capital is invested in equities
spreading across different sectors and stocks.
iii|) Dividend yield funds- it is similar to the equity diversified funds except
that they invest in companies offering high dividend yields.
30
iv) Thematic funds- Invest 100% of the assets in sectors which are related
through some theme.
e.g. -An infrastructure fund invests in power, construction, cements sectors etc.
v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A
banking sector fund will invest in banking stocks.
vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.
Balanced fund: Their investment portfolio includes both debt and equity. As a
result, on the risk-return ladder, they fall between equity and debt funds.
Balanced funds are the ideal mutual funds vehicle for investors who prefer
spreading their risk across various instruments. Following are balanced funds
classes:
i) Debt-oriented funds -Investment below 65% in equities.
ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.
Debt fund: They invest only in debt instruments, and are a good option for
investors averse to idea of taking risk associated with equities. Therefore, they
invest exclusively in fixed-income instruments like bonds, debentures,
Government of India securities; and money market instruments such as
certificates of deposit (CD), commercial paper (CP) and call money. Put your
money into any of these debt funds depending on your investment horizon and
needs.
i) Liquid funds- These funds invest 100% in money market instruments, a
large portion being invested in call money market.
ii) Gilt funds ST- They invest 100% of their portfolio in government securities
of and T-bills.
iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in
debt instruments which have variable coupon rate.
31
iv) Arbitrage fund- They generate income through arbitrage opportunities due
to mis-pricing between cash market and derivatives market. Funds are
allocated to equities, derivatives and money markets. Higher proportion
(around 75%) is put in money markets, in the absence of arbitrage
opportunities.
v) Gilt funds LT- They invest 100% of their portfolio in long-term government
securities
vi) Income funds LT- Typically, such funds invest a major portion of the
portfolio in long-term debt papers.
vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and
an exposure of 10%-30% to equities.
viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in line
with that of the fund.
INVESTMENT STRATEGIES
1. Systematic Investment Plan: under this a fixed sum is invested each month
on a fixed date of a month. Payment is made through post dated cheques or
direct debit facilities. The investor gets fewer units when the NAV is high and
more units when the NAV is low. This is called as the benefit of Rupee Cost
Averaging (RCA)
2. Systematic Transfer Plan: under this an investor invest in debt oriented
fund and give instructions to transfer a fixed sum, at a fixed interval, to an
equity scheme of the same mutual fund.
3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual
fund then he can withdraw a fixed amount each month.
32
TYPES OF MUTUAL FUND SCHEMES
Wide varieties of Mutual Fund Schemes exist to cater to the needs such as financial position,
risk tolerance and return expectations etc. Since the needs and aspirations of different
individuals vary from person to person, there are absolutely different kinds of mutual funds
for investment. There could be various categories of mutual funds in India. The governing
body for these funds being the Securities Exchange Board of India (SEBI). All varieties of
mutual funds are governed by it in an all-pervasive manner.
Schemes can be differentiated by two broad parameters:
(a) Their constitution or structure.
(b) Their stated investment objective.
Differentiation on the basis of structure of schemes
Schemes are classified as Close-ended or Open-ended depending upon whether they give the
investor the option to redeem at any time (open-ended) or whether the investor has to wait till
maturity of the scheme.
Open-Ended-Schemes
The units offered by these schemes are available for sale and repurchase on any business day
at NAV based prices. Hence, the unit capital of the schemes keeps changing each day. Such
schemes thus offer very high liquidity to investors and are becoming increasingly popular in
India. Please note that an open-ended fund is not obliged to keep selling/issuing new units at
all times, and may stop issuing further subscription to new investors. On the other hand, an
open-ended fund rarely denies to its investor the facility to redeem existing units.
Close-Ended-Schemes
The unit capital of a close-ended product is fixed as it makes a one-time sale of fixed number
of units. These schemes are launched with an initial public offer (IPO) with a stated maturity
period after which the units are fully redeemed at NAV linked prices. In the interim, investors
can buy or sell units on the stock exchanges where they are generally listed. Unlike open-
ended schemes, the unit capital in Close-ended schemes usually remains unchanged. After an
33
initial closed period, the scheme may offer direct compared to open-ended schemes and
hence trade at a discount to the NAV. This discount tends towards the NAV closer to the
maturity date of the scheme.
Interval-Schemes
These schemes combine the features of Open-ended and Close-ended schemes. They may be
traded on the stock exchange or may be open for sale or redemption during pre-determined
intervals at NAV based prices.
Differentiation on the basis of investment objectives
Schemes can be classified by way of their stated investment objective such as Growth Fund,
Balanced Fund, Income Fund etc.
Equity/Growth Schemes
These schemes, also commonly called Growth Schemes, seek to invest a majority of their
funds in equities and a small portion in money market instruments. Such schemes have the
potential to deliver superior returns over the long term. However, because they invest in
equities, these schemes are exposed to fluctuations in value especially in the short term.
Equity schemes are hence not suitable for investors seeking regular income or needing to use
their investments in the short-term. They are ideal for investors who have a long-term
investment horizon. The NAV prices of equity fund fluctuates with market value of the
underlying stock which are influenced by external factors such as social, political as well as
economic. HDFC Equity Fund and HDFC Top200 Fund are examples of equity schemes.
34
Income/Debt-Schemes
These schemes invest in money markets, bonds and debentures of corporate companies with
medium and long-term maturities. These schemes primarily target current income instead of
capital appreciation. Hence, a substantial part of the distributable surplus is given back to the
investor by way of dividend distribution. These schemes usually declare quarterly dividends
and are suitable for conservative investors who have medium to long term investment horizon
and are looking for regular income through dividend or steady capital appreciation.
These schemes, also commonly known as Income Schemes, invest in debt securities such as
corporate bonds, debentures and government securities. The prices of these schemes tend to
be more stable compared with equity schemes and most of the returns to the investors are
generated through dividends or steady capital appreciation. These schemes are ideal for
conservative investors or those who are not in a position to take higher equity risks. However,
as compared to the money market schemes they do have a higher price fluctuation risk and
compared to a Gilt fund they have a higher credit risk. HDFC Income Fund is an example of
bond schemes.
35
Money-Market-Schemes
These schemes invest in short term instruments such as commercial paper ("CP"), certificates
of deposit ("CD"), treasury bills ("T-Bill") and overnight money ("Call"). The schemes are
the least volatile of all the types of schemes because of their investments in money market
instrument with short-term maturities. These schemes have become popular with institutional
investors and high net-worth individuals having short-term surplus funds.
Hybrid/Balanced Schemes
These schemes are also commonly called balanced schemes. These invest in both equities as
well as debt. By investing in a mix of this nature, balanced schemes seek to attain the
objective of income and moderate capital appreciation. Such schemes are ideal for investors
with a conservative, long-term orientation. HDFC Prudence Fund and HDFC Balance Fund
are perfect examples of such hybrid schemes.
Other Schemes:
Tax-Saving-Schemes
Investors (individuals and Hindu Undivided Families ("HUFs")) are being encouraged to
invest in equity markets through Equity Linked Savings Scheme ("ELSS") by offering them a
tax rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched -
out until completion of 3 years from the date of allotment of the respective Units. The
Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations,
36
1996 and the notifications issued by the Ministry of Finance (Department of Economic
Affairs), Government of India regarding ELSS. Subject to such conditions and limitations, as
prescribed under Section 88 of the Income-tax Act, 1961, subscriptions to the Units not
exceeding Rs.10, 000 would be eligible to a deduction, from income tax, of an amount equal
to 20% of the amount subscribed.
Special Schemes:
Sector-Specific-Equity-Schemes
These schemes restrict their investing to one or more pre-defined sectors, e.g. technology
sector. They depend upon the performance of these select sectors only and are hence
inherently more risky than general purpose equity schemes. These schemes are ideally suited
for informed investors who wish to take a risk on the concerned sector.
Index-Schemes
An Index is too used as a measure of the performance of the market as a whole, or a specific
sector of the market. It also serves as a relevant benchmark to evaluate the performance of
mutual funds. Some investors are interested in investing in the market in general rather than
investing in any specific fund. Such investors are happy to receive the returns posted by the
markets. As it is not practical to invest in each and every stock in the market in proportion to
its size, these investors are comfortable investing in a fund that they believe is a good
representative of the entire market. Index Funds are launched and managed for such
investors.
RISK V/S. RETURN:
37
RISK RETURN ANALYSIS OF THE SCHEMES
A rational investor before investing his or her money in any stock analyses the risk
associated with the particular stock. The actual return he receives from a stock may
vary from the expected one and thus a investor is always cautious about the rate of risk
associated with the particular stock. Hence it becomes very essential on the part of
investors to know the risk as the hard earned money is being invested with the view to
earn good return on the investment.
Risk mainly consists of two components
Systematic risk
Unsystematic risk
Systematic risk
The systematic risk affects the entire market. The economic
conditional, political situations, sociological changes affect the entire market in turn
affecting the company and even the stock market. These situations are uncontrollable
by the corporate and investor.
Unsystematic risk
The unsystematic risk is unique to industries. It differs from
industry to industry. Unsystematic risk stems from managerial inefficiency,
technological change in the production process, availability of raw materials, changes
in the consumer preference, and labour problems. The nature and magnitude of above
mentioned factors differ from industry to industry and company to company.
In a general view, the risk for any investor would be the probable loss for
investing money in any mutual fund. But when we look at the technical side of it , we
can’t just say that these schemes/fund carry risk without any proof. They are certain set
of formulas to say the percentage of risk associated with it.
38
There are certain tools or formulas used to calculate the risk associated with the
schemes. These tools help us to understand the risk associated with the schemes. These
schemes are compared with the benchmark BSE 100 .
39
THE TOOLS USED FOR CALCULATION
Standard Deviation
Beta
Alpha
Sharp ratio.
Arithmetic mean
∑ Y/N
Where Y- return of Nav values
N- Number of observation
average return that can be expected from investment. The arithmetic
average return is appropriate as a measure of the central tendency of a number
of returns calculated for a particular time i.e. for five years. It shows the
Standard deviation
S.D= √(y-Y)²
N
The standard deviation is a measure of the variables around its mean or it is
the square root of the sum of the squared deviations from the mean divided by
the number of observations.
S.D is used to measure the variability of return i.e. the
variation between the actual and expected return.
BETA
Beta describes the relationship between the stock’s return and index returns.
There can be direct or indirect relation between stock’s return and index return.
Indirect relations are vary rare.
1) Beta =+1.0
40
It indicates that one percent change in market index return
causes exactly one percent change in the stock return. It indicates that stock
moves along with the market.
2) Beta= + 0.5
One percent changes in the market index return causes 0.5
percent change in the stock return. It indicates that it is less volatile
compared to market.
3) Beta=2.0
One percent change in the market index return causes 2
percent change in the stock return. The stock return is more volatile. The
stocks with more than 1 beta value are considered to be very risky.
4) Negative beta value indicates that the stocks return move in opposite
direction to the market return.
Beta= N*∑XY- (∑X) (∑Y/ N(X*X) * (∑x)
Where
N- No of observation
X- Total of market index value
Y- Total of return to Nav
ALPHA
Alpha = Y- beta(X)
Where
Y- avrage return to nav return
X- average return to market index .
Alpha indicates that the stock return is independent of the market return. A
positive value of alpha is a healthy sign. Positive alpha values would yield
profitable return.
41
SHARPE RATIO
St= Rp --Rf
S.D
WHERE
Rp – Avereage return to portfolio
Rf—Risk free rate of interest
S.D- Standard Deviation
Sharpe’s performce index gives a single value to be used for the
performance ranking of various funds or portfolios. Sharpe index measures the
risk premium of the portfolio relative to the total amount of risk in the portfolio.
The risk premium is the difference between the portfolio’s average rate of
return and the risk less rate of return. The standard deviation of the portfolio
indicates the risk.
Higher the value of sharpe ratio better the fund has performed. Sharpe
ratio can be used to rank the desirability of funds or portfolios. The fund that
has performed well comapred to other will be ranked first then the others.
42
COMPETITORS OF SBI MUTUAL FUND
Some of the main competitors of SBI Mutual Fund in Jaipur are as
Follows:
i. ICICI Mutual Fund
ii. Reliance Mutual Fund
iii. UTI Mutual Fund
iv. Kotak Mutual Fund
v. HDFC Mutual Fund
vi. LIC Mutual Fund
43
VARIOUS INVESTMENT OPTIONS AVAILABLE TO THE
INVESTORS AND THEIR RESPECTIVE DISADVANTAGES
Savings form an important part of the economy of any nation. With the savings invested in
various options available to the people, the money acts as the driver for growth of the
country. Indian financial scene too presents a plethora of avenues to the investors. Though
certainly not the best or deepest of markets in the world, it has reasonable options for an
ordinary man to invest his savings. The possible avenues for investment can be divided into
following categories:
EQUITIES: Options available are secondary market (buying or selling shares in the
stock exchanges) or the primary market (IPOs). These are generally classified as high risk
high return asset.
FIXED INCOME INSTRUMENTS: This product class includes options such
as Fixed Deposits, Debentures, Bonds, Preference shares etc. These investments are relatively
safer but limited upside on returns.
FOREIGN CURRENCY INVESTMENTS: Wherever allowed by the govt.
regulations, investors particularly in developing countries will prefer to keep their assets in
foreign currency. Hard currencies like US Dollars or pound or Euro are relatively stable. The
risk of currency depreciation in case of economic /political turmoil is high.
COMMODITIES: Investing in commodities on a large scale is typically done traders
or speculators who generally are skilled. Normally in commodities high risk investors would
invest for high returns in a short period. A proxy for this is the way retail households stock up
commodities in anticipation of price increase, such as stocking sugar or wheat requirements
for the full year.
ART/ANTIQUES: Art has proved to be an important investment avenue, particularly
for the rich and wealthy. However, one has to be an expert in evaluating the value of art.
Investment in paintings is illiquid and has a long gestation period, entails high risk but high
rewards too.
44
PROPERTY: This offers a limited option to investors as in India most people buy a
house to live in. only the very rich buy property as an investment. Real estate is very illiquid
investment option.
BULLION MARKET (GOLD): This is one avenue which has been a major area
for investing in the Indian society. The importance of gold and silver has been prevalent
through historic time. The importance of this market is due to the liquidity it provides.
BANKS: Considered as the safest of all options, banks have been the roots of the financial
systems in India. Promoted as the means to social development, banks in India have indeed
played an important role in the rural upliftment. For an ordinary person though, they have
acted as the safest investment avenue wherein a person deposits money and earns interest on
it. The two main modes of investment in banks, Savings accounts and fixed deposits have
been effectively used by one and all. However, today the interest rate structure in the country
is headed southwards, keeping in line with global trends. With the banks offering 9 percent in
their fixed deposits for one year, the yields have come down substantially in recent times.
Add to this, the inflationary pressures in economy and people have a position where the
savings are not earning. The inflation is creeping up, to almost 8 percent at times, and this
means that the value of money saved goes down instead of going up. This effectively mars
any chance of gaining from the investments in banks.
POST OFFICE SCHEMES : Just like banks, post offices in India have a wide
network. Spread across the nation, they offer financial assistance as well as serving the basic
requirements of communication. Among all saving options, Post office schemes have been
offering the highest rates. Added to it is the fact that the investments are safe with the
department being a Government of India entity. So the two basic features, those of return
safety and quantum of returns were being handsomely taken care of. Though certainly not the
most efficient systems in terms of service standards and liquidity, these have still managed to
attract the attention of small, retail investors. However, with the government announcing its
intention of reducing the interest rates in small savings options, this avenue is expected to
lose some of the investors.
PUBLIC PROVIDENT FUNDS: Public Provident Funds act as options to save
for the post retirement period for most people and have been considered good option largely
45
due to the fact that returns were higher than most other options and also helped people gain
from tax benefits under various sections. This option too is likely to lose some of its sheen on
account of reduction in the rates offered. The options discussed above are essentially for the
risk-averse, people who think of safety and then quantum of return, in that order. For the
brave, it is dabbling in the stock market. Stock markets provide an option to invest in a high
risk, high return game. While the potential return is much more than 10-11 percent any of the
options discussed above can generally generate, the risk is undoubtedly of the highest order.
But then, the general principle of encountering greater risks and uncertainty when one seeks
higher returns holds true. However, as enticing as it might appear, people generally are
clueless as to how the stock market functions and in the process can endanger the hard-earned
money. For those who are not adept at understanding the stock market, the task of generating
superior returns at similar levels of risk is arduous to say the least. This is where Mutual
Funds come into picture. Mutual Funds are essentially investment vehicles where people with
similar investment objective come together to pool their money.
FACTORS TO BE CONSIDERED BEFORE SELECTING A
MUTUAL FUND
46
1. Making Risk- adjusted returns comparison. By doing this the investor will know
whether the returns generated by the scheme have been adequately compensated for
the extra risk undertaken by the scheme.
2. The investor depending upon his risk appetite and preferences should sub-classify the
schemes on the basis of the characteristics of the schemes, which may be defensive or
aggressive in nature.
3. Portfolio concentration is also an important factor to be considered. It is always
advisable to choose a scheme, which has a well-diversified portfolio rather than a
concentrated portfolio, as it carries lesser risk.
4. Liquidity of the portfolio is also one of the critical parameters.
5. The corpus size of the scheme is also of importance. A large corpus size firstly
denotes investor’s confidence in the scheme and its fund manger abilities over the
years and, secondly it allows the fund manager to diversify the portfolio, which
reduces the overall market risk.
6. Other factors like turnover rates, low expense ratio, load structure etc of the schemes
etc should also be considered before finally zeroing down on a scheme of your choice.
7. The rankings undertaken by ICRA are an initiative to inform the investors- who does
not have the time or the expertise to undertake the analysis on their own- about the
relative performance of the schemes. It considers all important parameters to arrive at
a comprehensive rank with a view to help investors decide the scheme which may suit
their investment profile.
8. Although much neglected, the due diligence in selection of the right mutual fund
scheme is of utmost importance as an investor cannot move in and out of a particular
scheme on a regular basis, because of the high costs involved, and investments made
into a particular scheme should be looked on a long-term basis as a wealth creation
tool.
47
5 EASY STEPS TO INVEST IN MUTUAL FUNDS
Where to look for if you want to begin savings in Mutual Funds
Mutual funds are much like any other product, in that there are manufacturers who provide
the product and there are dealers who sell them.
Large banks to organized brokerage houses to Individual Financial agents get empanelled
with Mutual Funds to provide advice and assistance to customers who want to buy units.
Mutual funds units can now also be bought over the Internet.
Contacting an Investment advisor in a bank or a brokerage house or an Independent Financial
Advisor is the first step to gathering information.
1. Evaluation: choosing the right mutual fund for you
Each Mutual fund offers a variety of schemes to suit differing needs of investors. The
Bank/ Brokerage house/ Individual Financial Advisor help you make the choice based
on your needs. As an investor one may:
a) For the short term or long term want to invest.
b) Want regular income or growth.
c) Want to target lower risk or higher returns.
d) Be convinced of a particular sector and want to invest in it.
Remember, just like a salesman in a gift shop, your investment advisor can help you
the most if he knows what you are looking for.
2. Purchase
48
After you have decided to save, you may have to decide among the various
investment and withdrawal options that any fund offers to its investors.
Most of these schemes also offer various options to customize your operation of the
fund to your needs:
Systematic Investment Plan (SIP): Allows you to save a part of your income regularly.
It is also used to reduce risk when investing in schemes targeting aggressive growth.
Systematic Withdrawal Plan (SWP): Allows you to withdraw a part of your
investment regularly. Used when you want to withdraw your investment for a specific
regular payment, like insurance premium payments of monthly/quarterly frequency.
Automatic debit: Saves the hassle of writing a cheque when making an investment.
Your account is debited automatically for the amount invested.
Automatic credit: The reverse of Automatic Debit. It saves the hassle of enchasing a
cheque when withdrawing an investment. Your account is credited automatically with
the amount withdrawn.
Dividend plan: Allows you to get Tax-free dividends from your investment. (As per
current Tax laws).
Growth plan: Allows the income generated from investment to be ploughed back into
the scheme. Used by investor targeting growth in their investment.
Some funds carry an entry load, which is a percentage fee deducted from the amount
invested before investment. Thus a 2.5% entry load will mean that if you invest Rs. 1
lakh in a Rs. 10 per unit IPO, instead of getting 10,000 units, you will be allotted
9,750 units. Check for presence of such loads and other conditions before investing.
After deciding the choice of mutual fund, investment and withdrawal, you are ready
to begin your savings. You need to now fill up an application form and attach a
cheque of the value of your investment or mention your account number to have it
automatically debited from your account.
3. Post Purchase Monitoring
Once you have invested in an ongoing fund, expect a period of two to three days
before you receive an account statement on the address mentioned by you in your
application form.
Your account statement indicates your current holding in the scheme that you have
invested. Please ensure that all your details have been correctly captured in account
statement. Please point out any discrepancies to your nearest CAMS investor Service
49
Centre or the Mutual Fund office. You can request an account statement any time by
calling up your nearest CAMS/ Mutual fund offices usually mentioned on the back of
the account statement.
The transaction slip at the end of the account statement can be used for additional
purchases, redemptions or to intimate the mutual fund on any change in bank
mandates/address. The NAVs of all the open-ended schemes are published at the
fund's website, financial newspapers and
AMFI (Association of Mutual Funds) web-site www.amfiindia.com.
4. Exit
While you should periodically monitor the performance of your investments, we
recommend you do not get swayed by short term considerations in deciding your exit.
If you have invested in a long term fund, you can spare yourself undue worries by not
monitoring the NAV every day or week. Checking the performance once in a while
along with your advisor should be fine. Most mutual funds will provide you with a
toll free number that works from 9 am to 5 am and a website. For specific assistance
you can also use your financial advisors help.
5. Redemption/ Withdrawal
Just submit your completed transaction within the transacted time for the scheme that
you are invested in and deposit the same at the nearest CAMS Investor Service Centre
or the office of the fund. You can either get a direct credit to your bank account or
you can generally collect the cheque at the CAMS Investor Service Centre/ AMC
offices. If you fail to do so then the cheque is couriered to the address mentioned in
your account statement. Most funds take 1-3 days to credit your account with your
redemption proceeds.
In case an exit load is applicable to your withdrawal and you have redeemed a fixed
amount, an additional number of units equivalent to the exit load amount will be
liquidated from your investment. You can check this amount with the mentioned exit
load when you get the account statement using a simple calculator.
50
Merits and Demerits of mutual funds
Merits of Mutual Funds
1. Professional Investment Management.By pooling the funds of thousands of investors, mutual funds provide full-time, high-level
professional management that few individual investors can afford to obtain independently.
Such management is vital to achieving results in today's complex markets. Your fund
managers' interests are tied to yours, because their compensation is based not on sales
commissions, but on how well the fund performs. These managers have instantaneous access
to crucial market information and are able to execute trades on the largest and most cost-
effective scale. In short, managing investments is a full-time job for professionals.
2. Diversification.Mutual funds invest in a broad range of securities. This limits investment risk by reducing the
effect of a possible decline in the value of any one security. Mutual fund shareowners can
benefit from diversification techniques usually available only to investors wealthy enough to
buy significant positions in a wide variety of securities.
3. Low Cost.If you tried to create your own diversified portfolio of 50 stocks, you'd need at least $100,000
and you'd pay thousands of dollars in commissions to assemble your portfolio. A mutual fund
lets you participate in a diversified portfolio for as little as $1,000, and sometimes less. And if
you buy a no-load fund, you pay no sales charges to own them.
4. Convenience and Flexibility.
You own just one security rather than many, yet enjoy the benefits of a diversified portfolio
and a wide range of services. Fund managers decide what securities to trade, clip the bond
coupons, collect the interest payments and see that your dividends on portfolio securities are
received and your rights exercised. It's easy to purchase and redeem mutual fund shares,
either directly online or with a phone call.
51
5. Quick, Personalized Service.Most funds now offer extensive websites with a host of shareholder services for immediate
access to information about your fund account. Or a phone call puts you in touch with a
trained investment specialist at a mutual fund company who can provide information you can
use to make your own investment choices, assist you with buying and selling your fund
shares, and answer questions about your account status.
6. Ease of Investing You may open or add to your account and conduct transactions or business with the fund by
mail, telephone or bank wire. You can even arrange for automatic monthly investments by
authorizing electronic fund transfers from your checking account in any amount and on a date
you choose. Also, many of the companies featured at this site allow account transactions
online.
7. Total Liquidity, Easy WithdrawalYou can easily redeem your shares anytime you need cash by letter, telephone, bank wire or
check, depending on the fund. Your proceeds are usually available within a day or two.
8. Life Cycle PlanningWith no-load mutual funds, you can link your investment plans to future individual and
family needs -- and make changes as your life cycles change. You can invest in growth
funds for future college tuition needs, then move to income funds for retirement, and
adjust your investments as your needs change throughout your life. With no-load funds,
there are no commissions to pay when you change your investments.
9. Market Cycle PlanningFor investors who understand how to actively manage their portfolio, mutual fund
investments can be moved as market conditions change. You can place your funds in
equities when the market is on the upswing and move into money market funds on the
downswing or take any number of steps to ensure that your investments are meeting your
needs in changing market climates. A word of caution: since it is impossible to predict
what the market will do at any point in time, staying on course with a long-term,
diversified investment view is recommended for most investors.
10. Investor InformationShareholders receive regular reports from the funds, including details of transactions on a
52
year-to-date basis. The current net asset value of your shares (the price at which you may
purchase or redeem them) appears in the mutual fund price listings of daily newspapers.
You can also obtain pricing and performance results for the all mutual funds at this site,
or it can be obtained by phone from the fund.
11. Periodic WithdrawalsIf you want steady monthly income, many funds allow you to arrange for monthly fixed
checks to be sent to you, first by distributing some or all of the income and then, if
necessary, by dipping into your principal.
12. Dividend OptionsYou can receive all dividend payments in cash. Or you can have them reinvested in the
fund free of charge, in which case the dividends are automatically compounded. This can
make a significant contribution to your long-term investment results. With some funds
you can elect to have your dividends from income paid in cash and your capital gains
distributions reinvested.
13. Automatic Direct DepositYou can usually arrange to have regular, third-party payments -- such as Social Security
or pension checks -- deposited directly into your fund account. This puts your money to
work immediately, without waiting to clear your checking account, and it saves you from
worrying about checks being lost in the mail.
14. Recordkeeping ServiceWith your own portfolio of stocks and bonds, you would have to do your own
recordkeeping of purchases, sales, dividends, interest, short-term and long-term gains and
losses. Mutual funds provide confirmation of your transactions and necessary tax forms to
help you keep track of your investments and tax reporting.
15. SafekeepingWhen you own shares in a mutual fund, you own securities in many companies without
having to worry about keeping stock certificates in safe deposit boxes or sending them by
registered mail. You don't even have to worry about handling the mutual fund stock
certificates; the fund maintains your account on its books and sends you periodic
statements keeping track of all your transactions.
53
16Retirement and College PlansMutual funds are well suited to Individual Retirement Accounts and most funds offer IRA-
approved prototype and master plans for individual retirement accounts (IRAs) and Keogh,
403(b), SEP-IRA and 401(k) retirement plans. Funds also make it easy to invest -- for
college, children or other long-term goals. Many offer special investment products or
programs tailored specifically for investments for children and college.
17. Online ServicesThe internet provides a fast, convenient way for investors to access financial information. A
host of services are available to the online investor including direct access to no-load
companies.
18. Sweep AccountsWith many funds, if you choose not to reinvest your stock or bond fund dividends, you can
arrange to have them swept into your money market fund automatically. You get all the
advantages of both accounts with no extra effort.
19. Asset Management AccountsThese master accounts, available from many of the larger fund groups, enable you to manage
all your financial service needs under a single umbrella from unlimited check writing and
automatic bill paying to discount brokerage and credit card accounts.
20. MarginSome mutual fund shares are marginable. You may buy them on margin or use them as
collateral to borrow money from your bank or broker. Call your fund company for details.
54
Demerits of Mutual Funds:
1. Professional Management.
Did you notice how we qualified the advantage of professional management with the word
"theoretically"? Many investors debate whether or not the so-called professionals are any
better than you or I at picking stocks. Management is by no means infallible, and, even if the
fund loses money, the manager still takes his/her cut. We'll talk about this in detail in a later
section.
2. Costs.
Mutual funds don't exist solely to make your life easier - all funds are in it for a profit. The
mutual fund industry is masterful at burying costs under layers of jargon. These costs are so
complicated that in this tutorial we have devoted an entire section to the subject.
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 making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gains tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.
55
Systematic Investment Plan
What is an SIP?
SIP, also known as Regular Savings Plan (RSP) in some countries, allows you to invest a
fixed amount at pre defined frequencies in mutual funds. A bank / post office recurring
deposit is the only other investment option that is similar to SIP. There are basically two
options that an investor could take when they are making investments, one would be to invest
lump sum into mutual funds and the other would be to invest using an SIP. The following are
some of the benefits associated with investing in an SIP:
SIP is actually a Systematic Investment Plan of investing in Mutual Fund. It is specially
designed for those who aim to build wealth over a long period and want a better future for
him and their dependants.
The investment in a Mutual fund can be done in two ways. First way is one time payment i.e.
making payment to a fund at once and gets the units of the fund as per the Net Asset Value
(NAV) of the fund on that day.
A person wishes to invest in a fund Rs. 24,000/- . On the day of Investment, the NAV of the
fund was Rs. 10/-. He gets 2400 units @ Rs. 10/- per unit.
The other way of investment is making payment to the fund periodically, which is termed as
Mutual Fund SIP. When you commit to invest a fixed amount monthly in a fund, it is called
as Systematic Investment.
It is actually beneficial for those investors who wish to invest a large amount in a fund and
wishes to create a large chunk of wealth for long term but due to financial constraints are able
to do so.
The SIP provides them a way to invest in the fund of their choice in installments.
Eg. A person wishes to invest Rs. 24000/- in a fund but due to other obligations, it is not
possible for him to invest such an amount in a fund. He takes the SIP route and contributes to
the fund Rs. 2000/- monthly for a year. At the end of the year, he’ll have invested Rs.
24,000/- in the fund. When the NAV is high, he will get the fewer units and when the NAV is
low, he’ll get the more units. So, he’ll get the benefit of averaging through the SIP route.
The NAV in the first month was Rs. 10/-, he’ll get 200 units in the first month
The NAV in the second month was Rs. 9.50/-, he’ll get 210.52 units in second month
The NAV for the following month was Rs. 10, he’ll get 200 units in the next month
So, at the end of the year he may get more units as compared to the units he’ll get through
56
single investment.
Systematic investment plans are a systematic and disciplined approach to investment and
wealth creation. Instead of making a large investment at one time, in SIP you can invest small
sums at regular intervals thus creating a habit of regular savings. If you are a big spender and
find your expenditures are more than your earnings then go for SIP mutual funds. This will
force you to spend at least some part of your earnings every month. Mutual funds are a very
safe way of investing money and SIP mutual funds are even better. These are perfect
solutions to most of us who cannot afford to make a large investment at one go. This is a
good way to save for your child's education , marriage or comfortable retirement for you and
your spouse. The lowest start up investment amount is 500 rupees per month which is
affordable by most people.
State Bank of India is one of the most trusted public sector banks in India. If you are a
beginner in investment then SBI SIP plans may be good option for you. Here are some SBI
SIP mutual funds available.
Magnum Equity Fund - Minimum application of thousand rupees is needed and SIP is Rs.
500/month for 12 months.
Magnum Tax Gain - Minimum application amount is Rs 500 and minimum SIP amount is
Rs.500/month for12 months
Magnum Index Fund - Minimum SIP amount is Rs.500/month for12 months
Magnum Sector Funds Umbrella - Minimum investment amount is Rs. 2000 per sector and
minimum SIP amount is Rs.500/month for12 months
Magnum Global Fund - Minimum SIP amount is Rs.500/month for12 months
Magnum Midcap Fund - Minimum SIP amount is Rs.500/month for12 months
Magnum Mutlicap Fund - Minimum SIP amount is Rs.500/month for12 months
Blue Chip Fund - Minimum investment - Rs. 5000 and in multiples of Rs. 1000
SBI mutual funds, has launched equity-based Micro Systematic Investment Plan (Micro SIP)
aimed at getting in low income households in rural and semi-urban areas to benefit from the
long-term investment in ‘Equity’ as an asset class. This plan will be called SBI Chota SIP.
For monthly investment as low as Rs. 100, investors from low-income group as well as
investors who intend to invest small portion of their savings would now be able to participate
in capital markets and be a part of India growth story.
57
Micro SIP facility will be available in respect of four equity diversified schemes of SBI
Mutual fund with effect from April 15, 2009. They are Magnum Balanced Fund, Magnum
Multiplier Plus Scheme 93, Magnum Sector Funds Umbrella-Contra fund, and SBI Blue Chip
fund.
The minimum investment amount will be Rs.100 and multiples of Rs.50/- thereof. The
minimum redemption amount will be Rs.500/-. Minimum tenure of SIP will be 5 years.
Systematic Investment Plan is the best option for retail investors to invest in Mutual Funds.
SBI Mutual Fund is one of the best performing mutual fund company in India. The investors
feel more comfortable in SBI SIP plan. You can make a SIP plans comparison and find the
best SBI SIP fund.
There are many reasons for the investors feeling that SBI SIP fund is the best systematic
investment plan in india. Most of the schemes under SBI Systematic investment plan has
been generating returns more consistently. If you check the returns for most of the SIP plans,
they are generating consistent returns for the past 6 months, 1 year and 3 years. This would
prove that the SBI schemes are performing well than the funds launched by the other
companies.
Some of the best performing SBI SIP schemes are:
SBI Magnum Sector Funds Umbrella - Contra Fund
SBI Magnum Sector Funds Umbrella - Emerging Fund
SBI Magnum Sector Funds Umbrella - IT Fund
SBI Magnum Midcap Fund
SBI Magnum Taxgain Scheme 93
The minimum amount that has to be paid every month is Rs 500. Recently SBI has launched
another fund "SBI Chotta SIP Scheme" in which the minimum investment amount is Rs 100.
This scheme was introduced to encourage more retail participation. The low income people
will be more benefited from this scheme as this type of investment is similar to investing in a
recurring deposit and they can get the benefits of the stock markets.
58
SBI Chota SIP:
Recently SBI has launched micro systematic investment plan called "SBI Chota SIP", where
you can make a minimum payment of Rs 100 every month. This helps the low income people
in the rural areas to invest their money in the equity. There is also SIP auto debit facility for
this plan. If you have opted for this option, then your monthly installment will be withdrawn
automatically from your bank savings account each month. You can get the sip application
form from the various SBI Mutual fund offices available all over India or in the designated
state bank of india branches.
You have to fill the form and submit a PAN Card copy along with the application form. If
you apply for a sip auto debit facility, you should also fill a authorization form for the banks.
Once the application form is processed, you will get a statement indicating the number of
units allotted for you and also the price at which it is allotted. This statement you will get
every month when the monthly payments are sent from the bank and credited to the fund
account. The price at which the new units are allotted will change depending on the latest
NAV.
59
RESEARCH METHODOLOGY
A Market Research was performed to find out the actuality from the investors about what
they think about the various Investment Options. It was done to find out the investment
patterns and behavior of the people i.e. how much they invest, what are the reasons behind
their investments, and where they invest.
Thus a questionnaire was devised to fetch the above mentioned information from the
investors. Most of the questions in the questionnaires were objective in nature which helped
the people to fill it with utmost ease. The sample size for the research was 100, which
included all the classes of people aged 18 and above. The questionnaire devised for the
market research is attached to the report as Annexure I.
Each question of the questionnaire is discussed on a separate page and the results are
explained with the help of graphs.
Costs associated:
Expenses:
AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries,
advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges
Rs1.50 for every Rs100 in assets under management. A fund's expense ratio is typically to the
size of the funds under management and not to the returns earned. Normally, the costs of
running a fund grow slower than the growth in the fund size - so, the more assets in the fund,
the lower should be its expense ratio
Loads:
Entry Load/Front-End Load (0-2.25%)- its the commission charged at the time of buying the
fund to cover the cost of selling, processing etc.
Exit Load/Back- End Load (0.25-2.25%)- it is the commission or charged paid when an
investor exits from a mutual fund, it is imposed to discourage withdrawals. It may reduce to
zero with increase in holding period.
Measuring and evaluating mutual funds performance:
Every investor investing in the mutual funds is driven by the motto of either wealth creation or
wealth increment or both. Therefore it’s very necessary to continuously evaluate the funds’
performance with the help of factsheets and newsletters, websites, newspapers and
60
professional advisors like SBI mutual fund services. If the investors ignore the evaluation of
funds’ performance then he can loose hold of it any time. In this ever-changing industry, he
can face any of the following problems:
1. Variation in the funds’ performance due to change in its management/ objective.
2. The funds’ performance can slip in comparison to similar funds.
3. There may be an increase in the various costs associated with the fund.
4 .Beta, a technical measure of the risk associated may also surge.
5. The funds’ ratings may go down in the various lists published by independent rating
agencies.
6 .It can merge into another fund or could be acquired by another fund house.
Performance measures:
Equity funds: the performance of equity funds can be measured on the basis of: NAV
Growth, Total Return; Total Return with Reinvestment at NAV, Annualized Returns and
Distributions, Computing Total Return (Per Share Income and Expenses, Per Share Capital
Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio Turnover Rate, Fund Size,
Transaction Costs, Cash Flow, Leverage.
Debt fund: likewise the performance of debt funds can be measured on the basis of: Peer
Group Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs,
besides NAV Growth, Total Return and Expense Ratio.
Liquid funds: the performance of the highly volatile liquid funds can be measured on the basis
of: Fund Yield, besides NAV Growth, Total Return and Expense Ratio.
Concept of benchmarking for performance evaluation:
Every fund sets its benchmark according to its investment objective. The funds performance is
measured in comparison with the benchmark. If the fund generates a greater return than the
benchmark then it is said that the fund has outperformed benchmark , if it is equal to
benchmark then the correlation between them is exactly 1. And if in case the return is lower
than the benchmark then the fund is said to be underperformed.
61
Some of the benchmarks are :
1. Equity funds: market indices such as S&P CNX nifty, BSE100, BSE200, BSE-PSU, BSE
500 index, BSE bankex, and other sectoral indices.
2. Debt funds: Interest Rates on Alternative Investments as Benchmarks, I-Bex Total Return
Index, JPM T-Bill Index Post-Tax Returns on Bank Deposits versus Debt Funds.
3. Liquid funds: Short Term Government Instruments’ Interest Rates as Benchmarks, JPM T-
Bill Index
To measure the fund’s performance, the comparisons are usually done with:
I)with a market index.
ii) Funds from the same peer group.
iii) Other similar products in which investors invest their funds.
Financial planning for investors( ref. to mutual funds):
Investors are required to go for financial planning before making investments in any mutual
fund. The objective of financial planning is to ensure that the right amount of money is
available at the right time to the investor to be able to meet his financial goals. It is more than
mere tax planning. Steps in financial planning are:
Asset allocation.
Selection of fund.
Studying the features of a scheme.
In case of mutual funds, financial planning is concerned only with broad asset allocation,
leaving the actual allocation of securities and their management to fund managers. A fund
manager has to closely follow the objectives stated in the offer document, because financial
plans of users are chosen using these objectives.
Why has it become one of the largest financial instruments?
If we take a look at the recent scenario in the Indian financial market then we can find the
market flooded with a variety of investment options which includes mutual funds, equities,
fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life
insurance, gold, real estate etc. all these investment options could be judged on the basis of
various parameters such as- return, safety convenience, volatility and liquidity. measuring
62
these investment options on the basis of the mentioned parameters,
we get this in a tabular form:
Return Safety Volatility Liquidity Convenienc
e
Equity High Low High High Moderate
Bonds Moderate High Moderate Moderate High
Co.Debenture Moderate Moderate Moderate Low Low
Co. FDs Moderate Low Low Low Moderate
BankDeposits Low High Low High High
PPF Moderate High Low Moderate High
LifeInsurance Low High Low Low Moderate
Gold Moderate High Moderate Moderate Gold
Real Estate High Moderate High Low Low
Mutual Funds High High Moderate High High
63
RESEARCH METHODOLOGY table
UniverseJAIPUR SOUTH Area,JAIPUR
(JAIPUR SOUTH BRANCH,HAWA SADAK
BRANCH,INCOME TAX BRANCH WITH
A.G.OFFICE)
Sample size 100 customer
Sample unit Customers visiting at SBI bank
Sampling technique
technique
Convenience sampling
Research design Descriptive
Collection of data: Primary data through Questionnaires and interaction
with customers
Secondary data Internet.
Duration 45 Days
Research report
Objective of research;
The main objective of this project is concerned with getting the opinion of people
regarding mutual funds and what they feel about availing the services of financial
advisors.
I have tried to explore the general opinion about mutual funds. It also covers why/ why
not investors are availing the services of financial advisors.
Along with it a brief introduction to India’s largest financial intermediary, SBI has
been given and it is shown that how they operate in mutual fund dept.
64
Scope of the study:
The research was carried on in Jaipur. It is restricted to southern Jaipur. I have visited various
branches of SBI bank in the southern region.
Data sources:
Research is totally based on primary data. Secondary data can be used only for the reference.
Research has been done by primary data collection, and primary data has been collected by
interacting with various people. The secondary data has been collected through various
journals and websites and some special publications of SBI .
Sampling:
Sampling procedure:
The sample is selected in a random way, irrespective of them being investor or not or
availing the services or not. It was collected through mails and personal visits to the
known persons, by formal and informal talks and through filling up the questionnaire
prepared. The data has been analyzed by using the measures of central tendencies like
mean, median, mode. The group has been selected and the analysis has been done on
the basis statistical tools available.
Sample size:
The sample size of my project is limited to 100 only. Out of which only 75 people
attempted all the questions. Other 25 not investing in MFs attempted only 2 questions.
Sample design:
Data has been presented with the help of bar graph, pie charts, line graphs etc.
Limitation of the study:
Time limitation.
Research has been done only at southern Jaipur.
Some of the persons were not so responsive.
65
Possibility of error in data collection.
Possibility of error in analysis of data due to small sample size.
ANALYSIS & INTERPRETATION OF
THE DATA
1. (a) Age distribution of the Investors
of Jaipur south
66
<=30 31-35 36-40 41-45 46-50 >500
5
10
15
20
25
8
12
20
15
1312
Age group of the Investors
Inve
stor
s in
vest
ed in
Mut
ual F
und
b). Occupation of the investors of
Jaipur south
67
Govt. Service
Pvt. Service
Business Agricul-ture
Others0
5
10
15
20
25
30
35
24
30
20
2 2
Occupation of the customers
No
. o
f In
ve
sto
rs
(c). Monthly Family Income of the
68
Investors of Jaipur south
<=15 15-20 20-30 30-40 >400
5
10
15
20
25
30
35
40
45
3
7
28
41
34
Income Group of the Investorsn (Rs. in Th.)
No
. of
Inv
es
tors
69
(2) Investors invested in different
kind of investments.
70
0 20 40 60 80 100 120
97
74
76
70
37
25
15
32
Chart Title
Real Estate
Linear (Real Es-tate)
Gold/Silver
Shares/Debentures
Post Office(NSC)
mutual funds
Insurance
Fixed Deposits
Saving A/c
No. of respondent
3. Preference of factors while
investing
71
0 5 10 15 20 25 30 35
20
30
32
18trust
high return
low risk
liquidity
4. Awareness about Mutual Fund and
72
its Operations
75%
25%
Yes No
73
5. Source of information for
customers about Mutual Fund
Adver-tisement
Peer Group Bank Financial Advisors
0
5
10
15
20
25
30
35
40
10
1417
34
Source of Information
No.
of R
espo
nden
ts
74
6. Investors invested in Mutual Fund
Yes70%
No30%
75
7. Reason for not invested in Mutual
Fund
76
Not Aware Higher Risk Not Any0
5
10
15
20
25
30
24
4
2
REASONS
NO
. OF
RESP
ON
DEN
T
8. Preference of Investors for future
investment in Mutual Fund
77
SBIMF
UTI
HDFC
Reliance
ICICI Prudential
Kotak
Others
0 5 10 15 20 25 30 35 40 45
38
22
17
41
40
30
18
No. of Investors
Nam
e of
AM
C
9. Reason for invested in SBIMF
78
Associated with SBI
Better Return Agents Advice
0
5
10
15
20
25
30
35
40
36
16
13NO
. OF
RESP
ON
DEN
T
79
10. Channel Preferred by the
Investors for Mutual Fund Investment
Financial Ad-visor
Bank AMC0
5
10
15
20
25
30
35
40
4542
11
17
CHANNELS
NO
. OF
RESP
ON
DEN
T
80
11. Mode of Investment Preferred by
the Investors
81
44
26
One time Investment SIP
12. Preferred Portfolios by the
Investors
82
Equity Debt Balance0
5
10
15
20
25
30
35N
O. O
F RE
SPO
NDE
NT
Findings
83
• In jaipur south, investors in the Age Group of 36-40 years were more in
numbers. The second most Investors were in the age group of 41-45 years and
the least were in the age group of below 30 years.
• In Occupation group most of the Investors were Govt. employees, the second
most Investors were Private employees and the least were associated with
industry.
• In family Income group, between Rs. 20,000- 30,000 were more in numbers,
the second most were in the Income group of more than Rs.30,000 and the least
were in the group of below Rs. 10,000.
• About all the Respondents had a Saving A/c in Bank, 76% Invested in Fixed
Deposits, Only 70% Respondents invested in Mutual fund.
• Mostly Respondents preferred High Return while investment, the second most
preferred Low Risk then liquidity and the least preferred Trust.
• Only 75% Respondents were aware about Mutual fund and its operations
For Future investment the maximum Respondents preferred Reliance Mutual
Fund, the second most preferred ICICI Prudential, SBIMF has been preferred
after them.
84
• Among 100 Respondents only 70% had invested in Mutual Fund.
• Out of 70 investors of SBIMF 36% have invested due to its association with
the Brand SBI,13% Invested because of Advisor’s Advice and 16% due to
better return.
• 42% Investors preferred to Invest through Financial Advisors, 17% through
AMC (means Direct Investment) and 11% through Bank.
• 44% preferred One Time Investment and 26% preferred SIP out of both
type of Mode of Investment.
• The most preferred Portfolio was Equity, the second most was Balance
(mixture of both equity and debt), and the least preferred Portfolio was Debt
portfolio.Recommendations.
• The most vital problem spotted is of ignorance. Investors should be made
aware of the benefits. Nobody will invest until and unless he is fully convinced.
• Mutual Fund Company needs to give the training of the Individual Financial
Advisors about the Fund/Scheme and its objective, because they are the main
source to influence the investors.
• Younger people aged under 35 will be a key new customer group into the
future, so making greater efforts with younger customers who show some
interest in investing should pay off.
• Systematic Investment Plan (SIP) is one the innovative products launched by
Assets Management companies very recently in the industry. SIP is easy for
monthly salaried person as it provides the facility of do the investment interest
in investing should pay off.
85
SWOT ANALYSIS
STRENGTHS:-
1.) Brand Name:
The biggest strength is the tag of SBI is going to be the largest banking group
of finance industries.
1. Compatible Price:
Prices of different schemes of SBI Mutual Funds are much more compatible than
others.
2. Diversified Schemes:
We have diversified schemes which are an exception case of SBI Mutual Fund.
3. Less Risk:
Our debt schemes are 100% free form market risk. Even as our portfolio is that
diversified so equities are also less risky than others.
1. Easy procedures of redemption & registration too:
We have open ended schemes so Mutual funds are easily redeemable.
WEAKNESS:-
1. Prone to Market Risk:
Mutual Funds depend on overall macro economic condition and market
scenario.
2. Tough Competitions:
There is a very tough competition because of large number of Asset
Management Companies.
86
OPPORTUNITIES:-
1. Hoarding:
Most of the Indians have black money that too in huge amount i.e. the do
not have money in banks, so approaching them is beneficial.
2. Indian Capital Market is Growing:
So more & more new investors are interested in investments.
3. Tailor Made Products:
We have tailor made products like sector specified schemes & even
diversified schemes.
4. Branch Expansion:
Large no. of branches are opening day by day and even we are traping the
countries having almost same type of socio-economic condition & even
same culture etc.
THREATS:-
1. Tough Competition:-As there are so many mutual fund companies having almost
same kind of schemes, so it’s tough to compete with.
3. Unawareness: Major % of population is not aware of mutual funds, so it’s hard
4. to convince
people.
5. Changing Scenario: Our market scenario is changing day by day i.e. our market is
87
fluctuating, so this makes investor hard to invest
CONCLUSION
The project that I undertook in my MUTUAL FUND provided me a good experience of
Investment Avenues like Mutual Funds, Insurance, Fixed Deposits and related activities. It
was a good experience for me as it helped me enhance my knowledge as well as gave a good
industry exposure for the period which would definitely prove to be very useful at the time of
placements. The complete project helped me gain knowledge and at the same time it was very
beneficial for the company.
The study performed using the historical data will help the company in two ways. Firstly, it
would let the company know which of the funds under the given category works well and
which does not. It can design certain strategies for the funds which are still underperforming
and are in their nascent stages. Secondly, it would help the organization, the financial
consultants and the marketing team to provide a strategy for the investors who can now easily
decide where to invest and where not to.
The Market Research performed gave an insight of the actual investors, their investment
behavior and their investment trends which would again help the company to make correct
strategies to attract more customers and provide them with what they are comfortable with.
Summing up, I am thankful to the Company and the Project that gave me an opportunity
where I could learn new things, enhance my knowledge, gain some industry exposure and at
the same time, do something that could be beneficial for the company and the investors.
88
RECOMMENDATIONS AND SUGGESTIONS
Suggestions included:
To regulate entry and exit loads effectively as it creates a lot of confusion during
actual settlement of costs and bills.
To better operations management so as to reduce the time lag and improve customer
feedback.
To improve market penetration by targeting not only metros but mini-metros and
smaller towns more effectively.
To come up with more innovative schemes and products so as to expand over the
largest customer base as possible.
The most vital problem spotted is of ignorance. Investors should be made aware
of the benefits. Nobody will invest until and unless he is fully convinced.
Investors should be made to realize that ignorance is no longer bliss and what
they are losing by not investing.
Mutual funds offer a lot of benefit which no other single option could offer. But
most of the people are not even aware of what actually a mutual fund is? They
only see it as just another investment option. So the advisors should try to
change their mindsets. The advisors should target for more and more young
investors. Young investors as well as persons at the height of their career would
like to go for advisors due to lack of expertise and time.
89
Mutual Fund Company needs to give the training of the Individual Financial
Advisors about the Fund/Scheme and its objective, because they are the main
source to influence the investors.
Before making any investment Financial Advisors should first enquire about the
risk tolerance of the investors/customers, their need and time (how long they
want to invest). By considering these three things they can take the customers
into consideration.
Younger people aged under 35 will be a key new customer group into the
future, so making greater efforts with younger customers who show some
interest in investing should pay off.
Customers with graduate level education are easier to sell to and there is a large
untapped market there. To succeed however, advisors must provide sound
advice and high quality.
Systematic Investment Plan (SIP) is one the innovative products launched by
Assets Management companies very recently in the industry. SIP is easy for
monthly salaried person as it provides the facility of do the investment in EMI.
Though most of the prospects and potential investors are not aware about the
SIP. There is a large scope for the companies to tap the salaried persons.
90
BIBLIOGRAPHY
Consulting various reference points on the aforementioned topics became pertinent. A list of
such references is provided as follows:
References:
direct interaction with bank customers
brochures of product offerings of SBI MUTUL FUND.
factsheets of SBIMF and other AMC’s
company database for the list of investors
various investment journals
C.R.Kothari; Research Methodology
www.SBIMF.com
www.amfiindia.com
www.mutualfundsindia.com
www.valueresearchonline.com
www.amfiindia.com
www.bseindia.com
www.nseindia.com
www.investopedia.com
www.researchonline.com
91
QUESTIONNAIRE
A study of preferences of the investors for investment in mutual funds.
1. Personal Details:
(a). Name:- (b). Add: - Phone:- (c). Age:- (d). Qualification:-
(e). Occupation. Pl tick (√)
Govt. Ser Pvt. Ser Business Agriculture Others
(g). What is your monthly family income approximately? Pl tick (√).
Up to Rs.15,000
Rs. 15,001 to 10000
Rs. 20,001 to 30,000
Rs.30,001 to 40,000
Rs. 40,001 and above
2. What kind of investments you have made so far? Pl tick (√). All applicable.
a. Saving account b. Fixed deposits c. Insurance d. Mutual Fund e. Post Office-NSC, etc
f. Shares/Debentures
g. Gold/ Silver h. Real Estate
3. While investing your money, which factor will you prefer? .
(a) Liquidity (b) Low Risk (c) High Return (d) Trust
4. Are you aware about Mutual Funds and their operations? Pl tick (√). Yes No
92
Graduation/PG Under Graduate Others
5. If yes, how did you know about Mutual Fund?
a. Advertisement b. Peer Group c. Banks d. Financial Advisors 6. Have you ever invested in Mutual Fund? Pl tick (√). Yes No 7. If not invested in Mutual Fund then why?
(a) Not aware of MF (b) Higher risk (c) Not any specific reason
8. If yes, in which Mutual Fund you have invested? Pl. tick (√). All applicable.
a. SBIMF b. UTI c. HDFC
d. Reliance e. Kotak f. Other. specify
9. If invested in SBIMF, you do so because (Pl. tick (√), all applicable).
a. SBIMF is associated with State Bank of India.b. They have a record of giving good returns year after year.c. Agent’ Advice
10. If NOT invested in SBIMF, you do so because (Pl. tick (√) all applicable).
a. You are not aware of SBIMF.b. SBIMF gives less return compared to the others.c. Agent’ Advice
11. When you plan to invest your money in asset management co. which AMC will you prefer?
Assets Management Co.a. SBIMFb. UTIc. Reliance
93
d. HDFCe. Kotakf. ICICI
12. Which Channel will you prefer while investing in Mutual Fund?
(a) Financial Advisor (b) Bank (c) AMC
13. When you invest in Mutual Funds which mode of investment will you prefer? Pl. tick (√).
a. One Time Investment b. Systematic Investment Plan (SIP)
14. When you want to invest which type of funds would you choose?
a. Having only debt portfolio
b. Having debt & equity portfolio.
c. Only equity portfolio.
15. How would you like to receive the returns every year? Pl. tick (√).
a. Dividend payout b. Dividend re-investment
c. Growth in NAV
16. Instead of general Mutual Funds, would you like to invest in sectorial funds? Please tick (√). Yes No
94